Social media giant Meta Platforms (META) is facing a new lawsuit from California’s Santa Clara County over scam ads on Facebook and Instagram. The lawsuit claims Meta may have made as much as $7 billion per year from “high-risk” ads that showed signs of being fraudulent. The case was filed on behalf of California residents and accuses Meta of breaking the state’s false advertising and unfair business practices laws. Santa Clara County is asking for restitution, civil penalties, and an order stopping Meta from continuing the alleged behavior.
Claim 55% Off TipRanks
- Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions
- Discover top-performing stock ideas and upgrade to a portfolio of market leaders with Smart Investor Picks
Details of the Santa Clara County Allegations
Interestingly, the lawsuit points to leaked internal documents first reported by Reuters last year. According to the county, Meta did not do enough to remove scam ads and instead created internal limits on anti-scam efforts if those efforts would cost the company too much money. The complaint also claims that Meta made the problem worse by allowing middlemen to sell ad accounts that were protected from enforcement.
In addition, it alleges that Meta targeted scam ads at users who had already clicked on similar suspicious ads before and that Meta’s generative AI tools sometimes helped marketers create scam ads. Meta has previously denied that it knowingly allows scam ads to run in order to protect revenue. The company has said that it fights fraud because users, real advertisers, and Meta itself do not want scam content on its platforms.
However, Santa Clara County argues that Meta misled the public by saying anti-scam efforts were a top priority while allegedly benefiting from fraudulent ads. The filing even claims that Meta may be able to adjust how many scam ads appear on its platforms to smooth earnings or hit revenue targets. County Counsel Tony LoPresti said that Silicon Valley prosecutors have a duty to hold tech companies accountable, and that the county is working with outside law firms that will be paid only if the case succeeds.
What Is the Price Target for Meta?
Turning to Wall Street, analysts have a Strong Buy consensus rating on META stock based on 31 Buys, seven Holds, and zero Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average META price target of $817.71 per share implies 35.6% upside potential.
