Facebook hit with $5 billion fine, forced to create privacy oversight board

Facebook CEO Mark Zuckerberg delivers the opening keynote at the Facebook F8 Conference in San Jose, California on April 30, 2019. Copyright Amy Osborne AFP - Getty Images
By David Ingram with NBC News Tech and Science News
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It's a record penalty that shows the federal government taking a harder stance against tech firms but one that may stop short of changing how Silicon Valley does business.


The Federal Trade Commission announced a $5 billion settlement with Facebook on Wednesday to end an investigation into the company's privacy practices. It's a record penalty that shows the federal government taking a harder stance against tech firms but one that may stop short of changing how Silicon Valley does business.

Facebook will be required as part of the deal to create a new board-level committee to oversee privacy, but the agreement with the government does not include any major changes to Facebook's lucrative advertising business, which runs on the collection and use of personal information about its more than 2 billion users.

Facebook was also expected to settle with the Securities and Exchange Commission, agreeing to pay $100 million to end an investigation into whether it sufficiently disclosed its privacy practices to investors, the Wall Street Journal reported late Tuesday.

The settlement puts an endpoint on the U.S. government's probe of the Cambridge Analytica scandal, which erupted last year after reports that the consulting company had obtained profile information on millions of Facebook users and their friends via a quiz app. Cambridge Analytica also worked on President Donald Trump's 2016 campaign.

"Despite repeated promises to its billions of users worldwide that they could control how their personal information is shared, Facebook undermined consumers' choices," FTC Chairman Joe Simons said in a press release. "The magnitude of the $5 billion penalty and sweeping conduct relief are unprecedented in the history of the FTC. The relief is designed not only to punish future violations but, more importantly, to change Facebook's entire privacy culture to decrease the likelihood of continued violations."

The agreement establishes a new, independent board to oversee the company's privacy practices. CEO Mark Zuckerberg and other "designated compliance officers" will be required to submit quarterly certifications that the company is protecting user privacy. An independent assessor will also submit quarterly privacy reports.

The agreement extends to messaging service WhatsApp and Instagram.

However, privacy advocates, lawmakers and other critics of Facebook have already been grumbling about the lack of teeth in the settlement since word that it was imminent leaked two weeks ago.

Sen. Richard Blumenthal, D-Conn., said this week he was fearful the $5 billion deal "will be just a pinprick penalty compared to the total assets and profits of the company," Bloomberg News reported.

The social media company and Zuckerberg won't be required as part of the settlement to admit wrongdoing in any of a series of recent privacy flare-ups.

Zuckerberg is Facebook's founder, chairman and controlling shareholder who has final say in the company's operations, but the FTC did not question Zuckerberg as part of its investigation, the Washington Post reported, citing two people familiar with the probe.

The deal covers a drumbeat of privacy scandals that have rocked Facebook for the past two years, including Facebook's practice, revealed last year, of using phone numbers for advertising purposes when users handed them over for security purposes.

The deal also covers Facebook's failure, reported in May by Consumer Reports, to allow some users to turn off the social network's facial recognition features.

The FTC voted 3-2 along party lines to approve the settlement this month, the Wall Street Journal reported. The Republican majority approved the settlement while Democratic commissioners opposed it.

It is a follow-up agreement to a 2011 settlement in which Facebook promised the FTC that it would not mislead users about its privacy practices.

In a dissenting statement, Democratic FTC Commissioner Rebecca Slaughter said the regulator should have pushed Facebook harder — and gone to court if necessary.

"The Commission should not have accepted this settlement and should instead have voted to litigate," Slaughter wrote. "I understand the majority's argument in favor of the terms of the settlement, and I recognize the settlement's historic nature. But I do not share my colleagues' confidence that the order or the monetary penalty will effectively deter Facebook from engaging in future law violations, and thus I fear it leaves the American public vulnerable."

Facebook may still face scrutiny from state attorneys general, European authorities and the U.S. Justice Department, which on Tuesday said it was undertaking a wide-ranging review of whether the big American tech companies including Facebook have acquired too much power in the marketplace.


Wall Street reacted positively when Facebook first told investors in April that it might be able to end the FTC investigation for $5 billion or less, sending shares up about 8 percent. Investors were expected to react positively again on Wednesday.

As of March 31, Facebook reported $45 billion in cash and cash equivalents and marketable securities. The company is due to report its latest quarterly results after the close of the stock market on Wednesday.

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