Facebook’s $5 billion FTC fine is an embarrassing joke

Mark Zuckerberg is laughing at you

Facebook’s stock went up after news of a record-breaking $5 billion FTC fine for various privacy violations broke today.

That, as The New York Times’ Mike Isaac points out, is the real story here: the United States government spent months coming up with a punishment for Facebook’s long list of privacy-related bad behavior, and the best it could do was so weak that Facebook’s stock price went up.

From some other perspectives, that $5 billion fine is a big deal, of course: it’s the biggest fine in FTC history, far bigger than the $22 million fine levied against Google in 2012. And $5 billion is a lot of money, to be sure. It’s just that like everything else that comes into contact with Facebook’s scale, it’s still entirely too small: Facebook had $15 billion in revenue last quarter alone, and $22 billion in profit last year.

The largest FTC fine in the history of the country represents basically a month of Facebook’s revenue, and the company did such a good job of telegraphing it to investors that the stock price went up.

Here’s another way to say it: the biggest FTC fine in United States history increased Mark Zuckerberg’s net worth.

What lesson would you learn from that? Would anyone?

That’s actually the real problem here: fines and punishments are only effective when they provide negative consequences for bad behavior. But Facebook has done nothing but behave badly from inception, and it has only ever been slapped on the wrist by authority figures and rewarded by the market. After all, Facebook was already under a previous FTC consent decree for privacy violations imposed in 2011, and that didn’t seem to stop any of the company’s recent scandals from happening. As Kara Swisher has written, you have to add another zero to this fine to make it mean anything.

There are other elements to the settlement, as Tony Romm at the Washington Post has reported: Facebook will have to document how it plans to use data before it launches new products, and execs like Zuckerberg will have to promise the company has protected user privacy. But none of these conditions will prevent Facebook from collecting and sharing data, and they certainly won’t affect Facebook’s insanely lucrative ad business, which relies upon that data.

And as Peter Kafka notes, regulatory compliance costs aren’t exactly a deterrent either: Facebook will pay the fine, eat the cost of a few more lawyers and PR people to ensure compliance with this new order, and carry on with the business of, uh, issuing a new worldwide currency while exposing underpaid contractors to horrifying videos of people being murdered for $15 an hour.

Members of Congress are already opposing this settlement — Rep. David Cicilline is calling it a “Christmas present,” while Senator Ron Wyden says the FTC has “failed miserably.” Senator Richard Blumenthal says the decision is “inadequate” and “historically hollow,” and Senator Mark Warner says “It’s time for Congress to act.”

There are surely going to be many more statements and strongly-worded condemnations of the FTC in the weeks ahead, as the settlement goes through Justice Department review and inevitable approval. But words are just words, really. If our government is going to hold Facebook accountable for its reckless and irresponsible behavior, it has to actually do it, and in such a way that Mark Zuckerberg learns that actions have consequences.

Comments

Where’s the FTC billion dollar fine for the Equifax hack and its embarrassing breach of consumer privacy?

Nothing. Why? Because the FTC votes the political interests of the GOP, and Equifax doesn’t disseminate imaginary conservative news bias like Facebook supposedly does.

This x5 billion

So when somebody broke into your house and stole letters from your mistress YOU should be punished?

Not saying that Equifax is totally innocent in not providing adequate security but still, it is a VICTIM here, it was not intentionally profiting from disseminating clients info. While Facebook is a perpetrator, its whole business model is based on that.

But of curse no such fines will help. Even if Facebook is destroyed by them, another similar compony would emerge that might be even worse.

I laughed out loud at:

Not saying that Equifax is totally innocent in not providing adequate security but still, it is a VICTIM here,

Poor, poor, Equifax. How could they have known some evil hackers would try to breach their awesome defenses?

I think he’s saying Equifax acted negligently while Facebook acted willfully. Both are bad but there is a difference.

Not to mention their execs sold stock once they found out the magnitude of their incompetence

Equifax acted willfully by hiring someone knowingly completely incompetent to a top security position.

This is a fair point (assuming it wasn’t willfully insecure because they know there are no consequences) but still where is the Equifax fine even if we agree it need not be as high as Facebook’s…

That’s a ridiculous argument. Companies are not making the proper investments or design decisions necessary to maintain data security and privacy because they know that the consequences of a data breach are trivial.

A more apt analogy would be if you were allowed to provide banking services from your home, storing funds under your mattress, without any regulations to ensure the money was safe.

Isn’t the facebook fine mostly about the Cambridge Analytics scandal? So in a sense Facebook had data stolen by that company who violated their Developer Agreement. If you ask me Equifax is 100 times worse because I don’t ever recall agreeing to let Equifax collect any of my data. Also unlike facebook data which I assume is going to be shared since they are a social media service. The data Equifax is collecting is not data I expect to be public.

The problem with CA scandal isn’t just the data being taken, but that FB’s business collected the data and profited off it in the first place. Credit agencies may do a similar thing but that business is assumed to be OK, in the case of Equifax they were negligent with protecting the data, it is not the same as going out of their way to collect and sell it without consent.

it was not intentionally profiting from disseminating clients info

As one of three credit reporting companies, this is literally the only way Equifax makes money.

FB disseminates imaginary liberal news as well. Anything to bring in the clicks.

Facebook should forfeit all profits earned during the time it was breaking the rules and compromising user privacy. So, all of it.

Issue there is you don’t want to bankrupt or harm a US company.

Issue there is… yeah, we do. When they’re cancerous.

No, you don’t. Facebook has 30,000 employees. You can’t instantly bankrupt a company because that’s suddenly 30,000 people who’ll be unemployed.

The point in these massive fines aren’t to destroy the company – it’s to stop the company doing bad things, and if they keep doing bad things, to try and force the company to replace the management. If Zuck keeps collecting these sort of fines then he’ll start getting internal backlash.

"The company" is a fiction. Company doesn’t make any decisions, it’s just a piece of paper filed somewhere. All decisions are done by people and until "the company" (i.e. pensioners who has Facebook shares in their 401(k)) are punished instead of those people we’d have what we have.

Maybe it’s bad to bankrupt Facebook. But there is nothing wrong with bankrupting Zuckerberg by fining him to his total net worth. And better yet, putting him to jail after that. THAT would send a very clear and persuasive signal to those who make decisions.

I agree with everything you say – everything is done by people. But the problems that Facebook had were caused by decisions made by those right at the top. If you had 10 people making bad decisions then the answer isn’t to take 30,000 people out of work.

Zuck isn’t fit to run the company ethically. He knows how to make money, he just can’t seem to achieve this in an ethical way. He needs to go, not Facebook. These fines are an attempt to get the power holders in Facebook to tell Zuck enough is enough.

You’re not wrong, but this fine will do nothing of the sort. Facebook will put up a token pretense of guilt and embarrassment, argue agas and pay the fine, but effectively the fine is too low to force them to change their business practices. Inside the company, it will be viewed as a "levy" on dodgy practices, and they will continue with the behavior under better concealment because there’s plenty of profit in it, even with the cost of regular fines.

There needs to be personal consequences for the decision makers, and the company needs to be fined enough that they simply cannot afford to continue such behavior.

And better yet, putting him to jail after that.

What law has Zuckerberg broken? We don’t get to jail people just because we don’t like them.

The US Bill of Rights establishes rights to privacy specifically from the government, but it seems there ought to be a new set of privacy laws that protect citizens from having their information disseminated from a business entity. Then when issues like the Cambridge Analytica scandal come about, we have proper punishments at the ready.

Great article Nilay. Zuck looking at the Facebook ledger – Washington lobbying money on the U.S. government – money well spent!

This is (another example) of the corruption of the U.S. government (except for social issues corporations don’t care much about and the parties use to lock voters in). It all started with corporate paid lobbying, back in the early 70’s for the GOP, mid 70’s for the Democrats. Things started going down the toilet ever since this time period – except for the tech industry that would have done well with or without the corporate lobbying.

Still can’t hop on the outrage boat here. Fining them 8% of revenue/25% of profit is a big deal.

The fact their stock went up is a matter of investor confidence that it won’t severely hurt FB as an entity – and it won’t. FB could’ve been fined $10bn and the stock could of went up just the same. As much as the FTC can be trash, they can’t control that.

With that being said, FB is a company made up of people and they aren’t perfect. They don’t manage all situations correctly for sure. If people are truly tired of Facebook, they should stop using their platforms, simple as that.

The fact they still have a billion+ users shows that ain’t happening anytime soon and people don’t care that much. (For better or for worse)

Meanwhile I’m still waiting for Banks and Equifax to be punished…

Seriously what the hell is going on with equifax. That’s a service you can’t even opt out of since it’s basically a requirement to do things like own housing or transportation.

Meanwhile with Facebook I don’t post a lot, and what I do post I treat as public. Whatever they leaked or didn’t leak I don’t care. Equifax was far worse.

Completely agree. I typically agree with Nilay and Warren but I think their outrage is misplaced. 25 percent of profit is a huge deal for any company. The stock market response should not be the measuring stick to see if a fine is big enough.

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