The U.S. District Court for the Northern District of California has denied Meta’s motion to dismiss claims arising from its role in a pump and dump scheme that caused hundreds of millions of dollars of damages to investors in China Liberal Education Holdings Ltd. (“CLEU”). The lawsuit alleges that scammers utilized Meta’s AI-powered advertising tools—including Advantage+ Creative, Dynamic Creative, and Flexible Format—to create and optimize fraudulent advertisements on Facebook and Instagram that lured investors into purchasing shares of CLEU. The scammers then unloaded their shares causing the stock price to collapse from $7.90 to $0.15 in a single day, generating more than $300 million in losses. Meta moved to dismiss the case, arguing that Section 230 of the Communications Decency Act barred liability and that the claims also failed on the merits.
The court held that Section 230 does not protect Meta under the circumstances of this case because Meta had “contributed materially” to the illegality of the ads. The complaint alleged that “Meta worked with the scammers to gin up the offending posts,” generating the fraudulent ad copy itself. For example, the court noted that a Reuters journalist had tested the tool and received AI-generated pitches the journalist never wrote. The court held that while Meta would not have generated the language “without the inspiration from the scammers,” “that language is still the creation of Meta” and thus the protections of Section 230 do not apply.
The court also denied the motion as to the complaint’s claims for aiding and abetting fraud and negligence. The court found that Meta knew or should have known that ads, which were “facially suspicious,” were fraudulent because “even a cursory look would warrant suspicion that the ad is fraudulent.” The court held that “Meta cannot, with a straight face, claim otherwise.” The court reasoned that it “was Meta’s decision to use technological review tools to screen ads,” and it acquired knowledge of the scheme the moment a scammer asked its AI tools to generate an ad featuring “a celebrity, a secret chat room, and the promise of unfathomable riches.” The court also denied the motion as to the negligence claim because the complaint alleged that “Meta did more than just sit idle as fraudsters roamed freely on their platforms” by actively assisting in creating the fraudulent ads, which constitutes misfeasance supporting a negligence claim.
The action is Bouck v. Meta Platforms, Inc., Case No. 25-cv-05194-RS (N.D. Cal.). Morris Kandinov LLP represents the named plaintiffs and proposed class. Contact Andrew Robertson for additional information.
