Facebooks $5 billion share price has risen after admitting privacy breaches

 Facebooks $5 billion share price has risen after admitting privacy breaches

Every reporter Cai Ding and every editor Zheng Zhi

On the evening of the 24th Beijing Time, the Federal Trade Commission (FTC) officially announced its approval of a $5 billion settlement with Facebook.

This is the highest amount of fines ever issued by FTC to technology companies. The previous record was that Google was fined $22.5 million for privacy violations in 2012. Although the fine is hundreds of times higher than previous records, the $5 billion is only 9% of Facebooks revenue in 2018.

Affected by the news, Facebook fell about 1.17% before the 24-day U.S. stock market, but ended up 1.14% after the days close.

FTC requires Facebook to make structural reforms

In March 2018, when it was reported that Cambridge, a political consultancy, had analyzed data from 87 million Facebook users, the FTC launched an investigation into Facebook. The FTC fears that Facebook violates the terms of the previous agreement, which requires Facebook to give users a very clear message when their data is shared by third parties.

According to the FTC statement, the order requires an independent privacy Committee on Facebooks board of directors to eliminate Zuckerbergs unconstrained control over user privacy decisions. Members of the committee will be nominated by an independent nominating committee, and if any member is to be dismissed, more than two-thirds of the votes will be required, which will also prevent Zuckerberg from using his shareholding to control the voting results.

Zuckerberg will also assume new responsibilities to ensure compliance with the order, the statement said. The order requires Zuckerberg and the designated compliance officer to submit quarterly certification to the FTC to confirm that the company complied with the privacy protection plan of the order. Zuckerberg and the officials also have to prove every year that the company complies with these orders and is obliged to tell the truth, otherwise they may face civil and criminal penalties.

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In addition, an independent third-party evaluation agency approved by the FTC will conduct a biennial evaluation of Facebook. Facebook must notify the evaluators within 30 days of discovering that more than 500 usersdata have been leaked.

Facebook Response: New Standards for the Industry

When the FTC announced the decision, Facebook responded immediately. Mark Zuckerberg, CEO of the company, said in a statement on his Facebook: We have a responsibility to protect peoples privacy, and we are working hard to fulfil that responsibility, but now we need to set a new standard for the industry.

Facebooks chief legal adviser, Sterage, also said the huge fine would require companies to make fundamental changes in the way they develop products and how privacy issues are considered in these decisions.

In the future, we will ensure that our privacy controls are effective through rigorous design processes and personal certification, and that we find and repair them when control fails.

The Daily Economic News (Nbdnews) reporter also noted that the settlement agreement between Facebook and FTC also includes Instagram and WhatsApp, the former subsidiaries, which may set the tone for further regulatory action by policymakers around the world.

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The FTC also accused Facebook of sharing user data with third-party developers without the explicit consent of some users, in violation of the companys reconciliation agreement with the agency in 2012. Facebook has told users that they need to provide their mobile numbers for security reasons. However, Facebook did not make it clear that the information would be used for advertising. According to FTC, Facebook also tells users that they must choose to use face recognition technology in photos, which is actually used by about 60 million users by default.

Regulators say these issues are well-known secrets inside Facebook. The Securities and Exchange Commission (SEC) said that as early as September 2015, some employees warned about the Cambridge analysis and asked whether Facebook was collecting user data for internal investigation.

Over time, the SEC said, more than 30 employees had been informed of the illegal actions analyzed by Cambridge, but Facebook told the media in 2016 and 2017 that the company had not found any misconduct. That is to say, Facebook not only reveals usersprivacy, but also intentionally conceals it.

Some members thought that the fine of $5 billion was too light.

In a statement, FTC Chairman Simmons, members Phillips and Wilson said the record-breaking fine was a historic victory for American consumers.

The scale of the fine will also set a benchmark for future privacy-related cases, which will send a strong message to every company in the United States that once they collect consumer data, the FTC has the right to punish them. The cost of privacy violations has risen because of this penalty.

But two FTC members, Chopra and Slaughter, disagree, and they disagree with the $5 billion fine.

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Although it is difficult to quantify the economic value of these violations to Facebook in this case, we have every reason to believe that the $5 billion penalty is too light, Slote wrote in an objection statement. The fact that Facebooks share price has risen with a $5 billion fine may indicate that the market believes such a light fine would be profitable for violations.

Most FTC members said: If the FTC brings a lawsuit against the case, it is unlikely that any judge will impose a civil penalty on the case. Members also said they could not accuse and prove that Facebooks board structure was illegal. Even assuming that the FTC will win the lawsuit, the court will not give the committee the full power to restructure Facebooks governance structure and operations in the way we think is appropriate, the majority of members wrote.

Slaughter also said court action would be a riskier option than the settlement agreement, but would help improve public Transparency -- If the outcome of the Facebook lawsuit is lower than the publics expectations, the public will have sufficient incentives to ask Congress to take measures to address the shortcomings in the law.

Source: Daily Economic News Responsible Editor: Yao Liwei_NT6056