Judge tosses impersonation claims against Meta in suit over ‘pump and dump’ Chinese penny stock scheme

The judge ruled that Section 230 protections shield Meta from claims it contributed to the creation of fraudulent ads on Facebook and WhatsApp.SAN FRANCISCO (CN) —Meta won’t have to face impersonation claims by financial professionals who say the tech giant helped facilitate an investment scam that unlawfully used their names and likenesses to promote Chinese penny stocks, a federal judge ruled Friday.U.S. District Court Judge Richard Seeborg granted Meta’s motion to dismiss, finding that 230 of the Communications Decency Act — which protects online businesses and social media platforms from liability for content posted by third parties — shields Meta from liability.“Although it is not entirely clear, plaintiffs’ theory appears to be that Meta materially contributed to the creation of ads which themselves did not impersonate plaintiffs, but which pushed victims to separate fora in which the scammers did impersonate them,” the Barack Obama appointee wrote in his ruling.“As a result, plaintiffs have conceded that the core illegal content which produced their injury—the impersonations on WhatsApp and Messenger—was created entirely by the scammer. Section 230’s liability shield thus applies.”The plaintiffs, a class of financial professionals, say scammers used their names, images, voices and personas in a pump-and-dump scheme on Meta-owned WhatsApp. They say the scammers used Meta advertising and generative AI tools to create fraudulent ads for WhatsApp scam groups.Users who clicked the ads were added to groups where scammers posing as financial advisers encouraged them to buy stocks they predicted would rise, the plaintiffs say.The plaintiffs say the scammers would “pump,” or artificially inflate, stock prices before “dumping” their shares, causing the stocks to lose nearly all their value.In an 11-page order, Seeborg called the impersonation claims “hard to pin down,” questioning whether the offending content appeared in the initial ads or only in subsequent WhatsApp and Messenger chats.Ultimately, he concluded that the evidence plaintiffs were impersonated in the ads was sparse.“Even reading the FAC in the light most favorable to plaintiffs, it is not plausible that they were impersonated in the ads the scammers disseminated on Facebook and Instagram,” the judge said. “The only offending content, therefore, is the posts and messages disseminated by the scammers on WhatsApp and Messenger, but plaintiffs cannot hold Meta liable for that content directly because they do not aver that Meta ‘contributed materially’ to its creation.”Seeborg further rejected plaintiffs’ argument that Meta should be held liable for impersonation because the ads its AI tools helped create led users to the chats where they were impersonated.“Plaintiffs’ injury was not complete until the scammers populated the WhatsApp and Messenger chats with the offending posts and messages, and the only way for Meta to have prevented that would have been to ‘monitor third-party content and prevent’ the scammers from posting those messages. Here too, then, Section 230 bars the claim,” he said.As to plaintiffs’ breach of contract claim, Seeborg found that Meta’s Terms of Service do not create an enforceable promise to take down fraudulent content.“Nowhere does this provision indicate any intention to protect Meta’s other users from the ills of the offending content,” he said.Plaintiffs’ remaining unfair competition claim was also dismissed.The judge gave the plaintiffs 21 days to amend their complaint to clarify whether they were impersonated in ads they say Meta helped create.Neither party immediately responded to a request for comment.In March, Seeborg ruled in a similar case that Section 230 does not shield Meta from claims by users who said the company helped scammers promote a Chinese penny stock scheme through fraudulent ads.However, Seeborg later dismissed the case over jurisdictional issues in June, ruling that the Securities Litigation Uniform Standards Act preempts their claims. Under the 1998 law, federal courts must dismiss certain securities class actions claiming a “misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security."Another case over Meta’s involvement in investment scams was dismissed by U.S. Senior District Judge William H. Orrick III, also an Obama appointee, in July under the same logic.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads