Thread by @jason_kint

!!! Friday Night Surprise. Plaintiffs just filed their response to Facebook in my favorite case - what I call the mother of all lawsuits - in Delaware where it's incorporated. It's a tight but absolutely delicious 120 pages so I'll break down the allegations here for you. /1

as background, this is a massive shareholder lawsuit by pension funds including the second largest in existence. It came after funds successfully sued to see Facebook's board-level documents and messages around the $5 billion settlement after a cover-up was exposed. /2

Shareholders are able to sue by claiming a demand to the board was futile. You can be the judge of the allegations but they need to successfully argue a majority of directors received material benefit, faced liability and lacked independence from someone (Zuckerberg). /3

First, let me walk through the claims. Count one is that Zuckerberg, Sandberg and one other executive led allegedly illegal business practices breaking their fiduciary duties. More on that in a minute. /4

Count two is an allegation that the directors breached their duty of loyalty to the company by overpaying the FTC in order to shield one executive (Zuckerberg) who controls the board, company and committees. Again, more on that in a minute. /5

It alleged that this loyalty breach was clear because the board should have been on notice to Facebook's misconduct due to the 20-year consent decree they were already under from previous wrongdoings settled in 2012. A red flag. /6

Finally, the third count is a series of allegations of insider trading due to individuals stock sales during the relevant period of the claims amounting to over $20 billion in gains according to the allegations. More on that in a minute, too. /7

So back to the first count which stems from allegations Facebook illegally leveraged its immense personal data on its users by overriding their privacy settings and trading it out to companies for growth and profits. These allegations are in antitrust suits, too. /8

The snowball of problems and now shareholder suits was indeed Cambridge Analytica which many wrongly wrote off as snake oil when in fact it's just one example of the allegedly illegal practice that allowed companies access to non-app friends ("NAFs") personal data. /9

It's an antitrust issue, too, as Facebook allowed companies to still have access to this data through "whitelisting" beyond a period where it also was shutting down access for competitive threats. Data sold to Cambridge Analytica also reportedly happened due to an extension. /10

footnote 89 apparently includes evidence Facebook's engineers even assisted with the data transfer back in 2014 that was then sold to Cambridge Analytica. The researcher that sold the data testified this to Senate but we never saw Facebook get asked under oath about it. /11

OK, this is new and a BIG deal - you'll see why shortly. This appears to include evidence Sandberg and Zuckerberg were updated on Cambridge Analytica issue in 2015. This is relevant to Zuckerberg's Congressional testimony including answers to AOC (see next tweet). /12

Here, stop and watch this again and compare to the previous tweet allegation. Zuckerberg also dodged Parliament, Senator (now VP) Harris and other members on the timeline question so very relevant. /13

Why does the timeline matter? Let's get into it. There was clearly a reason Facebook was willing to pay $5 billion in exchange for dropping the claims against Zuckerberg personally. They even allegedly created a "special committee" late in the process to approve it. /14

How do we know they were truly doing to name CEO Zuckerberg personally? Well these shareholders won the right to inspect the documents and the preliminary complaint apparently named him. /15

Many, many people comment on how $5 billion was a parking ticket for Facebook (true) so why was it considered "overpaying?" Well, I'll again let you judge for yourself whether Facebook was juicing it to protect Zuckerberg. /16

Something else very quietly happened on same day Facebook settled for $5 billion with the FTC - they very quietly settled with the SEC. You know...because signing risk disclosures to the public when you know the risk has already happened would be bad if true. /17

and overpaying by billions of the companies' money to protect a "single, deeply compromised controlling shareholder is the essence of bad faith." But you judge. /18

I mean, was it that big of a deal? Facebook lost $36 billion in value in a single day while insiders had personally banked over $20 billion in stock ahead of it. That's the allegation at least. /19

The insiders involved have pointed to SEC Rule 10b5-1 automated sales as their protection but the complaint points out it only protects you if you're not actually trading on inside information. /20

The lawsuit alleges a series of individuals had inside information on a whole range of risks which were already playing out privately and yet continued to bank sales of the stock while the value was inflated. /21

Numero uno being Mark Zuckerberg. The allegation in the complaint response is that he banked nearly $10 billion even accelerating his sales once he learned of Cambridge Analytica issues. /22

I know what you're saying. $10 billion isn't that much to a guy like Mark Zuckerberg? Well recognize it was nearly 20% of his holdings at that time period according to the complaint. Again, while allegedly lying to users, the market and even Congress. /23

In fact, the complaint has a whopping stat that Zuckerberg sold more stock than any insider at any other company during the three month period PRIOR to the Cambridge Analytica disclosure. That's how you get attention from an SEC. /24

Zuckerberg isn't alone in the allegations as COO Sheryl Sandberg also sold a ton of stock during the same key period. She runs nearly everything and never had to testify under oath to the facts of the timeline because it was "off limits" at her one hearing. /25

Finally, let's not forget about Marc Andreessen and Peter Thiel. Both have received considerable benefits by serving on the Facebook board ...and also sold a ton of their stock during the relevant period according to the allegations of the complaint. /26

about those other benefits, the lawsuit also covers them. The value of sitting on the board of Facebook would be off the charts for a celebrated investment group very closely tied to it. Not so independent, eh? /27

Much the same for Peter Thiel. The lawsuit also mentions the access to data that was alleged to have been provided to Thiel-funded companies. /28

on that note, I would also be remiss if I didn't go down memory lane to the other very awkward testimony from Zuckerberg when he was asked under oath about Thiel and his Palantir. It's worth watching again. You be the judge. /29

Lastly, I should note the complaint response also cites the CEO of Netflix who was a Facebook director during the relevant period and... you guessed it... was one of three companies with certain access. This is also in the private antitrust lawsuits. Independent? /30

It's my favorite case and this response runs 110 pages. A reminder, the SEC is also set to unseal a deposition transcript with Zuckerberg we recently learned about. My guess it was a formality with the above settlements but we'll see. /31

I'll close by adding thread from when this lawsuit originally filed. And a reminder - these are the allegations. They come after the 2nd largest pension fund in existence was able to inspect the books...but they're still only allegations until proven. /32

Since this is getting read and some people noted /29/ doesn’t include the awkward testimony about Thiel and Palantir, here it is as I grabbed the wrong clip. Apologies. /edit/

And I’ll add to the end of this - another thread how the news story broke globally leading to a lot of unanswered questions and the $5 billion settlement. Cheers.