Facebook and Instagram users on Friday lodged a putative class action accusing Meta of turning a blind eye to scam advertisements on its platforms, telling a California federal court the social media giant enabled a Chinese penny stock investment scam that cost victim investors at least $300 million.
The social media users and alleged scam victims—including a lieutenant colonel in the U.S. Air Force, a Los Angeles County fire captain, and a retired tech executive—accuse Meta Platforms Inc. of courting scammers and allowing them to benefit from its advertising tools and its “advanced targeting technology.”
The plaintiffs say they alone lost more than $3 million in total from investing in a fraud scheme carried out by China-based educational services provider China Liberal Education Holdings Ltd. and advertised on Facebook and Instagram.
“If not for Meta’s advertising tools, the CLEU scammers would not have been able to accomplish their scheme on the scale and with the efficiency they achieved,” the investors argue.
The investors accuse Meta of aiding and abetting fraud, breach of contract, negligence, unjust enrichment, and violating California’s Unruh Civil Rights Act.
They seek to represent a class of those who were “lured into investing” in the penny stock between the short period of Jan. 22 and January 30 as a result of fraudulent advertisements on Facebook and Instagram, and who suffered losses as a result.
The investors say in their suit that while Meta has made significant investments into advertising services, it “failed to take meaningful action to prevent fraudulent advertisements, allowing its advanced targeting technology to inure to the benefit of scammers who now have proliferated on Meta’s platforms.”
Meta, they say, has long been aware that scammers use ads on its social media platforms, yet the tech giant has refused to make meaningful investments into technology and personnel to monitor, detect and remove scam ads.
The investors contend that while Meta has allowed investment scam ads to thrive, users of its platforms have, meanwhile, become targets for scammers who impersonate celebrities, well-known investors and legitimate financial advisory firms.
The investors say they became victims of the CLEU investment scam allegedly carried out by an organized criminal network operating out of China, Taiwan and Malaysia. Seven individuals from Malaysia and Taiwan are facing criminal charges in a Chicago federal court for allegedly posing online as U.S.-based investment advisers and artificially raising the CLEU stock price.
Scammers had used Meta’s advertising tools to target victims by putting out ads for investment clubs purportedly associated with celebrities like Shark Tank’s Kevin O’Leary, social media personality and podcast host Dave Portnoy and conservative political commentator Tucker Carlson, the investors say in their complaint.
Ads also featured well-known investors from Charles Swab or other reputable financial advisory firms, they state.
The investors say victims who clicked on ads were then 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.
The investors say that beginning Jan. 22, scammers recommended they buy shares of CLEU, which they said had publicly reported having 29 million outstanding shares despite having secretly issued 240 million additional shares to scammers in a private offering in late December 2024.
According to their complaint, LA County Fire Captain Joshua Bouck had lost more than $865,000 from the pump and dump scheme. He has since taken out a home equity loan and been working “endless overtime” to recover his losses, the complaint states.
Atul Shah, another investor and an immigrant who now operates a small dry cleaning business, had, with his wife, lost roughly $1.8 million from the scheme, including all of their retirement savings accumulated over the last 30 years, according to the investors’ complaint.
The investors say that while Meta’s “community standard” states it does not allow content attempting to scam or defraud users by offering get-rich-quick investment opportunities, Meta nevertheless allowed ads by the CLEU scammers that “plainly violate this policy.”
Ads featuring a purported O’Leary investment club, for instance, promised that an investment of $100,000 would increase by $220,000, the investor says.
“Meta allowed these ads even though it long has been aware that its social media platforms were being used to carry out investment scams,” they assert.
The plaintiffs say Meta not only allowed scam ads but also “assisted in developing the scam ads and targeting vulnerable users.”
“Meta actively assisted the CLEU scammers in luring victims into their scheme through Meta’s advertising tools, including Ads Manager, and access to customer data, which allowed the ads to target specific subsets of customers with known vulnerabilities with accuracy and efficiency that would have been impossible without Meta’s assistance,” they contend.
The putative class action comes as attorneys general from several states and territories, as well as Washington, D.C., sent an open letter to Meta earlier this month, urging it to help counter the spread of investment scams on Facebook and WhatsApp.
New York State Attorney General Letitia James said in a press release that scammers promoted investment groups and featured images of magnates like Warren Buffett, Elon Musk and Andrew Sorkin.
Like the investors’ complaint, the attorneys general said users who clicked the ads were then prompted to download WhatsApp to join a group.
Counsel for the investors declined to comment Friday evening.
Meta did not immediately respond to a request for comment Friday.
The investors are represented by Leonid Kandinov, Aaron T. Morris, Andrew W. Robertson and William H. Spruance of Morris Kandinov LLP.
Source: Law 360
