WEBVTT - States Sue Meta, Instagram Promoters Test Limits 0:00:02.040 --> 0:00:03.800 This is Bloomberg Law. 0:00:03.920 --> 0:00:06.760 What does a prosecutor have to prove in order to 0:00:06.760 --> 0:00:09.959 get a Rico conviction? Tell us why the Solicitor General 0:00:10.000 --> 0:00:12.280 is sometimes referred to as the tenth Justice. 0:00:12.320 --> 0:00:15.520 Interviews with prominent attorneys in Bloomberg Legal Experts. 0:00:15.560 --> 0:00:18.360 That's Jennifer k for Bloomberg Law. Joining me is former 0:00:18.440 --> 0:00:20.160 federal prosecutor Robert miss. 0:00:20.040 --> 0:00:23.200 And analysis of important legal issues, cases and headlines. 0:00:23.239 --> 0:00:27.040 It's the toughest hurdle for prosecutors proving Trump's intent. Alito 0:00:27.120 --> 0:00:30.479 took on Congress, saying Congress has no power to regulate 0:00:30.520 --> 0:00:31.319 the Supreme Court. 0:00:31.520 --> 0:00:34.640 Bloomberg Law With June Grosso from Bloomberg Radio. 0:00:39.920 --> 0:00:42.720 Welcome to a special best of edition of the Bloomberg 0:00:42.800 --> 0:00:46.000 Law Show. Ahead in this hour, Meta is being sued 0:00:46.000 --> 0:00:49.840 by forty two attorneys general for addictive features that harm 0:00:49.920 --> 0:00:53.920 the mental health of young people and Instagram promoters test 0:00:54.040 --> 0:00:58.360 the limits of a ninety year old securities law. 0:01:00.000 --> 0:01:04.200 They were announcing a federal lawsuit against Meta. Meta, of course, 0:01:04.319 --> 0:01:08.320 is the parent company of Instagram and Facebook, for knowingly 0:01:08.480 --> 0:01:13.280 harming the mental health of young social media users. In short, 0:01:13.720 --> 0:01:17.800 Meta intentionally designed its social media platform to be more 0:01:17.800 --> 0:01:19.479 addictive to kids and young people. 0:01:20.319 --> 0:01:24.080 Meta Platforms is being sued by forty one states who 0:01:24.120 --> 0:01:29.360 claimed that social media platforms Instagram and Facebook exploit young 0:01:29.400 --> 0:01:33.080 people for profit by building an addictive features that are 0:01:33.080 --> 0:01:35.760 harming their mental health. At a press conference of the 0:01:35.800 --> 0:01:40.520 Attorney General of Washington State, Bob Ferguson, two teenagers described 0:01:40.560 --> 0:01:44.440 their struggles coping with social media sites like Instagram. 0:01:44.840 --> 0:01:48.600 The worst part was these pictures and videos were never ending. 0:01:49.160 --> 0:01:52.440 The addictive algorithm and the constant flood of new content 0:01:52.720 --> 0:01:55.240 kept me glued to my phone, and before I knew it, 0:01:55.760 --> 0:01:58.080 I began to hate myself and the way I looked. 0:01:59.360 --> 0:02:04.000 This all has happened before I turned thirteen, as. 0:02:03.840 --> 0:02:06.320 I would go on my phone and tending to do 0:02:06.400 --> 0:02:10.280 other things, and then instinctively start opening up Instagram, opening 0:02:10.360 --> 0:02:14.800 up different social media platforms without even meanings too, and 0:02:14.840 --> 0:02:17.959 then getting stuck in the cycle of scrolling seeing other 0:02:18.000 --> 0:02:20.240 people's lives and interactions. 0:02:20.560 --> 0:02:24.920 Ferguson said Meta knowingly misled users and hooked youngsters with 0:02:25.080 --> 0:02:29.480 psychologically manipulative product features to keep them on the sites. 0:02:30.280 --> 0:02:34.600 These other features are intentionally designed to incessantly monopolize the 0:02:34.639 --> 0:02:38.120 time and attention of kids using Instagram and Facebook. They 0:02:38.160 --> 0:02:42.200 tap into their so called fear of missing out, discouraging 0:02:42.240 --> 0:02:44.320 them from leaving the apps once they are logged on. 0:02:45.320 --> 0:02:48.680 Meta is aware of the addictive nature of these features 0:02:48.680 --> 0:02:52.200 for young people and the risks that they pose. The 0:02:52.240 --> 0:02:56.639 original developer of the infinite scroll concept Liken the feature too, 0:02:56.880 --> 0:02:59.680 and I'm quoting now behavioral cocaine. 0:03:00.080 --> 0:03:03.320 Thirty three states are filing a joint lawsuit in federal 0:03:03.360 --> 0:03:07.440 court in California, while attorneys general for DC and eight 0:03:07.480 --> 0:03:11.200 other states are filing separate complaints in federal, state or 0:03:11.280 --> 0:03:16.080 local courts. Joining me is Bloomberg Intelligence analyst Matthew Shettenhelm. 0:03:16.440 --> 0:03:18.400 Matt tell us about the federal lawsuit. 0:03:18.840 --> 0:03:25.240 So yesterday over thirty states filed in federal court in California, 0:03:25.919 --> 0:03:32.280 basically using their consumer protection laws under each state and 0:03:32.360 --> 0:03:36.800 accompanying that with one claim under federal law under the 0:03:37.600 --> 0:03:41.760 Children Online Privacy Protection Act, which is known as KAPPA. 0:03:42.360 --> 0:03:47.560 And basically the allegation here is that Meta acted in 0:03:47.600 --> 0:03:53.440 an unfair and deceptive manner because it knew that its 0:03:53.520 --> 0:03:59.720 social media service was harmful to teens, but it withheld 0:04:00.360 --> 0:04:05.440 knowledge and misled users and proceeded to deliver its product 0:04:05.520 --> 0:04:11.560 to teens anyway. So it's seeking damages, civil penalties as 0:04:11.600 --> 0:04:15.680 well as injunctive relief, basically forcing the company to change 0:04:15.880 --> 0:04:19.200 how it serves teams. That's the goal of the lawsuit. 0:04:19.640 --> 0:04:23.440 And so what they're alleging is that Meta did not 0:04:23.560 --> 0:04:28.000 disclose that its algorithms were designed to capitalize on young users, 0:04:28.080 --> 0:04:33.280 dopamine responses, and create an addictive cycle of engagement. So 0:04:33.360 --> 0:04:37.280 the allegation is that Meta specifically designed an algorithm for this. 0:04:37.800 --> 0:04:40.800 That's exactly right. So the lawsuit takes aim at a 0:04:40.880 --> 0:04:44.760 number of features that are sort of fundamental to how 0:04:44.960 --> 0:04:50.279 Meta designed its social media platforms, using data about the 0:04:50.400 --> 0:04:54.719 teens to send them content that keeps them scrolling and 0:04:54.839 --> 0:04:58.960 keeps them reading, sending them notifications that keep them coming 0:04:59.000 --> 0:05:01.479 back to the service as soon as they look away 0:05:01.520 --> 0:05:05.479 from it, using the like system that entices them and 0:05:05.560 --> 0:05:08.280 draws them in and pushes them to put more content 0:05:08.400 --> 0:05:13.080 out there. And the allegation here is that Meta knew 0:05:13.560 --> 0:05:17.080 that all of these features were harmful to teams. There's 0:05:17.120 --> 0:05:20.680 a separate lawsuit actually in this same federal court that 0:05:20.839 --> 0:05:24.520 goes to the design of the product itself and whether 0:05:24.640 --> 0:05:29.160 that violates product liability law. Or whether Facebook was negligent 0:05:29.240 --> 0:05:32.400 in designing it. This suit's a little bit different. It's 0:05:32.480 --> 0:05:36.520 not about the design itself. It's about did Meta lie? 0:05:36.880 --> 0:05:40.760 Did it mislead users about that? And so it takes 0:05:40.800 --> 0:05:44.960 same It uses these existing consumer protection laws about what 0:05:45.120 --> 0:05:48.960 is unfair and what is deceptive to ask did Facebook 0:05:49.040 --> 0:05:52.120 mislead the public about what it knew? 0:05:52.360 --> 0:05:56.680 And a lot of this is based on the whistleblower 0:05:56.920 --> 0:05:59.880 who released internal documents in twenty twenty one. 0:06:00.480 --> 0:06:02.440 Yeah, I think that's the real start of this, when 0:06:02.480 --> 0:06:07.240 Francis Hoggin came out with her release of the internal documents, 0:06:07.279 --> 0:06:12.360 suggesting that that Facebook knew more about the risk to 0:06:13.200 --> 0:06:17.400 children than it was letting on. And so this is 0:06:17.720 --> 0:06:21.080 really you been playing out ever since that moment. Now, 0:06:21.120 --> 0:06:25.720 Facebook disputes her allegations and says that they're overblown and 0:06:25.720 --> 0:06:29.160 that the evidence isn't clearly as one sided as it 0:06:29.560 --> 0:06:32.800 might seem or as she might suggest. So that's the 0:06:32.839 --> 0:06:35.880 sort of allegation that would be tested in this case 0:06:36.040 --> 0:06:38.200 if it gets past a motion to dismiss. 0:06:38.520 --> 0:06:42.000 Meta said, we share the Attorney General's commitment to providing 0:06:42.080 --> 0:06:46.960 teens with safe, positive experiences online and have already introduced 0:06:47.080 --> 0:06:50.480 over thirty tools to support teens and their families. Do 0:06:50.520 --> 0:06:52.239 you know what kind of tools they're talking about. 0:06:52.400 --> 0:06:55.240 I think these are features like there are settings that 0:06:55.720 --> 0:06:59.440 teens can put on the product to turn off after 0:07:00.320 --> 0:07:02.760 so many minutes on the product. I think there are 0:07:03.000 --> 0:07:05.880 a handful of features like that that they have added. 0:07:05.960 --> 0:07:08.560 You can turn off if you go into the settings, 0:07:08.560 --> 0:07:11.320 you can turn off the data that is used about 0:07:11.360 --> 0:07:14.680 you for ads. I think as a practical matter, these 0:07:14.680 --> 0:07:18.080 features may not be used all that frequently. I know 0:07:18.200 --> 0:07:22.800 my teenager doesn't jump to find those features, and I 0:07:22.840 --> 0:07:26.280 suspect that's true of many many other teams as well. 0:07:26.360 --> 0:07:30.320 So I think the negotiation here before this lawsuit was filed, 0:07:30.400 --> 0:07:33.400 was trying to push the states likely trying to push 0:07:33.520 --> 0:07:37.640 Meta to find more features and more effective features. And 0:07:37.680 --> 0:07:40.680 I think eventually, if you saw this lawsuit settle, you 0:07:40.760 --> 0:07:43.880 might see a push for even more in that direction, 0:07:44.440 --> 0:07:48.880 more effective features to discourage the use of the network 0:07:49.120 --> 0:07:50.880 so frequently by young users. 0:07:51.000 --> 0:07:53.920 Would they have to actually change the algorithm? Would Meta 0:07:54.000 --> 0:07:55.480 have to change its algorithm? 0:07:55.880 --> 0:07:59.920 That's the question. It starts to become maybe a difficult solution, 0:08:00.080 --> 0:08:03.040 And because as we've talked about, this is really focused 0:08:03.040 --> 0:08:05.760 on young users, and is there even a way for 0:08:05.880 --> 0:08:09.920 the company to tailor a fix that changes the algorithm 0:08:10.160 --> 0:08:14.160 just for teens. I don't know. That's probably part of 0:08:14.200 --> 0:08:17.640 the conversation, and it has a technical component that probably 0:08:17.680 --> 0:08:18.800 makes it tricky as well. 0:08:19.120 --> 0:08:22.320 Yeah, because I was listening at the press conference by 0:08:22.440 --> 0:08:27.800 the Washington a G he had two teenagers talk about this, 0:08:28.080 --> 0:08:32.080 and they were so self aware of what was happening, 0:08:32.440 --> 0:08:36.280 and yet they still couldn't get away from it. Listen 0:08:36.320 --> 0:08:39.240 to the things that one of the teenagers tried. 0:08:39.920 --> 0:08:42.480 I've done a lot of different methods to try to 0:08:42.520 --> 0:08:47.120 prevent engagement with Instagram. I've created time limits, I've created 0:08:47.200 --> 0:08:49.480 like an app that you have to open first to 0:08:49.559 --> 0:08:54.160 breathe and then to engage with Instagram. But all of 0:08:54.200 --> 0:08:57.360 these methods eventually fail because I understand that it's up 0:08:57.360 --> 0:09:02.000 to my own discretion and the promise of gaining connection 0:09:02.200 --> 0:09:06.720 with my peers ohas seems to be more important. 0:09:07.760 --> 0:09:10.720 Yeah, I mean, I think that's the allegation that it's 0:09:10.800 --> 0:09:15.240 so inviting and so difficult for young users to look away, 0:09:16.040 --> 0:09:19.520 that the companies need to make changes here. Now it's 0:09:19.559 --> 0:09:22.760 sort of a tricky First Amendment problem here, and we 0:09:23.160 --> 0:09:26.440 in the media. There's always been allegations about the you know, 0:09:26.520 --> 0:09:28.880 the next form of media and the harm that it's 0:09:28.920 --> 0:09:30.760 causing to you. So you can go back to the 0:09:30.880 --> 0:09:34.000 nineteen seventies and the Federal Trade Commission was going to 0:09:34.080 --> 0:09:39.559 go after advertising to kids that made them eat onhealthy things, 0:09:39.600 --> 0:09:42.079 and there was a big to do over that, and 0:09:42.480 --> 0:09:46.760 ultimately that sort of fizzled as well. And so you wonder, 0:09:47.200 --> 0:09:50.120 especially in light of the serious First Amendment arguments that 0:09:50.320 --> 0:09:52.840 Meta is going to make to say, look, we have 0:09:52.960 --> 0:09:56.640 the right to organize speech on our platform and to 0:09:56.679 --> 0:09:59.800 make it enticing, to make it you know, useful and 0:10:00.040 --> 0:10:03.600 gauging for our users. That's sort of a fundamental First 0:10:03.600 --> 0:10:06.560 Amendment right. What they can't do is mislead about it. 0:10:06.600 --> 0:10:08.800 So that's what if we get right back down to 0:10:08.840 --> 0:10:11.800 the key legal element here is did they mislead? Did 0:10:11.840 --> 0:10:15.359 they know something and then tell the world the opposite. 0:10:15.520 --> 0:10:17.880 Coming up next on the Bloomberg Law Show, I'll continue 0:10:17.880 --> 0:10:22.319 this conversation with Bloomberg intelligence analyst Matthew Shettenhelm, and we'll 0:10:22.400 --> 0:10:25.559 talk about emotion for some rejudgment that's coming up this 0:10:25.640 --> 0:10:30.439 week in some other lawsuits against social media platforms, remember 0:10:30.440 --> 0:10:32.640 you can always get the latest legal news by listening 0:10:32.679 --> 0:10:36.600 to our Bloomberg Law podcast wherever you get your favorite podcasts. 0:10:36.760 --> 0:10:39.240 I'm June Grosso and this is Bloomberg. 0:10:46.880 --> 0:10:51.680 This is Bloomberg Law with June Grosso from Bloomberg Radio. 0:10:52.760 --> 0:10:55.360 You're listening to a special best of edition of the 0:10:55.400 --> 0:10:59.400 Bloomberg Law Show. Bob Ferguson is one of the forty 0:10:59.480 --> 0:11:05.480 one sts suing Meta platforms, claiming Instagram and Facebook exploit 0:11:05.600 --> 0:11:09.560 young people for profit by building an addictive features that 0:11:09.600 --> 0:11:11.200 are harming their mental health. 0:11:12.000 --> 0:11:14.280 Not only did Meta know the risks these features pose 0:11:14.320 --> 0:11:17.720 to children and teens, the company's own research demonstrate the 0:11:17.720 --> 0:11:23.400 potential for psychological and physical harms. These harms include higher 0:11:23.480 --> 0:11:28.680 rates of depression, anxiety, and attention deficit disorders, eating disorders, 0:11:28.679 --> 0:11:33.160 and low self esteem, especially for adolescent girls, disruptions asleep 0:11:33.240 --> 0:11:37.280 and other activities essential for kids health. The stakes here 0:11:37.360 --> 0:11:41.280 are high. According to the US Surgeon General. Recent research 0:11:41.360 --> 0:11:44.360 shows that adolescents who spend more than three hours a 0:11:44.440 --> 0:11:48.400 day on social media face double the risk of poor 0:11:48.440 --> 0:11:51.439 mental health outcomes such as depression or anxiety. 0:11:52.760 --> 0:11:57.120 I've been talking to Bloomberg Intelligence analyst Matthew Shettenhelm, and 0:11:57.360 --> 0:12:04.960 are children or teenagers particularly attractive demographic for businesses and advertisers? 0:12:05.480 --> 0:12:08.640 Yeah, I think it's it's important for the company to 0:12:09.160 --> 0:12:13.880 facilitate engagement in young users because young users look at 0:12:14.040 --> 0:12:18.160 they are important a source for advertisers to go after, 0:12:18.800 --> 0:12:22.120 and young users grow up to be older users, and 0:12:22.160 --> 0:12:25.320 so that the more you can engage them at a 0:12:25.360 --> 0:12:28.720 young age, that only makes them, you know, use the 0:12:28.760 --> 0:12:31.920 product more in later years. So I do think it's 0:12:31.920 --> 0:12:34.800 an important demographic. Now Meta is pushed back on that 0:12:34.840 --> 0:12:38.000 a little bit and said it really maybe isn't a 0:12:38.120 --> 0:12:41.600 large goal to keep youthful users on the service for 0:12:42.160 --> 0:12:44.360 you know, extended amounts of times. I think that's going 0:12:44.400 --> 0:12:46.440 to be an issue in this case is how much 0:12:46.720 --> 0:12:49.400 has Meta said that that is or is not a 0:12:49.480 --> 0:12:53.079 goal to keep young users spending time on the platform. 0:12:53.480 --> 0:12:57.520 The suit also accuses Meta of violating the Children's Online 0:12:57.559 --> 0:12:58.920 Privacy Protection. 0:12:58.679 --> 0:13:00.840 Act, Right, so that's you know, I almost read it 0:13:00.880 --> 0:13:02.760 like a throw in. They kind of throw that in 0:13:02.840 --> 0:13:04.640 at the back of the suit maybe to get this 0:13:04.679 --> 0:13:08.040 into federal courts, because all these other things are state 0:13:08.160 --> 0:13:11.400 law claims that you would think maybe would be brought 0:13:11.559 --> 0:13:14.040 state by state in their own courts. By having a 0:13:14.080 --> 0:13:17.160 federal claim in there, then you say all these other 0:13:17.240 --> 0:13:19.679 state claims are sort of supplemental to it, and so 0:13:20.120 --> 0:13:22.559 one federal court should take the whole thing at one time. 0:13:22.600 --> 0:13:24.960 But the federal claim focuses on the idea that for 0:13:25.240 --> 0:13:28.920 the youngest users, those under thirteen, this federal law says 0:13:28.960 --> 0:13:32.240 you have to have the parents make the decision about 0:13:32.400 --> 0:13:35.679 whether the kids' data can be used for ad targeting, 0:13:35.720 --> 0:13:38.079 and have to get their consent. And the allegation here 0:13:38.160 --> 0:13:41.600 is that Facebook knew that some of these users were 0:13:41.720 --> 0:13:47.120 under thirteen years old, and it nevertheless let them use 0:13:47.160 --> 0:13:50.040 the system without getting proper parental approval. 0:13:50.360 --> 0:13:53.640 My daughter is well past the teenage years. So let 0:13:53.720 --> 0:13:55.880 me ask you this. When there are these rules that 0:13:56.120 --> 0:13:59.920 you have to get parental permission, how is that implemented 0:14:00.160 --> 0:14:02.640 when you're online. 0:14:02.720 --> 0:14:06.240 I mean, it's a problem with this law too in 0:14:06.280 --> 0:14:09.920 one other sense as well, that it only applies. Facebook 0:14:10.000 --> 0:14:14.120 only is vulnerable to the law if it knows it 0:14:14.280 --> 0:14:19.200 knowingly allows users under thirteen to go on the site. 0:14:19.560 --> 0:14:21.560 And so that's the first problem that a lot of 0:14:21.560 --> 0:14:24.960 times kids are going on and filling this in. And 0:14:25.000 --> 0:14:27.880 as long as Facebook doesn't know that the kids are 0:14:27.960 --> 0:14:31.800 going on below age thirteen without getting prontal approval, then 0:14:32.160 --> 0:14:37.080 it's at least theoretically protected from liability. But otherwise, I 0:14:37.120 --> 0:14:40.040 think there's sort of a notification process where once you 0:14:40.160 --> 0:14:43.320 fill in that hey, I'm younger than thirteen years old, 0:14:43.880 --> 0:14:46.720 then there's going to be pop up screens that require 0:14:46.880 --> 0:14:50.160 a second level of approvals and sign off from a parent. 0:14:50.560 --> 0:14:53.440 But if the kid misleads in that first answer to 0:14:53.480 --> 0:14:56.440 the question, that's where it gets kind of tricky. 0:14:57.080 --> 0:15:00.080 When I first heard about this lawsuit, I thought, well, 0:15:00.120 --> 0:15:02.440 there have been other lawsuits like this, right, I keep 0:15:02.480 --> 0:15:05.960 hearing about lawsuits against platforms. What happens to them? 0:15:06.320 --> 0:15:10.040 Yeah, so this is just one piece of a much 0:15:10.240 --> 0:15:14.080 larger sort of legal puzzle I think here on exactly 0:15:14.120 --> 0:15:16.480 this issue. So you know, as I said, there's this 0:15:16.760 --> 0:15:20.360 other lawsuit in the Northern District of California that says, look, 0:15:20.480 --> 0:15:24.400 social media itself is a defective product and the companies 0:15:24.400 --> 0:15:27.240 are negligent just by putting it out there exactly for 0:15:27.280 --> 0:15:30.560 these features we talked about, you know, in facilitating engagement 0:15:30.560 --> 0:15:33.760 of youth and the harm it inflicts on you know, 0:15:34.000 --> 0:15:38.800 mental health for youth. Across the country is that itself defective, 0:15:39.320 --> 0:15:41.920 and so that suit's going to play out. As we've 0:15:41.920 --> 0:15:45.680 talked about before, there's this liability shield Section two thirty 0:15:45.720 --> 0:15:49.920 liability shield. Usually Facebook didn't face lawsuits, you know, for 0:15:50.240 --> 0:15:53.600 bad stuff on its system because the liability shield. Increasingly, 0:15:53.640 --> 0:15:57.040 courts are reading that real narrowly, and so these cases 0:15:57.080 --> 0:16:00.160 can move ahead in a way that they hadn't been for. 0:16:00.960 --> 0:16:04.240 The Federal Trade Commission is going after Meta on its 0:16:04.280 --> 0:16:07.360 targeting of youth. So it's really it's a storm here 0:16:07.640 --> 0:16:10.280 on multiple levels. And the real elephant in the room 0:16:10.480 --> 0:16:13.240 is what's Congress going to do about it. Congress hasn't 0:16:13.240 --> 0:16:17.200 been able to pass a law restricting the use of 0:16:17.520 --> 0:16:21.240 data from kids or advertising to kids, and so the 0:16:21.840 --> 0:16:24.840 real question is is Congress going to be able to 0:16:24.880 --> 0:16:28.400 step in with something here. In the meantime, this is 0:16:28.640 --> 0:16:31.920 an effort to use existing old law to try to 0:16:31.920 --> 0:16:34.280 go after these companies, and that's often not easy. So 0:16:34.320 --> 0:16:37.240 I think the companies can win these cases fight this 0:16:37.360 --> 0:16:39.800 stuff off, although I mean it's not easy. It can 0:16:39.840 --> 0:16:41.280 be difficult. In a lot of cases. 0:16:41.560 --> 0:16:44.080 It seems like Meta it's part of the cost of 0:16:44.120 --> 0:16:47.520 doing business. It's been fighting with the Federal Trade Commission 0:16:48.080 --> 0:16:48.880 for how long? 0:16:49.320 --> 0:16:52.760 Exactly right, it did a five million dollars settlement on 0:16:53.120 --> 0:16:56.600 its data issues is part of the Cambridge Analytica matter, 0:16:57.320 --> 0:16:59.440 and that hasn't been the end of the story. Now 0:16:59.560 --> 0:17:02.000 under a con the Federal Trade Commission is trying to 0:17:02.000 --> 0:17:06.240 reopen that settlement and ban exactly what we're talking about here, 0:17:06.320 --> 0:17:09.920 the use of data to advertise to kids. There was 0:17:09.920 --> 0:17:12.400 a court hearing I went to in Washington on exactly 0:17:12.800 --> 0:17:16.520 that question. Can the FTC ban that just by reopening 0:17:16.560 --> 0:17:20.000 the twenty twenty settlement. So this is part of life 0:17:20.240 --> 0:17:23.199 for a company like Meta these days. And these are 0:17:23.280 --> 0:17:26.679 lawsuits that are difficult. But there are lawsuits that you know, 0:17:26.760 --> 0:17:30.159 you're applying old law to new technology, and there are 0:17:30.200 --> 0:17:32.679 lawsuits that often I think the companies can win, but 0:17:32.760 --> 0:17:34.119 it's not always going to be easy. 0:17:34.400 --> 0:17:36.880 You know, I'm surprised that Congress hasn't been well, I'm 0:17:36.880 --> 0:17:41.320 not surprised surprised that Congress hasn't been able to do 0:17:41.359 --> 0:17:44.600 something about, you know, the young users, because you know, 0:17:44.680 --> 0:17:49.320 with this lawsuit, you have bipartisan attorneys general from blue 0:17:49.320 --> 0:17:52.879 states and red states and purple states joining together to 0:17:53.000 --> 0:17:56.479 sue Meta so it's surprising that Congress can't get together. 0:17:56.800 --> 0:17:59.600 That's a great point. And there is a law piece 0:17:59.640 --> 0:18:03.000 of ledge that has advanced in Congress known as the 0:18:03.119 --> 0:18:06.960 Kids Online Safety Act, and it has over forty co 0:18:07.160 --> 0:18:11.760 sponsors in the Senate. Right now, it's just so difficult 0:18:12.000 --> 0:18:16.440 for Congress to agree on anything, and you know, all 0:18:16.480 --> 0:18:20.880 of these proposed laws have just struggled to advance very far. 0:18:21.000 --> 0:18:25.159 But you're exactly right. This has bipartisan support, and as 0:18:25.200 --> 0:18:27.879 I said, that Kids Online Safety Act, you know, it 0:18:28.000 --> 0:18:31.480 probably has a better chance than most pieces of legislation. 0:18:31.600 --> 0:18:34.480 So you could see some movement there if Congress can 0:18:34.480 --> 0:18:35.320 get attacked together. 0:18:35.800 --> 0:18:41.119 Also, I mean TikTok I always thought was the most 0:18:41.160 --> 0:18:44.720 addictive of these platforms for kids. 0:18:44.480 --> 0:18:48.400 Right right, I think that's right, and it's very popular 0:18:48.680 --> 0:18:51.960 with the kids. Some of the lawsuits have targeted TikTok 0:18:52.040 --> 0:18:54.320 as well. As I said that the one that's pending 0:18:54.400 --> 0:18:56.720 in the Northern District of California that will be heard 0:18:56.760 --> 0:19:00.480 on Friday, that targets TikTok as well as Meta as 0:19:00.480 --> 0:19:04.000 well as a couple of the other social media networks. 0:19:04.119 --> 0:19:07.000 This new one doesn't target TikTok, but we could see 0:19:07.040 --> 0:19:09.960 follow on actions from the States. I think going after 0:19:10.040 --> 0:19:10.960 TikTok as well. 0:19:11.280 --> 0:19:13.359 Well, we'll have to check back with you to find 0:19:13.400 --> 0:19:17.160 out what happens. Thanks so much, Matt. That's Matthew Shettenhelm, 0:19:17.200 --> 0:19:21.160 Bloomberg Intelligence analyst. Coming up next on The Bloomberg Law Show. 0:19:21.800 --> 0:19:25.440 Instagram promoters test the limits of a ninety year old 0:19:25.520 --> 0:19:30.280 securities law and attorneys looking for legal research. Whether you're 0:19:30.320 --> 0:19:33.960 an in house council or in private practice, Bloomberg Law 0:19:34.000 --> 0:19:37.119 gives you the edge with the latest in AI powered 0:19:37.200 --> 0:19:42.080 legal analytics, business insights, and workflow tools. With guidance from 0:19:42.080 --> 0:19:45.360 our experts, you'll grasp the latest trends in the legal industry, 0:19:45.640 --> 0:19:48.879 helping you achieve better results for the practice of law, 0:19:49.000 --> 0:19:52.120 the business of law, the future of law. Visit Bloomberg 0:19:52.200 --> 0:19:54.560 Law dot com. This is Bloomberg. 0:20:02.840 --> 0:20:07.639 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:20:08.400 --> 0:20:11.000 You're listening to a special best of edition of The 0:20:11.040 --> 0:20:12.080 Bloomberg Law Show. 0:20:13.200 --> 0:20:14.720 Real Estate Investing Made Simple. 0:20:14.720 --> 0:20:16.560 Grant cardone here in the cardon zone. 0:20:16.600 --> 0:20:19.200 Every Monday, I said Steve, what I pay you last month? 0:20:19.520 --> 0:20:24.200 Steve was paid thirty one twenty dollars last month. 0:20:24.600 --> 0:20:29.680 Because he invested at Cardoncapital dot Com, Cardoncapitol dot Com, 0:20:29.680 --> 0:20:31.359 Cardoncapital dot Com. 0:20:31.400 --> 0:20:34.439 In October, the Supreme Court declined to hear a case 0:20:34.520 --> 0:20:39.320 involving a lawsuit against real estate management company Cardone Capital 0:20:39.640 --> 0:20:43.800 and its CEO, Grant Cardone, for misleading statements in YouTube 0:20:43.840 --> 0:20:48.120 and Instagram videos. The lawsuit was dismissed on other grounds 0:20:48.240 --> 0:20:51.639 days after the justices refused the case, But the core 0:20:51.800 --> 0:20:55.280 issue remains, what does it mean to sell securities in 0:20:55.320 --> 0:20:59.680 the age of YouTube and Instagram? As venture capital firms 0:20:59.680 --> 0:21:03.520 and ow there is hyping investment projects online are facing 0:21:03.600 --> 0:21:07.800 lawsuits from disgruntled buyers. Joining me is Anne Lipton, a 0:21:07.880 --> 0:21:13.000 business law professor at Tulane University. Start with the real basics, 0:21:13.359 --> 0:21:17.600 which is, tell us about the provision in the thirty 0:21:17.600 --> 0:21:19.480 three Securities Act. 0:21:19.800 --> 0:21:22.120 Okay, So, Section twelve is from the nineteen thirty three 0:21:22.119 --> 0:21:25.640 Securities Act and it basically has two separate provisions. The 0:21:25.720 --> 0:21:28.639 first is that a purchaser of a security that was 0:21:28.720 --> 0:21:32.679 sold unregistered when it should have been registered has a 0:21:32.840 --> 0:21:36.320 right to sue the seller. Basically, it's a right of rescision. 0:21:36.359 --> 0:21:38.520 They can give the security back and ask for their 0:21:38.560 --> 0:21:42.480 money back minus any income they've earned on it, so 0:21:42.520 --> 0:21:44.760 they can sue whoever sold it to them if it 0:21:44.840 --> 0:21:48.639 was sold in violation of the registration provisions. And then secondly, 0:21:48.880 --> 0:21:51.560 they can sue anyone who sold it to them or 0:21:51.560 --> 0:21:57.880 who solicited the purchase if the prospectus or sales documents 0:21:57.920 --> 0:22:01.920 contained a false statements. Now, sometimes there's a bit of 0:22:01.960 --> 0:22:04.159 a debate about what counts as a perspectus, but what 0:22:04.200 --> 0:22:06.600 it comes down to is that this is sometimes a 0:22:06.640 --> 0:22:10.080 more attractive option than say, more traditional ways of suing 0:22:10.119 --> 0:22:12.680 for false statements, like Section ten B, which is the 0:22:12.720 --> 0:22:16.280 anti fraud statute, because if you sue for false statements 0:22:16.280 --> 0:22:20.879 in connection with essentially these unregistered security sales under section twelve, 0:22:21.640 --> 0:22:24.600 you don't have to show that you relied on the 0:22:24.600 --> 0:22:26.320 false statement, and you don't have to show that there 0:22:26.320 --> 0:22:28.000 was any intent to make a false statement. 0:22:28.320 --> 0:22:33.040 And so how did the Supreme Court define a seller 0:22:33.720 --> 0:22:35.600 in nineteen eighty eight, So in. 0:22:35.560 --> 0:22:37.600 The case of Pitter versus Doll, there was a question 0:22:37.640 --> 0:22:40.480 of who counts as a statutory seller. In other words, 0:22:40.480 --> 0:22:43.760 Section twelve speaks of people who sell securities. So the 0:22:43.840 --> 0:22:45.879 question was, do you have to be actually the person 0:22:45.920 --> 0:22:48.639 who transfer the title me to you, or could it 0:22:48.680 --> 0:22:51.320 be other people who are somewhat involved. 0:22:50.880 --> 0:22:51.920 With the sale. 0:22:52.119 --> 0:22:54.879 And the court first said it has to be either 0:22:54.960 --> 0:22:58.159 a direct transfer of title or it has to be 0:22:58.200 --> 0:23:01.800 someone who solicited the purchase. But they drew a distinction 0:23:01.960 --> 0:23:06.199 between someone who is somehow involved and had something to 0:23:06.320 --> 0:23:10.120 do with the buyer actively going out and purchasing the security, 0:23:10.480 --> 0:23:13.480 and instead they said they have to have actually solicited 0:23:13.480 --> 0:23:16.760 and had some kind of relationship with the buyer. They 0:23:17.040 --> 0:23:19.560 rejected a test that would be somehow like people who 0:23:19.600 --> 0:23:23.919 are just substantially participate in the sale. So that was 0:23:23.960 --> 0:23:26.919 interpreted by courts to mean that you could only be 0:23:26.960 --> 0:23:30.040 liable Intersection twelve if you literally transferred title it was 0:23:30.080 --> 0:23:33.400 your security and you sold it to someone else, or 0:23:34.040 --> 0:23:36.600 if you had some kind of direct contact with a 0:23:36.720 --> 0:23:40.080 relationship with the buyer so that you induced the purchase 0:23:40.119 --> 0:23:41.200 that way. 0:23:41.280 --> 0:23:45.160 So in our world of social media, where venture capital 0:23:45.240 --> 0:23:50.400 firms and others are hyping investment projects online, are courts 0:23:50.480 --> 0:23:54.639 having a difficult time determining whether they're sellers or not. 0:23:55.520 --> 0:23:59.120 Yeah. So the issue here is that after pinter versus doll, 0:23:59.160 --> 0:24:02.480 there were a bunch of cases involving what were basically 0:24:02.520 --> 0:24:06.440 registered offerings. They were registered offerings. They were IPOs where 0:24:06.440 --> 0:24:09.800 people sued for false statements in the IPO documents. Now 0:24:09.840 --> 0:24:13.080 there's a cause of action specifically for that false statements 0:24:13.080 --> 0:24:16.120