SEC Fines Facebook $100 Million Over Misuse of User Data

The Securities and Exchange Commission fined Facebook $100 million to settle a case related to Cambridge Analytica, which in 2014-2015 collected Facebook data — including names, genders, locations, birthdays and “page likes” — of about 30 million Americans to create “personality scores” and ultimately use it for Donald Trump’s presidential election campaign. When Facebook discovered this misuse of data in 2015, it didn’t reveal what had happened for two years, during which time it presented the issue of data misuse as hypothetical.

CNET reports the SEC “alleged that Facebook’s public disclosures didn’t offer sufficient warning that developers and other third parties, who in obtaining user data, may have violated the social network’s policies or failed to gain user permission.”

Further, it stated that Facebook “presented the risk of misuse of user data as merely hypothetical,” when it knew that the data had actually been misused. In March 2018, Facebook disclosed that Cambridge Analytica had ties to the Trump presidential campaign and accessed personal information of up to 87 million of its users; in July of that year, the SEC, the Federal Trade Commission and “other federal agencies” began investigating the social media platform.

“Public companies must accurately describe the material risks to their business,” said SEC co-director of the enforcement division Stephanie Avakian. “As alleged in our complaint, Facebook presented the risk of misuse of user data as hypothetical when they knew user data had in fact been misused.”

Facebook did not admit or deny the SEC’s allegations, but the company’s general counsel Colin Stretch stated that it has “updated its disclosures and controls accordingly” and that the settlement “will mark a sharper turn toward privacy, on a different scale than anything we’ve done in the past.”

The SEC, in its statement, detailed that in addition to giving its investors the false impression that improper data usage was hypothetical, it “reinforced this false impression when it told news reporters who were investigating Cambridge Analytica’s use of Facebook user data that it had discovered no evidence of wrongdoing.” During the two-year period in question, “Facebook had no specific policies or procedures in place to assess the results of their investigation for the purposes of making accurate disclosures in Facebook’s public filings.”

“We allege that Facebook exacerbated its disclosure failures when it misled reporters who asked the company about its investigation into Cambridge Analytica,” said SEC director of the San Francisco Regional Office Erin Schneider. “This gave further weight to Facebook’s misleading statements in its public filings.” When Facebook did disclose the incident, its stock price dropped.

Related:
Facebook Antitrust Inquiry Shows Big Tech’s Freewheeling Era Is Past, The New York Times, 7/24/19
Justice Department Opens Antitrust Review of Big Tech Companies, The New York Times, 7/23/19