Santa Clara County sued Meta on Monday, accusing the tech giant of turning scam advertisements on Facebook and Instagram into a multibillion-dollar revenue stream while Californians lost billions to online fraud.

The lawsuit alleges Meta knowingly allowed fraudulent ads to remain on its platforms, charged higher prices for some flagged ads and limited enforcement when fraud prevention threatened the company’s bottom line.

The case puts a Silicon Valley county in direct conflict with one of the world’s most powerful tech companies over who should bear responsibility for fraud that spreads through online advertising systems.

County officials described the case as the first such lawsuit by a local civil prosecutor in the nation targeting a major tech company over allegations that it knowingly enabled and profited from widespread deception and unfair business practices.

The lawsuit, filed in Santa Clara County Superior Court, accuses Meta of violating California’s false advertising and unfair competition laws and seeks restitution, civil penalties and a court order requiring the company to change its practices.

“This case is about accountability. It’s about ensuring that as behemoth tech companies open up new frontiers in our society, that they aren’t lawless frontiers,” Santa Clara County Counsel Tony LoPresti said Monday at a news conference. “Meta has lied to its users and violated the law for years.”

The county alleges that Meta’s internal documentation shows that the company’s platforms host about one-third of all internet scams — resulting in $2.5 billion in losses for California residents in 2024, county officials said. These scam advertisements boast products ranging from fake financial products and miracle cures for incurable diseases to recreations of celebrities requesting money and cryptocurrency scams.

The lawsuit cites findings from a Reuters investigation that found internal Meta documents estimated 15 billion “higher risk” scam ads are shown to users on the company’s social media platforms each day, generating $7 billion in annual revenue.

Although Meta is headquartered in Menlo Park, in neighboring San Mateo County, Santa Clara County officials said they are bringing the case as civil prosecutors under California consumer protection laws, alleging Meta’s scam-ad practices harmed residents statewide.

LoPresti said the county has a particular responsibility to act because it sits “at the heart of Silicon Valley” and has benefited from the tech boom, so it cannot “sit idly by” while a “tech giant is swindling the public.” He also cited his office’s previous lawsuits against corporations as part of its broader effort to protect vulnerable residents.

In a statement, Meta denied the county’s allegations, saying the claim relies on Reuters reporting that it said “distorts our motives” and “ignores” its efforts to fight scams.

“We aggressively fight scams on and off our platforms because they’re not good for us or the people and businesses that rely on our services,” a Meta spokesperson said. “We removed over 159 million scam ads last year alone, launched new tools to protect people, and partnered with law enforcement around the globe to disrupt these criminals. We will fight this lawsuit.”

The county alleges that Meta’s internal systems flag ads that are likely scams but allow some to run for a higher price instead of stopping them, according to the lawsuit.

“According to a recent investigation (by Reuters), even though Meta’s internal warning systems might flag advertisements that are highly likely to be fraudulent, Meta allows those advertisements to post for a premium price,” LoPresti said. “In other words, Meta has established a system for monetizing and profiting from fraud, and it’s clear that Meta is taking careful steps to ensure that its revenue from scam ads continues to flow.”

Internal documents from Meta uncovered in the Reuters investigation noted that the company’s safety staff estimated that out of 100,000 weekly valid scam reports filed in 2023 by users who reported being messaged by fraudsters, Meta ignored or improperly rejected 96% of those, LoPresti said.

A 2024 internal report cited in the lawsuit found that financial fraud advertisers were often allowed to accumulate between eight and 32 automated warnings before Meta disabled them, according to the lawsuit. It further cites findings by the Reuters investigation that some “high value accounts” were still on Meta’s platforms after being reported more than 500 times.

The county alleges that Meta internally refers to revenue from fraudulent or otherwise prohibited ads as “violating revenue” and that those ads generate $7 billion in annual revenue. It further alleges that Meta anticipated that the revenue would draw penalties of $1 billion, but that “those fines would be much smaller than Meta’s revenue from scam ads,” according to the lawsuit.

“Meta might talk about its efforts to remove scam ads,” LoPresti said. “But that talk is a scam just like the scam advertisement themselves.”

The lawsuit also alleges that Meta’s artificial intelligence tools help create and refine scam ads, often making them more misleading. It also claims thousands of Meta-approved “Business Partners” advertise services to help clients post scam ads on the company’s platforms.

The county alleges those fraudulent ads raise prices for legitimate advertisers bidding in Meta’s ad auctions.

Meta is further accused of having internal “revenue guardrails” that limit its enforcement against scam ads. LoPresti said the company implemented restrictions barring fraud prevention teams from taking steps projected to cost more than 0.15% of Meta’s revenue.

The lawsuit also alleges Meta’s algorithms can show more fraudulent ads to users who have already clicked on one, compounding the harm for vulnerable groups. The FBI has found that scam ads disproportionately impact people over the age of 60, and a Pew Research study has found that Black, Latino and Asian individuals are more likely to experience multiple instances of fraud than white people, LoPresti added.

Eric Goldman, a professor of law at Santa Clara University School of Law and co-director of the High Tech Law Institute, said Meta may invoke Section 230, a federal law that generally shields websites from liability for third-party content, including advertising.

But Goldman said other legal theories may also come into play, including arguments focused less on the scam ads themselves and more on how Meta interacted with advertisers or allegedly overcharged them because of illegitimate bidders.

“Meta has invoked Section 230 in lawsuits over scammy ads before, and historically has won that argument,” Goldman said. “It has prevailed on the basis that Meta is not responsible for its advertisers’ content.”

Goldman added that “ultimately, it’s about a trust relationship with the consumer.” He said the evidence generated by the Reuters investigation, and relied on by the plaintiffs, suggests Facebook may have needed to act more aggressively against known scam ads.

“The law may or may not recognize that, but it’s still a problem Facebook has to be concerned about,” he said.

The lawsuit follows a recent case filed in Washington, D.C., by a consumer protection group alleging that Meta generated revenue from advertisements for fraudulent activities, which also cited Reuters reporting. It also comes amid broader legal scrutiny of Meta over harms tied to its platforms, including a recent California jury verdict finding the company liable in a social media addiction case involving young users, a verdict Meta is now asking a judge to overturn.

“Santa Clara County sits at the heart of Silicon Valley, and while our region has certainly benefited from the tech boom, we can’t sit idly by when we know good and well that a tech giant is swindling the public to hit a revenue target,” LoPresti said. “Tech might be the lifeblood of Silicon Valley, and we benefit from it and we celebrate that, but we can’t allow poison into that bloodstream.”

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