By John D. McKinnon and Ryan Tracy
WASHINGTON -- Facebook Inc. agreed to pay a record $5 billion
fine and better police its data-privacy practices to settle a
long-running federal investigation that has damaged the company's
standing with consumers and clouded its future.
Under the settlement, Facebook founder and CEO Mark Zuckerberg
will be required to certify that the company is in compliance with
new privacy strictures, and could be subject to civil and criminal
penalties for false certifications.
"The $5 billion penalty against Facebook is the largest ever
imposed on any company for violating consumers' privacy and almost
20 times greater than the largest privacy or data security penalty
ever imposed worldwide, " the Federal Trade Commission said. "It is
one of the largest penalties ever assessed by the U.S. government
for any violation."
But the force of the decision was blunted by stinging dissents
from the two Democrats on the five-member commission, who said the
financial penalty was insufficient and the settlement does little
to change Facebook's basic incentives to gather and leverage users'
"The settlement imposes no meaningful changes to the company's
structure or financial incentives, which led to these violations,"
commissioner Rohit Chopra said. "Nor does it include any
restrictions on the company's mass surveillance or advertising
"Rather than accepting this settlement, I believe we should have
initiated litigation against Facebook and its CEO Mark Zuckerberg,"
said commissioner Rebecca Kelly Slaughter.
Noting the dissents, the commission's Republican majority led by
Chairman Joe Simons said that suing Mr. Zuckerberg for past
violations wouldn't serve the public interest.
"Mr. Zuckerberg will be held accountable for certifying
quarterly -- under threat of civil and criminal penalties -- that
the company's privacy program is in compliance with the order," the
FTC's majority wrote. "The relief we have achieved today solves
concrete problems, rather than venting frustration with
Facebook's general counsel, Colin Stretch, said the agreement
"will mark a sharper turn toward privacy, on a different scale than
anything we've done in the past."
Separately Wednesday, the Securities and Exchange Commission
announced a settlement with Facebook -- including a $100 million
fine -- over claims it misled investors about the misuse of
customer data. Facebook neither admitted nor denied the SEC claims.
The company said it shares the regulator's view that it be
"transparent with our investors about the material risks we face,
and we have already updated our disclosures and controls in this
Facebook neither admitted nor denied the SEC claims. The company
said it shares the regulator's insistence that it be "transparent
with our investors about the material risks we face, and we have
already updated our disclosures and controls in this area."
The federal probe began more than a year ago after disclosures
that data on tens of millions of Facebook users had been improperly
transferred to a political data-analytics firm, Cambridge
Analytica, that did work for Donald Trump's 2016 presidential
After seeking to determine when Facebook learned that an
academic researcher had transferred user data to Cambridge
Analytica in violation of the social network's policies,
investigators alleged that more than 30 Facebook employees,
including senior managers, eventually became aware that had
occurred, the SEC said. Yet the company in 2016 and 2017 made only
generic disclosures to investors about potential data-privacy
risks, instead of being specific about what had happened, the
Facebook even misled reporters who inquired about the company's
own investigation of Cambridge Analytica, telling journalists in
2017 that it hadn't uncovered any indications of wrongdoing, the
SEC's order alleges. Those statements reinforced the inaccurate
picture that Facebook's investor disclosures painted, the SEC
FTC enforcement director James Kohm, meanwhile, told reporters
Wednesday that he expected implementing the settlement would be
extensive and costly for Facebook.
FTC Commissioner Noah Phillips said the Facebook settlement
doesn't necessarily apply to other companies, but all firms should
consider elevating privacy concerns to board level. The Facebook
fine raises the price of privacy violations by any company, he
Mr. Zuckerberg, in a Facebook post Wednesday, said evaluating
privacy risks to the FTC's standards "will take hundreds of
engineers and more than a thousand people across our company" and
could add time to bringing new products to market.
The settlement with the FTC requires creation of a new committee
of Facebook's board to monitor the company's privacy practices.
Legal experts said they couldn't recall prior FTC privacy
settlements imposing such a requirement.
"If the committee had appropriate authority and was answerable
to the FTC, it could have a significant impact," David Vladeck, a
former head of the agency's consumer protection bureau during the
Obama administration, said on Monday before the agreement's
The FTC's investigation found more problems, Mr. Chopra said in
his dissent, including Facebook misrepresenting its user settings
and privacy tools to lure users into sharing information.
"The investigation also uncovered additional violations,
including false assurances to users that they would need to opt in
to facial recognition, " he said. "In addition, Facebook encouraged
users to turn over their phone numbers for security purposes, but
used those phone numbers to feed the company's surveillance and
The lack of bipartisan agreement on the settlement within the
FTC sends the wrong message to tech companies, Sens. Ed Markey (D.,
Mass.), Josh Hawley (R., Mo.) and Richard Blumenthal (D., Conn.)
said in a letter to the FTC after some details of the settlement
were disclosed earlier this month.
They told the agency they expected "strict structural reforms
and managerial accountability that would put an end to Facebook's
Lawmakers of both parties as well as Mr. Trump have gone on the
offensive over various concerns relating to some tech companies'
immense size and influence, as well as their perceived
intrusiveness in people's lives. That reflects broader unhappiness
in Washington over Big Tech, and particularly internet companies
such as Facebook and Alphabet Inc.'s Google unit.
For Facebook, the FTC settlement appeared unlikely to have much
immediate impact on its lucrative business model. The company earns
almost all its profits from selling advertising that targets users
based on their online behavior.
But the deal also appeared unlikely to improve the company's
image after being tarnished during the investigation.
When a March Wall Street Journal/NBC News poll asked Americans
how much they trusted huge tech firms to protect their personal
information, Facebook scored the worst, with 60% responding they
trusted the company "not at all." That compared with 37% for Google
and 28% for Amazon.com Inc.
The investigation and settlement also appear likely to heighten
scrutiny of Mr. Zuckerberg, although the company succeeded in
softening FTC efforts to target him individually.
The federal probe has contributed to raising focus on other
alleged privacy missteps by the company that is likely to continue.
Even as the FTC settlement was being completed this week, for
example, new questions were being raised over potential risks to
children from its Messenger Kids app.
The settlement could fuel a growing partisan debate over online
privacy. To the extent lawmakers aren't satisfied by the deal, that
may make both the FTC and Facebook targets during the 2020
campaign. It could also bolster efforts in Congress to grant more
privacy authority to the FTC or another agency, although such
legislation is currently stalled.
--Dave Michaels contributed to this article.
Write to John D. McKinnon at email@example.com and Ryan
Tracy at firstname.lastname@example.org
(END) Dow Jones Newswires
July 24, 2019 13:07 ET (17:07 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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