Facebook May Face $5 Billion FTC Fine for Data Misuse

2019-04-24T20:57:55
ID THREATPOST:8EACFF0CEE9A6C29F8F1DDD031FF7DE9
Type threatpost
Reporter Lindsey O'Donnell
Modified 2019-04-24T20:57:55

Description

UPDATE

Facebook may be facing fines as high as $5 billion after a year-long Federal Trade Commission (FTC) investigation into its data-security practices.

Though it wasn’t mentioned in its earnings call on Wednesday, the social-media giant in a release for its Q1 2019 earnings said that it was setting aside $3 to $5 billion as a contingency expense “in connection with” the FTC’s investigation of its user-data practices.

“In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3 billion in connection with the inquiry of the FTC into our platform and user-data practices, which accrual is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet,” according to the release. “We estimate that the range of loss in this matter is $3 billion to $5 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.”

The FTC in March 2018 announced it was launching an investigation into Facebook’s data-privacy practices on the heels of the Cambridge Analytica scandal. The FTC is specifically investigating whether Facebook has violated a consent decree from 2011 that requires the social network to receive explicit permission from users in regards to sharing their data with third parties.

The agency declined to comment for this story.

In a conference call Wednesday afternoon with analysts, CEO Mark Zuckerberg said that he plans to forge ahead with what he calls a privacy-focused social network. He did not mention the FTC fine or the company’s recent data-handling woes specifically. However, the company’s CFO, David Wehner, commented that “we anticipate ad targeting-related headwinds will be more pronounced in the second half of 2019” — which could signal changes in the way Facebook monetizes its business. Wehner also said that he expects new regulation to affect the company’s business going forward.

Facebook reported first-quarter profit of $2.43 billion, or 85 cents per share, on revenue of $15.08 billion, well down from $1.69 per share net income on $11.97 billion in revenue for the year-ago quarter. same quarter a year ago — in part due to the charge for the expected fine. However, the stream of negative privacy headlines for the company of late has not seemed to dissuade users from embracing the platform: Facebook reported that both monthly and daily active users were up 8 percent from last year, coming in at 2.38 billion and 1.56 billion, respectively. Facebook’s stock was up in after-hours trading after it reported.

Meanwhile, reports have also suggested that the Securities and Exchange Commission, FBI and the Department of Justice are also investigating the social media giant. Previous reports had estimated Facebook could face up to $40,000 in fines per violation if found guilty.

Facebook has faced fines in the past, but none this big so far: in December it was hit with two fines, totaling 10 million Euros (about $11.3 million) by the Italian Competition Authority for violating Italy’s Consumer Code; while in October the UK fined Facebook $645,000 for being complicit in Cambridge Analytica’s data-harvesting practices.

Facebook did not respond to a request for comment from Threatpost by deadline.

The FTC investigation stemmed around Facebook’s acknowledgement in 2018 that a third-party application had handed over the data of up to 50 million platform users to Cambridge Analytica. But since then, the company has faced several other privacy incidents, including in December acknowledging that it had struck broad data-sharing partnerships with more than 150 companies, including Apple, Amazon and Netflix, exempting them from its normal data privacy terms and conditions.

_This story was updated at 6:34 p.m. ET with information from the company’s first-quarter earnings call. _

Tara Seals contributed to this report.