Facebook sets aside $5 billion in anticipation of an FTC penalty for its “user data practices”

Yesterday, Facebook in its first quarter financial reports revealed that it has to pay a sum of $5 billion, a fine levied by the US Federal Trade Commission (FTC). This penalty is “in connection with the inquiry of the FTC into our platform and user data practices”, the company said.

The company, in their report, mentioned that the expenses result in a 51% year-over-year decline in net income, to just $2.4bn. If they minus this one-time expense, Facebook’s earnings per share would have beaten analyst expectations, and its operating margin (22%) would have been 20 points higher.

Facebook said, “We estimate that the range of loss in this matter is $3.0bn to $5.0bn. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.”

In the wake of the Cambridge Analytica scandal, the FTC had commenced their investigation into Facebook’s privacy practices last year in March. This investigation was focussed whether the data practices that allowed Cambridge Analytica to obtain Facebook user data violated the company’s 2011 agreement with the FTC. “Facebook and the FTC have reportedly been negotiating over the settlement, which will dwarf the prior largest penalty for a privacy lapse, a $22.5m fine against Google in 2012”, The Guardian reports.

Read Also: European Union fined Google 1.49 billion euros for antitrust violations in online advertising

“Levying a sizable fine on Facebook would go against the reputation of the United States of not restraining the power of big tech companies”, The New York Times reports. Justin Brookman, a former official for the regulator who is currently a director of privacy at Consumers Union, nonprofit consumer advocacy group, said, “The F.T.C. is really limited in what they can actually do in enforcing a consent decree, but in the case of Facebook, they had public pressure on their side.”

Christopher Wylie, a Research director at H&M and the Cambridge Analytica Whistleblower, voiced against Facebook by tweeting, “Facebook, you banned me for whistleblowing. You threatened @carolecadwalla and the Guardian. You tried to cover up your incompetent conduct. You thought you could simply ignore the law. But you can’t. Your house of cards will topple.”

https://twitter.com/chrisinsilico/status/1121150233541525505

Senator Richard Blumenthal, Democrat of Connecticut, mentioned in a tweet, “Facebook must be held accountable — not just by fines — but also far-reaching reforms in management, privacy practices, and culture.”

Debra Aho Williamson, an e-marketer analyst, warned that the expectation of an FTC fine may portend future trouble. “This is a significant development, and any settlement with the FTC may impact the ways advertisers can use the platform in the future,” she said.

Jessica Liu, a marketing analyst for Forrester said that Facebook has to show signs that it’s improving on user data practices and content management. “Its track record has been atrocious. No more platitudes. What action is Facebook Inc actually taking?”

“For Facebook, a $5 billion fine would amount to a fraction of its $56 billion in annual revenue. Any resolution would also alleviate some of the regulatory pressure that has been intensifying against the company over the past two and a half years”, the New York Times reports.

To know more about this news in detail visit Facebook’s official press release.