Generative AI tools remove Section 230 immunity for social media platforms in securities fraud cases

Social media corporations now face securities fraud liability for fraudulent investment solicitations generated by their own AI tools. The US District Court for the Northern District of California ruled in Forrest v. Meta Platforms, Inc. and Bouck v. Meta Platforms, Inc. that active involvement in shaping ads creates a factual dispute over material contribution to their illegality. This shift follows the previous standard where platforms argued they were passive hosts of third-party promotions and received summary dismissals of fraud complaints under Section 230 of the Communications Decency Act.

Section 230 immunity falls away when a platform transforms or generates content rather than merely targeting an audience. Meta's generative AI tools mix and match images, videos, text, and audio supplied by advertisers to automatically optimize ads for audience interaction. This active involvement in assembling content makes the platform a co-developer of the fraud.

Under the 'maker' doctrine from Janus Capital Group, Inc. v. First Derivative Traders, the entity with ultimate authority over a statement's content is the maker of that statement. When a platform's generative AI exercises ultimate authority over the assembled content of an investment solicitation, the platform may be the maker of the fraudulent statement under Rule 10b-5. This exposure applies to any platform deploying generative AI in advertising products, including Alphabet Inc., Snap Inc., TikTok Inc., and X Corp. These platforms may now be subject to Rule 10b-5 questions and scrutiny of whether they are operating as unregistered broker-dealers.