In the following guest post, Sarah Abrams considers the potential D&O liability and insurance implications of a class action lawsuit Meta’s social media platform users recently brought against the company alleging that advertisements on the company’s sites enabled a stock manipulation scheme. Sarah is Head of Claims Baleen Specialty, a division of Bowhead Specialty. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah’s article.
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Users of Meta Platforms, Inc. (Meta) social media platforms (Facebook, Instagram, WhatsApp) recently filed a putative class action in the Northern District of California alleging that Meta enabled and facilitated a stock manipulation scheme through Facebook and Instagram social media platforms and WhatsApp messaging advertisements. The plaintiffs say they lost more than $3 million from investing in a fraud scheme carried out by scammers who used Meta’s advertising tools. This type of consumer deception case may be covered under a D&O policy, certainly if a Securities Class Action or regulatory investigation should follow.
What is interesting about the litigation against Meta, however, aside from the allegations of penny stock pricing manipulation by the scammers, is the plaintiffs signaling out Meta’s online advertising platform as a vehicle for fraud. A WPP Media report from June 2025 expects digital ads to represent 73.2% of the global advertising market (estimated at around $1.08 trillion), with ad spending by companies a major driver of revenue for social media firms such as Meta, Reddit, and Snap. Given the increasing use of online platforms by online companies to advertise, is there increased exposure to D&O underwriters as a result?
D&O risk stemming from consumer fraud allegations may occur when company shareholders allegedisclosure failures, governance lapses, and reputational risk. For example, in the Meta case, the plaintiff victims alleged that scammers used Meta’s social media platform advertising to target victims by putting out ads for investment clubs purportedly associated with celebrities like Shark Tank’s Kevin O’Leary and conservative political commentator Tucker Carlson. Victims who clicked on ads were added to groups on Meta’s WhatsApp messaging app, where scammers posed as financial advisers and encouraged victims to purchase securities at prices the scammers were manipulating.
First, it is important to understand that Meta’s Ads Manager, a central tool for creating, managing, and analyzing ad campaigns across Facebook, Instagram, Messenger, and the Audience Network, can collect robust user data to create targeting groups. Thus, its use makes it an attractive vehicle for corporate advertising. Because MetaAds can leverage user interest and data based on social media platform activity and upload customer data, MetaAds can create lookalike audiences, where Meta scrubs its platform for new users that “look like” existing customers. Meta has also recently announced the use of AI tools that are being developed and expanded, with full automated ad creation expected by the end of 2026.
While Meta has published standards for advertisers that state criminal activity is unacceptable content, this newest penny stock fraud case, along with the volume of advertising and introduction of AI, may erode trust that Meta can police fraud. As a result, now that there is a public claim that Meta is not preventing scammers, are there downstream consequences for companies that advertise on Meta, which may increase D&O underwriter risk? It is helpful to understand what potential D&O coverage exists for consumer class actions.
Most management liability policies cover wrongful acts by directors and officers in their managerial roles, but exclude “bodily injury,” “property damage,” or “personal injury,” which may extend to consumer fraud cases. In addition, policies often explicitly exclude claims based on fraudulent, dishonest, or criminal acts, once those acts are adjudicated. So, a pure consumer fraud lawsuit brought by customers or state AGs alleging deceptive advertising, mislabeling, or unfair practices may fall outside he scope of a traditional management liability policy with D&O coverage.
However, a subsequent Shareholder Derivative lawsuit or Securities Claims may be covered, particularly if there is a stock drop after the consumer suit is filed or a regulatory (FTC) investigation is initiated. Allegations may include failure to disclose risks tied to fraudulent consumer practices. Particularly, shareholders may allege that deceptive sales tactics led to inflated financial and stock prices. Also, as D&O underwriters know, if a regulator investigates or sues individual directors or officers in connection with consumer fraud, Side A of the policy may provide defense cost coverage if regulatory coverage has not been offered. Finally, allegations that board members knew of, permitted, or failed to prevent consumer fraud could be framed as breaches of fiduciary duty or Caremark claims. A couple of well know consumer class action cases that became securities cases are as follows.
Not too long ago, the D&O Diary referred to another case involving Meta (nee Facebook), involving the Cambridge Analytica Scandal. The original case brought by consumers alleged data privacy violations and was settled for $725 million. The follow-on securities class action, after a stock drop once the scandal became public, was filed against the company and its executives, alleging that investors were misled by Facebook’s failure to disclose the misuse of user data and the company’s exposure to regulatory and reputational risks. Whether this happens with the current allegations surrounding Meta’s AdManager, remains to be seen.
Another example of a consumer fraud class action resulting in a securities case involved the Volkswagen “Dieselgate” Scandal. As readers of the D&O Diary may recall, Dieslgate began as a consumer fraud matter when the U.S. Environmental Protection Agency (EPA) announced that Volkswagen had installed defeat devices in its diesel vehicles to cheat its emissions tests. Consumers alleged they were misled into buying “clean diesel” vehicles that instead were emitting pollutants far above legal limits. Volkswagen’s stock price dropped significantly on the news, and investors brought a securities class action, alleging that the company and its executives made false and misleading statements about the company’s compliance with environmental laws and vehicle performance. Volkswagen agreed to a $25+ billion package to resolve consumer, environmental, and securities claims.
Both the Cambridge Analytica and Dieselgate cases provide examples of how an inflammatory consumer complaint or class action can evolve into securities cases once the alleged wrongdoing is reported. In the newest case involving MetaAds, the consumer class action filed by victims of fraud against the platform may be a warning shot. Will other companies that advertise on social media platforms be at increased risk of consumer class action filings now that victims have brought the MetaAds issue to light? Perhaps D&O underwriters may want to ask about the use of online advertising platforms in case of future securities cases.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with her company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.