Facebook overpaid FTC fine by up to '$4.9bn' to protect Zuckerberg, lawsuits allege
(2021/09/23)
- Reference: 1632420912
- News link: https://www.theregister.co.uk/2021/09/23/facebook_lawsuits/
- Source link:
Facebook is remaining silent over two explosive lawsuits unsealed this week which contain allegations that board members "authorized" the overpayment of an FTC fine by up to $4.9bn in order to protect CEO Mark Zuckerberg.
The [1]$5bn penalty was dished out to the social network by the Federal Trade Commission back in 2019 for "deceiving users" about their control over private data in the wake of the [2]Cambridge Analytica scandal .
Other allegations detailed in the complaints include claims the firm deliberately swerved implementing privacy controls in service of an "illegal" business model and that board members, including Marc Andreessen, Palantir boss Peter Thiel, Sheryl Sandberg, Michael Schroepfer (who resigned as Facebook CTO on Monday – see sidebar) and Zuckerberg himself, had exploited the company's "non public information" (insider trading).
[3]
The second suit, specifically, alleges the execs divested themselves of more Facebook shares between "June 26, 2013 through July 23, 2019" (the latter date being the day before the FTC fine was declared) than they otherwise would have. Among other things, it asks for the return of what it claims are "illicit insider trading profits made through the use of confidential company information."
[4]
[5]
The lawsuits were originally filed by two groups of shareholders last year and were made public on Tuesday.
The freshly unsealed documents are actually amended complaints filed in Delaware Court of Chancery last month. The amended allegations were made in light of the groups' legal teams combing through internal files about the board's discussions on privacy, which a federal judge had previously ordered Facebook to provide.
[6]
In the [7]first amended complaint [PDF], the shareholder plaintiffs made the allegation that the CEO was being shielded by FB's directors in relation to FTC action on the Cambridge Analytica scandal in 2019, claiming Facebook's board members "authorized" the company to pay "billions of dollars from Facebook's corporate coffers to make his problems go away." The filing alleges this amounted to "$4.9bn more than Facebook's maximum exposure under the applicable statute."
Despite their own calculations stating that Facebook's maximum monetary exposure should have been "$104,751,390," the plaintiffs did admit: "The FTC took the position that each page view was a violation, justifying billions of dollars in damages."
In the 219-page complaint, the shareholders said of the whopping $5bn [8]fine paid by the social network in July 2019 :
In response to news of the Cambridge Analytica leak, multiple regulators, including the FTC and the Securities and Exchange Commission, began investigating Facebook. And in early 2019, the FTC sent Facebook a draft complaint naming both Facebook and Zuckerberg as defendants. Management and the Board sprang into action. But their focus was protecting Zuckerberg, not the Company.
Board minutes show that Facebook's Board was advised that ███ [redacted].
Yet Zuckerberg, Sandberg, and other Facebook directors agreed to authorize a multi-billion settlement with the FTC as an express quid pro quo to protect Zuckerberg from being named in the FTC's complaint, made subject to personal liability, or even required to sit for a deposition.
The suits cite multiple redacted emails.
The first suit claims Zuckerberg, Sandberg, Thiel, and Andreesen breached their fiduciary duties and that Thiel's firm, Palantir, violated California's Unfair Competition Law by its "unlawful" and "fraudulent" business practices, which the shareholders claim were "substantially injurious" to Facebook. They are seeking unstated damages and injunctive relief from all parties.
[9]
The [10]second shareholders' suit [PDF], a whopping 390 pages and heavily redacted, alleged Facebook's controls over users' information were not only "nonexistent", but that the "harvesting" of 87 million users' data was the "result of a willful business plan".
Cambridge Analytica's use of personal user information was the natural consequence of Facebook’s platform business plans, which were premised on the open sharing of personal user information in the spirit of "full reciprocity" and through agreements with its Platform Application partners, with or without user consent, in violation of the 2012 Consent Order. Facebook did nothing to verify how personal user information was being used by those partners it granted access to the Facebook platform.
The suit also quoted Facebook exec Andrew Bosworth, who became its new CTO this week (see sidebar), in support of its argument that what it called Facebook's "illegal business plan" was deliberate. Bosworth was not a named defendant in either lawsuit, although his predecessor, Schroepfer, was a named defendant in the second suit.
According to the second suit:
One day after the March 17, 2018 The New York Times article was published, Facebook mobile advertising executive Andrew Bosworth tweeted: "This was unequivocally not a data breach. No systems were infiltrated, no passwords or information were stolen or hacked."
This was true.
Cambridge Analytica had no need to hack Facebook in order to obtain vast amounts of personal user information.
The Individual Defendants allowed [their emphasis] Kogan [Aleksandr] to harvest vast amounts of personal user information from Facebook without user consent and sell that information to Cambridge Analytica.
Boz replacing Schroepfer as CTO
Facebook exec Andrew "Boz" Bosworth, the current head of its hardware division (Oculus and other consumer devices), has been promoted to CTO after Mike Schroepfer resigned on Monday [according to this [11]SEC filing.
Schroepfer is becoming a senior fellow at the firm next year.
Forrester VP and research director Mike Proulx told The Reg : "Andrew Bosworth is stepping into Facebook's CTO role amidst an incredible and mounting lack of trust for the social media giant: Antitrust legislation, disinformation amplification, negative mental health effects, and revenue impacts due to data deprecation measures.
"At the heart of these headwinds is the Facebook platform – its technical architecture, algorithms, and user experience. It's a colossal set of challenges for someone who's already been part of Facebook's culture for almost 16 years."
Schroepfer [12]tweeted last night: "After 13 years at FB, I've decided to step down as CTO and pass the baton to @boztank at some point in 2022. I will stay on as long as it takes to ensure a successful leadership transition."
Oversight board cross-checks cross-check
The fallout from the publication of Facebook's internal documents continues to rumble on after the tech giant's so-called "Oversight Board" revealed it intends to take a closer look in the interests of "transparency."
[13]Twitter offers to cough up 80 days of annual sales to settle 'false' user count lawsuit
[14]Clegg on its face: Facebook turns to former UK deputy PM to fend off damaging headlines
[15]Facebook building 'on-demand executable file format' that self-inflates using homebrew compression
[16]South Korea fines Google ₩207 billion for forking up attempts at creating Android variants
At the weekend, former UK politician and Facebook's PR man Nick Clegg [17]jumped to his employer's defence claiming reports by the Wall Street Journal contained "deliberate mischaracterizations of what we are trying to do and conferred egregiously false motives to Facebook's leadership and employees."
One of the Journal's "Facebook File" stories that sparked global interest included details of a programme – called "cross check" or "XCheck" – that shone a light on the rules that allegedly applied to a "secret elite."
In its report, the [18]Journal said: "Mark Zuckerberg has said Facebook allows its users to speak on equal footing with the elites of politics, culture, and journalism, and that its standards apply to everyone.
"In private, the company has built a system that has exempted high-profile users from some or all of its rules which 'shields millions of VIPs from the company's normal enforcement'."
Now, Facebook's grandly titled Oversight Board has zeroed in on this story for further scrutiny, claiming that "transparency is essential for social media platforms."
In a [19]posting on its website on Tuesday , it said: "These disclosures have drawn renewed attention to the seemingly inconsistent way that the company makes decisions," and it intends to look into the "degree to which Facebook has been fully forthcoming in its responses in relation to cross-check."
The Board – which claims it exists to "promote free expression by making principled, independent decisions regarding content" – said it will talk to senior execs at the tech giant and report back. ®
Get our [20]Tech Resources
[1] https://www.ftc.gov/news-events/press-releases/2019/07/ftc-imposes-5-billion-penalty-sweeping-new-privacy-restrictions
[2] https://www.theregister.com/2018/03/18/facebook_confirms_cambridge_analytica_stole_its_data_its_a_plot_claims_former_director/
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YUz5HgD4PDe4HPugaDDbPgAAAJM&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
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[7] https://655e71e2-f98d-40e9-822b-081bc894b6af.filesusr.com/ugd/372b91_5161b452eff04e14bccbb7b7f33b40ab.pdf
[8] https://www.theregister.com/2019/07/24/facebook_fined_5bn_over_privacy_snafu_by_federal_trade_commission/
[9] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YUz5HgD4PDe4HPugaDDbPgAAAJM&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[10] https://655e71e2-f98d-40e9-822b-081bc894b6af.filesusr.com/ugd/372b91_d52609662545424aaa74c3b37a4edf65.pdf
[11] https://www.sec.gov/ix?doc=/Archives/edgar/data/1326801/000132680121000053/fb-20210920.htm
[12] https://twitter.com/schrep/status/1440774699156312075
[13] https://www.theregister.com/2021/09/20/twitter_mau_settlement/
[14] https://www.theregister.com/2021/09/20/facebook_defence/
[15] https://www.theregister.com/2021/09/14/facebook_superpack_compression/
[16] https://www.theregister.com/2021/09/14/south_korea_fines_google/
[17] https://www.theregister.com/2021/09/20/facebook_defence/
[18] https://www.wsj.com/articles/the-facebook-files-11631713039
[19] https://oversightboard.com/news/3056753157930994-to-treat-users-fairly-facebook-must-commit-to-transparency/
[20] https://whitepapers.theregister.com/
The [1]$5bn penalty was dished out to the social network by the Federal Trade Commission back in 2019 for "deceiving users" about their control over private data in the wake of the [2]Cambridge Analytica scandal .
Other allegations detailed in the complaints include claims the firm deliberately swerved implementing privacy controls in service of an "illegal" business model and that board members, including Marc Andreessen, Palantir boss Peter Thiel, Sheryl Sandberg, Michael Schroepfer (who resigned as Facebook CTO on Monday – see sidebar) and Zuckerberg himself, had exploited the company's "non public information" (insider trading).
[3]
The second suit, specifically, alleges the execs divested themselves of more Facebook shares between "June 26, 2013 through July 23, 2019" (the latter date being the day before the FTC fine was declared) than they otherwise would have. Among other things, it asks for the return of what it claims are "illicit insider trading profits made through the use of confidential company information."
[4]
[5]
The lawsuits were originally filed by two groups of shareholders last year and were made public on Tuesday.
The freshly unsealed documents are actually amended complaints filed in Delaware Court of Chancery last month. The amended allegations were made in light of the groups' legal teams combing through internal files about the board's discussions on privacy, which a federal judge had previously ordered Facebook to provide.
[6]
In the [7]first amended complaint [PDF], the shareholder plaintiffs made the allegation that the CEO was being shielded by FB's directors in relation to FTC action on the Cambridge Analytica scandal in 2019, claiming Facebook's board members "authorized" the company to pay "billions of dollars from Facebook's corporate coffers to make his problems go away." The filing alleges this amounted to "$4.9bn more than Facebook's maximum exposure under the applicable statute."
Despite their own calculations stating that Facebook's maximum monetary exposure should have been "$104,751,390," the plaintiffs did admit: "The FTC took the position that each page view was a violation, justifying billions of dollars in damages."
In the 219-page complaint, the shareholders said of the whopping $5bn [8]fine paid by the social network in July 2019 :
In response to news of the Cambridge Analytica leak, multiple regulators, including the FTC and the Securities and Exchange Commission, began investigating Facebook. And in early 2019, the FTC sent Facebook a draft complaint naming both Facebook and Zuckerberg as defendants. Management and the Board sprang into action. But their focus was protecting Zuckerberg, not the Company.
Board minutes show that Facebook's Board was advised that ███ [redacted].
Yet Zuckerberg, Sandberg, and other Facebook directors agreed to authorize a multi-billion settlement with the FTC as an express quid pro quo to protect Zuckerberg from being named in the FTC's complaint, made subject to personal liability, or even required to sit for a deposition.
The suits cite multiple redacted emails.
The first suit claims Zuckerberg, Sandberg, Thiel, and Andreesen breached their fiduciary duties and that Thiel's firm, Palantir, violated California's Unfair Competition Law by its "unlawful" and "fraudulent" business practices, which the shareholders claim were "substantially injurious" to Facebook. They are seeking unstated damages and injunctive relief from all parties.
[9]
The [10]second shareholders' suit [PDF], a whopping 390 pages and heavily redacted, alleged Facebook's controls over users' information were not only "nonexistent", but that the "harvesting" of 87 million users' data was the "result of a willful business plan".
Cambridge Analytica's use of personal user information was the natural consequence of Facebook’s platform business plans, which were premised on the open sharing of personal user information in the spirit of "full reciprocity" and through agreements with its Platform Application partners, with or without user consent, in violation of the 2012 Consent Order. Facebook did nothing to verify how personal user information was being used by those partners it granted access to the Facebook platform.
The suit also quoted Facebook exec Andrew Bosworth, who became its new CTO this week (see sidebar), in support of its argument that what it called Facebook's "illegal business plan" was deliberate. Bosworth was not a named defendant in either lawsuit, although his predecessor, Schroepfer, was a named defendant in the second suit.
According to the second suit:
One day after the March 17, 2018 The New York Times article was published, Facebook mobile advertising executive Andrew Bosworth tweeted: "This was unequivocally not a data breach. No systems were infiltrated, no passwords or information were stolen or hacked."
This was true.
Cambridge Analytica had no need to hack Facebook in order to obtain vast amounts of personal user information.
The Individual Defendants allowed [their emphasis] Kogan [Aleksandr] to harvest vast amounts of personal user information from Facebook without user consent and sell that information to Cambridge Analytica.
Boz replacing Schroepfer as CTO
Facebook exec Andrew "Boz" Bosworth, the current head of its hardware division (Oculus and other consumer devices), has been promoted to CTO after Mike Schroepfer resigned on Monday [according to this [11]SEC filing.
Schroepfer is becoming a senior fellow at the firm next year.
Forrester VP and research director Mike Proulx told The Reg : "Andrew Bosworth is stepping into Facebook's CTO role amidst an incredible and mounting lack of trust for the social media giant: Antitrust legislation, disinformation amplification, negative mental health effects, and revenue impacts due to data deprecation measures.
"At the heart of these headwinds is the Facebook platform – its technical architecture, algorithms, and user experience. It's a colossal set of challenges for someone who's already been part of Facebook's culture for almost 16 years."
Schroepfer [12]tweeted last night: "After 13 years at FB, I've decided to step down as CTO and pass the baton to @boztank at some point in 2022. I will stay on as long as it takes to ensure a successful leadership transition."
Oversight board cross-checks cross-check
The fallout from the publication of Facebook's internal documents continues to rumble on after the tech giant's so-called "Oversight Board" revealed it intends to take a closer look in the interests of "transparency."
[13]Twitter offers to cough up 80 days of annual sales to settle 'false' user count lawsuit
[14]Clegg on its face: Facebook turns to former UK deputy PM to fend off damaging headlines
[15]Facebook building 'on-demand executable file format' that self-inflates using homebrew compression
[16]South Korea fines Google ₩207 billion for forking up attempts at creating Android variants
At the weekend, former UK politician and Facebook's PR man Nick Clegg [17]jumped to his employer's defence claiming reports by the Wall Street Journal contained "deliberate mischaracterizations of what we are trying to do and conferred egregiously false motives to Facebook's leadership and employees."
One of the Journal's "Facebook File" stories that sparked global interest included details of a programme – called "cross check" or "XCheck" – that shone a light on the rules that allegedly applied to a "secret elite."
In its report, the [18]Journal said: "Mark Zuckerberg has said Facebook allows its users to speak on equal footing with the elites of politics, culture, and journalism, and that its standards apply to everyone.
"In private, the company has built a system that has exempted high-profile users from some or all of its rules which 'shields millions of VIPs from the company's normal enforcement'."
Now, Facebook's grandly titled Oversight Board has zeroed in on this story for further scrutiny, claiming that "transparency is essential for social media platforms."
In a [19]posting on its website on Tuesday , it said: "These disclosures have drawn renewed attention to the seemingly inconsistent way that the company makes decisions," and it intends to look into the "degree to which Facebook has been fully forthcoming in its responses in relation to cross-check."
The Board – which claims it exists to "promote free expression by making principled, independent decisions regarding content" – said it will talk to senior execs at the tech giant and report back. ®
Get our [20]Tech Resources
[1] https://www.ftc.gov/news-events/press-releases/2019/07/ftc-imposes-5-billion-penalty-sweeping-new-privacy-restrictions
[2] https://www.theregister.com/2018/03/18/facebook_confirms_cambridge_analytica_stole_its_data_its_a_plot_claims_former_director/
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YUz5HgD4PDe4HPugaDDbPgAAAJM&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
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[7] https://655e71e2-f98d-40e9-822b-081bc894b6af.filesusr.com/ugd/372b91_5161b452eff04e14bccbb7b7f33b40ab.pdf
[8] https://www.theregister.com/2019/07/24/facebook_fined_5bn_over_privacy_snafu_by_federal_trade_commission/
[9] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offbeat/legal&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YUz5HgD4PDe4HPugaDDbPgAAAJM&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[10] https://655e71e2-f98d-40e9-822b-081bc894b6af.filesusr.com/ugd/372b91_d52609662545424aaa74c3b37a4edf65.pdf
[11] https://www.sec.gov/ix?doc=/Archives/edgar/data/1326801/000132680121000053/fb-20210920.htm
[12] https://twitter.com/schrep/status/1440774699156312075
[13] https://www.theregister.com/2021/09/20/twitter_mau_settlement/
[14] https://www.theregister.com/2021/09/20/facebook_defence/
[15] https://www.theregister.com/2021/09/14/facebook_superpack_compression/
[16] https://www.theregister.com/2021/09/14/south_korea_fines_google/
[17] https://www.theregister.com/2021/09/20/facebook_defence/
[18] https://www.wsj.com/articles/the-facebook-files-11631713039
[19] https://oversightboard.com/news/3056753157930994-to-treat-users-fairly-facebook-must-commit-to-transparency/
[20] https://whitepapers.theregister.com/
"transparency is essential for social media platforms"
Pascal Monett
Of course.
And you noticed that as soon as the lawsuit landed on your desk.
Congratulations on your foresight.
Facebook : when it comes to El Zuck's reputation, nothing is too expensive, but when it comes to behaving properly and policing its content correctly, that's too much.
Could somebody please shut this sewer rat down ?
Re: "transparency is essential for social media platforms"
Alpharious
I think the market will do that. I stopped using facebook, because to be frank it was making me a terrible person. I find much more enjoyment using linkedin. There I police myself, but still try to maintain my opinions. It's a better experience because when someone disagrees with me, they bring valid points and are polite, and i do the same with others. It's honestly a better social media platform.
But lets be real, facebook started off as a site to rank women's faces, while linkedin was made from the ground up to be a professional networking platform. Facebook only took off because of the shady palantir money. Nasty people figured out that there was government involvement, so of course they have to troll the place. My understanding is that the kids are not signing up unless the schools force them to, and that the only growing demographic is the 65+ crowed.
Re: "transparency is essential for social media platforms"
Imhotep
I quit Facebook about ten years ago because instead of being a place where I could keep in touch with family and friends, it had become an angry, demented crowd of voices in the corner of Hyde Park.
My wife tells me that now there is really nobody posting at all.
It does make me question their user numbers and the number of eyes for their ads.
NoneSuch
"claiming Facebook's board members "authorized" the company to pay "billions of dollars from Facebook's corporate coffers to make his problems go away.""
No amount of money can fix el Zuck's issues.
Douglas was prescient
Magani
The Hitchhiker's Guide to the Galaxy defines the marketing division of Facebook, Inc as "a bunch of mindless jerks who'll be the first against the wall when the revolution comes,”
That feels like a breach of all the board members fiduciary duties :O