Facebook has recently been in the news due to its payment of billions of dollars to the Federal Trade Commission (FTC) to resolve a long-standing data privacy suit. Shareholders have since alleged that Facebook’s payment was an extra amount intended to shield its CEO, Mark Zuckerberg, from personal accountability.
In this article, we will look at the payment details and the allegations.
Overview of the Allegations
In the wake of the Cambridge Analytica scandal of 2018, shareholders have alleged that Facebook paid billions of dollars to the FTC to keep founder Mark Zuckerberg safe from any legal repercussions related to personal data misuse. The shareholders stated that these additional payments went beyond what would have been required by a normal FTC settlement. Therefore, they accused Facebook and its executives of improperly using company funds.
The complaint was filed in U.S. District Court in Delaware in April 2020 by a group of Facebook shareholders on behalf of the company and themselves, stating that company money had been misused. It alleged that Zuckerberg attempted to protect himself from any legal action which could have resulted if his role in data misuse had been known or proven at the time. In addition, the complaint alleges evidence proving that before announcing its $5 billion settlement with the Federal Trade Commission (FTC) for deceiving users about their privacy settings, Facebook paid an additional $4 billion to spare Zuckerberg from any potential personal liability arising from its mishandling of user data over years of disregard for users’ privacy options.
Additionally, according to the complaint filed by shareholders, it does not appear that Facebook’s board and executives properly disclosed these claims when making decisions about setting an appropriate penalty for what happened with Cambridge Analytica or informing their stakeholders about it afterwards.
Ultimately, if these claims are found to be true upon further investigation then it will certainly pave way for major lawsuits against both Mark Zuckerberg as well as Facebook itself – putting into consideration massive losses across corporate domination where major operations will take place such as sanctions on people exercising certain practices relating to handling user data within Facebook platforms seen fundamental today across our global digital landscape.
In July 2019, Facebook settled a privacy lawsuit with the U.S. Federal Trade Commission (FTC) to $5 billion. This settlement came after the FTC accused Facebook of mishandling the personal data of up to 87 million users, violating the FTC Act and the Gramm-Leach-Bliley Act.
Following this settlement, certain shareholders have alleged that Facebook paid billions of dollars extra to the FTC to spare CEO Mark Zuckerberg from individual liability.
In this article, we will attempt to provide some context to the FTC settlement and these claims.
Timeline of Events
The timeline of events between Facebook and the U.S. Federal Trade Commission (FTC) related to the social media giant’s handling of various data suits begins in 2019, when shareholders filed a class action lawsuit against Mark Zuckerberg and other high-ranking company officers. They argued that the company had misled them by providing false or misleading statements regarding its use and handling of user data over some time.
In July 2019, Facebook announced that it had reached an approximately $5 billion settlement with the FTC related to violations under Section 5 of the Federal Trade Commission Act. The FTC approved this settlement, who stated that they believed the amount was appropriate given their findings.
In January 2020, a group of Facebook shareholders alleged in a new court filing that the company had overpaid for its settlement with the FTC to spare Mark Zuckerberg from potential individual liability for any violations discovered by regulators. The next month, several top executives threatened to leave if Zuckerberg didn’t work toward resolving internal issues such as culture clashes and data privacy concerns. These issues have since been addressed in subsequent internal reports released by Facebook.
This timeline shows how far back these allegations regarding charges and settlements related to Facebook’s use and mishandling of user data go — and further exposes potential conflicts within one of the world’s largest tech companies.
The U.S. Federal Trade Commission’s (FTC) 2019 investigation into Facebook revealed that the company had violated several data privacy laws. The violations included allowing third-party apps such as Cambridge Analytica to access user data without users’ knowledge and consent, and failing to protect user data from misuse.
In July 2019, the FTC announced its settlement with Facebook which included a staggering $5 billion fine — then the largest in FTC history — and a mandated plan of action from Facebook to improve its data privacy practices.
However, in September 2020, shareholders filed a lawsuit against Facebook alleging that CEO Mark Zuckerberg paid billions extra to the FTC to spare himself personally from an even harsher penalty than what other executives at Facebook were facing in 2019. The allegations include that Zuckerberg negotiated directly with the FTC a settlement that shielded him from repercussions like financial penalties, personal liability, or executive coaching training he was expecting and had championed as part of his compliance with FT enforcements.
Facebook paid billions extra to the FTC to spare Zuckerberg in data suit, shareholders allege
Facebook recently agreed to pay the Federal Trade Commission (FTC) billions of dollars to settle a data privacy lawsuit. Reportedly, Facebook made the payments to evade its CEO Mark Zuckerberg from getting indicted in the suit. However, shareholders of Facebook are now raising concerns over the size of the payments and whether they were necessary.
In this article, we will review the payments Facebook made to the FTC and the implications of these payments on the company’s shareholders.
Amount of Money Paid
According to financial filings, Facebook Inc. paid a staggering $5 billion in a settlement with the US Federal Trade Commission (FTC) in 2019 relating to its mishandling of user data and privacy violations. This is one of the largest fines ever imposed by the US government. As part of the settlement, Facebook also agreed to implement extensive new oversight and restrictions on its business practices.
The FTC found that Facebook had violated an earlier consent decree that was put in place after its scandal involving Cambridge Analytica. This substantial sum was meant to act as a deterrent for similar lapses of accountabilities in future. It would also enable victims of exploitation due to Facebook’s breach in safeguarding user data privacy rights – a detriment caused by negligence and wrongdoing – to receive compensation.
In addition, after reviewing documents from company shareholders that allege Mark Zuckerberg knew about the major issues before they came to light but remained silent, reports show that Facebook paid $3 billion extra above its main settlement figure with regulators just days before signing on their deal.
Alleged Reason for Payment
In July 2019, shareholders accused Facebook’s board of approving excessive payments to the FTC to protect Chief Executive Officer Mark Zuckerberg from potential criminal charges.
According to a lawsuit filed in the Delaware Court of Chancery, Facebook had misled investors by paying billions in settlement money to the FTC beyond what was mandated. The extra payments were allegedly intended to help shield Mr. Zuckerberg from a multi-billion dollar suit and potential criminal prosecution, rather than compensate for any actual harm to customers.
The suit alleges that instead of responding to an FTC investigation related to Cambridge Analytica — which allowed user data scooped up by the company to be used for targeted political ads — with reasonable negotiations and appropriate remedies, Facebook paid $5 billion it did not owe to protect top executives from potential “litigation and imminent or threatened criminal prosecutions.” Furthermore, the lawsuit states that Facebook’s board acted with gross negligence and wasted corporate assets when approving the payment in exchange for “disgorgement” of profits authorities concluded had been unfairly taken from consumers.
The payment was approved by senior managers — including Zuckerberg — and opinionated by external advisors despite appearing unreasonable. The shareholders claim that senior managers became aware that “the proposed settlement would require a disproportionately large amount of disgorgement relative other similarly situated and characterized company’s [sic]” but approved it anyway; such decisions enabled them “to prevent Mr. Zuckerberg from individual liability” at as high cost as possible as it shifted an additional $3 billion onto taxpayers who hold shares without their knowledge or consent. In this case, taxpayers could not detect whether such settlements are being negotiated in any shareholder’s interest or are used selectively against certain individuals within organizations like Facebook.
Impact on Shareholders
Facebook reportedly paid the FTC billions of dollars to spare its CEO, Mark Zuckerberg, from a data privacy lawsuit. As a result, shareholders are concerned about the impact of this payment on their investments.
This article will provide an in-depth analysis of the potential impact this payment could have on the shareholders of Facebook.
Criticism from Shareholders
Since Facebook settled the Federal Trade Commission’s (FTC) lawsuit over the Cambridge Analytica data scandal in 2019, shareholders have alleged that the company paid billions of dollars to shield its founder and CEO Mark Zuckerberg from any personal consequences. Although the FTC approved this settlement, some of Facebook’s institutional shareholders, such as New York City Comptroller Scott M. Stringer, argued that it set a dangerous precedent for companies to be able to pay their way out of trouble.
Shareholders were also concerned about how much money Facebook spent in this settlement–$3 billion—far more than previous settlements from media companies charged with similar offenses. As a result of this agreement, the company’s pre-tax income fell by $3 billion in 2019 and net income decreased by nearly 30%. This raised concern among investors over how this settlement would affect future expenses and profits for the company.
While some observers have deemed the settlement too lenient on Zuckerberg, other voices have advocated for fairness and held up his leadership during one of the most difficult moments in Facebook’s history. The agreement made sure not to interfere with day-to-day operations. At the same time, ensuring users had more say in what data they share with third parties moving forward– further protecting users’ privacy on the platform. However, while this decision may have benefited consumers by providing better privacy protection measures it has caused concern among FB shareholders due to its costly nature.
Impact on Stock Price
The settlement between the FTC and Facebook has taken shape over time. As of August 2019, it includes a record $5 billion fine — more money than the company earned in profits last year — along with other conditions like improved privacy oversight. But some believe Facebook shareholders have been shortchanged.
When the FTC initially proposed the settlement in June 2019, it called for founder Mark Zuckerberg to be held personally responsible for any future privacy issues at Facebook. However, Zuckerberg was ultimately released from this personal liability, leaving some current shareholders feeling cheated out of due process.
To make matters worse, an independent stockholder claims that Facebook offered a much higher fine than expected to ease future legal troubles for its CEO. While shareholders have not been able to prove that this action impacted stock price, they will stay on watch given these extraordinary actions from Facebook leadership.
The conclusion we can draw from the settlement that Facebook paid billions to the FTC is that it was a way to avoid a costly lawsuit against the company and the CEO, Mark Zuckerberg. The settlement allowed the company to settle while allowing Zuckerberg to avoid accountability, which could have caused immense financial damage. Ultimately, it was a costly, yet necessary move for Facebook.