The FTC fined Facebook (NASDAQ: FB) a record-breaking $5 billion over its role in the Cambridge Analytica saga. As the highest privacy-related fine by the Federal Trade Commission, it is a tenth or less of Facebook’s annual revenue.
But, the $5 billion fine is 30 times more than the largest FTC penalty levied on Dish Network ($168 million) in 2017.
In a press conference, John Simons, the FTC chairman said “Facebook betrayed its users’ trust and deceived them about the company’s ability to control and protect their personal data. The enormity of this privacy-related fine serves as a deterrent for future violations.”
FTC Opens Investigations into Facebook
In 2018, the Federal Trade Commission started investigations into Facebook after the Cambridge Analytica saga. Cambridge Analytica was a data mining company that gathered details of more than 87 million Facebook users. The data was gathered without the users’ permission.
FTC investigators found that Facebook deceived its users in 2014 when it informed them that they will no longer collect private data without their consent. Meanwhile, the social media company allowed third-party developers to scrape Facebook users’ personal information including data belonging to their friends.
In a separate incident, the Securities and Exchange Commission fined Facebook $100 million. The fine was to settle allegations that Facebook mishandled data to investors.
Facebook Suspends Data Mining Firm
Facebook suspended Cambridge Analytica in 2018 for having worked with President Trump’s campaign team. The suspension was over a violation of Facebook’s privacy policies. The Guardian reported that Cambridge Analytica used Facebook users’ information including millions of US voters without permission.
Brad Parscale, President Trump’s 2016 data guru, hired Cambridge Analytica during the campaign. It is said that Cambridge Analytica used psychographics, a controversial practice that involves micro-target-based ads. These ads target the personality of social media users.
Facebook Prior Agreement with the FTC
In 2012, Facebook signed an agreement with the FTC for using deceptive disclosures and settings. Facebook also violated the law by misusing phone numbers obtained for account security. The phone numbers were used to target users with micro-based ads.
Also, the company deceived millions of users about its face recognition feature not being enabled by default while in fact, it was.
In a statement, John Simons, the Chairman of the FTC, said “The magnitude of the $5 billion fine is unprecedented in the FTC history. The relief is not to punish future violations but to change Facebook’s privacy culture to decrease future violations.”
Facebook CEO Mark Zuckerberg said this after the FTC announcement “We have agreed to pay the historic fine but more importantly, we are going to make major changes in how we run the company. We have a huge responsibility, that of protecting people’s privacy. We are already working hard to live up to this but we are going to set new standards for our industry.”
After the FTC announcement, Facebook stock dropped slightly on Wednesday morning. The $5 billion fine also covers Facebook subsidiaries – WhatsApp and Instagram.
Under the FTC $5 Billion Deal
Facebook’s board will form an oversight committee composed of independent members who cannot be fired by the Facebook CEO. This committee will have a responsibility of certifying that the social media company is complying with the FTC deal. Mark Zuckerberg is expected to make similar certifications.
The FTC will require regular third-party assessments on the social media company privacy practices. The commission will not rely on the company’s materials but an auditor’s findings.
To approve the settlement, the FTC voted 3-2. Two Democrats dissented because they believed the measure was not “harsh” enough. Both commissioners, Rebecca Slaughter, and Rohit Chopra said that the fine was too small and that the FTC gave Facebook CEO and COO a pass.
Democratic Senator Richard Blumenthal and Missouri Republican Senator Josh Hawley have both said that the $5 billion penalty is a “bargain.”
FTC Settlement with Cambridge Analytica
The FTC announced that it will be suing Cambridge Analytica, the now-defunct data mining company. Simultaneously, the commission announced it had settled with Alexander Nix, former CEO of Cambridge Analytica.
The commission will also be suing Aleksandr Kogan, the developer of “This Is Your Digital Life” app used by Cambridge Analytica to scrape user’s data. According to the FTC, both Alexander Nix and Aleksandr Kogan agreed to destroy or delete any personal data they collected using the app.