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

55 points by jrepinc 7y ago

harryh 7y ago
There's certainly a good argument to be made that the fine should have been bigger, but statements like this misstate the facts: "Here’s another way to say it: the biggest FTC fine in United States history increased Mark Zuckerberg’s net worth." That's not what happened. The stock went down in advance of the fine because the market knew it was coming. The fine turned out to be a bit smaller than expected so the stock recovered a bit. But Facebook stock would definitely be worth more if the FTC hadn't acted at all.
- changoplatanero 7y ago
  Or the fine turned out to be exactly as expected and the stock went up because the uncertainty about the fine was resolved
alopecoid 7y ago
For a subset of users, Facebook leaked "page likes, birthday, and current city". Meanwhile, Equifax leaked the social security numbers of more than 145 million Americans, 200 thousand credit card numbers with expiration dates, and more than 175 thousand combined driver's licenses, tax/military ID cards, and passports. In fact, Equifax has a long history of incompetence in this regard. http://wikipedia.org/wiki/Equifax#Security_failings http://wikipedia.org/wiki/Equifax#Security_failings Where's the big fine for Equifax? http://reuters.com/article/idUSKBN1JN2YH http://reuters.com/article/idUSKBN1JN2YH ...Or the countless others who leaked much more sensitive data (medical records, for example) and at greater scale? http://wikipedia.org/wiki/List_of_data_breaches http://wikipedia.org/wiki/List_of_data_breaches Politicians and media have made Facebook a scapegoat to push their agendas, while others get away without consequence. The "embarrassing joke" is that the public buys into it.
- ineedasername 7y ago
  Regarding comparison to Equifax, I think it may not be equitable, which isn't to say that Facebook doesn't deserve the fine. I think they do. But Equifax does too. Facebook shouldn't forgo their fine because someone else got of lightly.
- o10449366 7y ago
  I would say the media is just as culpable here given how much influence they have on public opinion in America (and I would garner that's where most politicians get their information.) FB directly competes with most media publications for attention and content so they have a direct profit motive to target FB. The ironic part is that all the reporting is done under the guise of protecting or informing public privacy, but media publications continue to be amongst the worst offenders when it comes to user tracking and privacy violations. Of course, they'll never report on how they sell out your address, email, phone number, political views, etc. if you subscribe to their magazine because heaven forbid they hold themselves to some higher standard.
kellet 7y ago
Fines are always going to be a slap on the wrist to FB. The purpose here was to set precedent, but I don’t see it discouraging FB or any similar existing company to change their behavior, because that would also require them to change their business model. That’s not going to happen until users stop using their service. Ultimately the net effect of this fine is to provide a roadmap for future companies in how to formulate their business models. The problem there is that tech will always be ahead of regulations by its very nature. Btw, anyone know where that $5B gets put to use? Maybe it should subsidize our taxes so that we can benefit from some of the value we have generated for FB as users. Kind of like a refund for allowing them to monetize our personal data.
brianfitz 7y ago
Markets will factor in all known information ahead of a fine such as this — the possibility that it’s coming and some guess at the size and impact. In doing so, this would depress the price of the stock leading up to any news. Let’s assume that the estimate for the fine was exactly on the money — $5B. In this case, you’d still expect to see a jump in stock price due to the removal of uncertainty. Uncertainty can pull down prices just as much as bad news. Throwing out any opinions of what Facebook did, the size of the fine, etc. this is the type of simplistic reporting that gives the news media a black eye. It also happens quite a lot with science reporting such as an article last week on tube that could isolate sound based on its shape. The author made many leaps that were ripped apart on HN. Any particular instance won’t get noticed by the majority, but eventually an article will get published to an area of your expertise and it’s just glaring. When this happens enough times, you begin seeing the news in a much more nuanced and different light.
riffraff 7y ago
Doesn't this precedent open the gates for class actions? That seems more important than the actual fine.
tptacek 7y ago
No, it's not: * The fine, an FTC record-breaker, is equivalent to the cost of simultaneous acquisitions of multiple high-profile startups. * A mid-single-digits repetition of this fine would deplete Facebook's cash reserves entirely. * The fine covers specific conduct committed by Facebook (violations of their previous consent decree) that almost certainly netted the company multiple orders of magnitude less money than the fine cost them. * The fine was anticipated long before it was announced and has been priced into Facebook's stock; we can't look at the spot price now and know what it would have been without the fine factored in, because that's not how stock prices work. The purpose of the fine wasn't to punish Facebook for being Facebook; much as I might want that to happen, FTC doesn't have the authority to do that, nor should it, since it's an unelected administrative apparatus without lawmaking power. The point is to deter future violations of this and similar consent decrees at Facebook and other companies (Facebook being the largest of that cohort of companies). It surely accomplished that: whatever money Facebook made off of Cambridge Analytica and similar enterprises is surely dwarfed by the $5B fine, since chicanery like that isn't Facebook's core business. In the US, when a wealthy person parks in front of a fire hydrant, we don't give them a $100,000 parking ticket; the fine is scaled to the offense, not the offender.
- 11oitap 7y ago
  >>The point is to deter future violations >>has been priced into Facebook's stock So, the fine has failed its purpose already - considering FB stock price has now gone up when compared to when the scandals became public (choose any point on the timeline that you wish). Anyone who thinks FB is going to change their behavior after this fine (I hope that's not what you are implying) is - how to put it nicely - not a very bright person.
  - tptacek 7y ago
    On the contrary, I think FTC's willingness to fine companies $5B --- a sum squarely in line with what investment banks were fined during the 2007-2008 crash --- will absolutely influence Facebook's behavior in the future. People conceptualize Facebook as a single entity pursuing a single goal, and that's understandable given the company's management structure. Nonetheless, it is not that; it is a collection of organizations and product teams with differing incentive structures. The consent decree targeted specific operations in Facebook, not the company as a whole --- and those operations were idiosyncratic and outside the main flow of revenue to the company, to begin with. A business unit that makes $50MM and nets -$4.95B is one not long for this world. And, once again, you can't know how the market priced the fine, because it was priced in long ago, and you don't have a counterfactual price-without-fine to compare it to.

55 points by jrepinc 7y ago

There's certainly a good argument to be made that the fine should have been bigger, but statements like this misstate the facts: "Here’s another way to say it: the biggest FTC fine in United States history increased Mark Zuckerberg’s net worth." That's not what happened. The stock went down in advance of the fine because the market knew it was coming. The fine turned out to be a bit smaller than expected so the stock recovered a bit. But Facebook stock would definitely be worth more if the FTC hadn't acted at all.

changoplatanero 7y ago
Or the fine turned out to be exactly as expected and the stock went up because the uncertainty about the fine was resolved

alopecoid 7y ago

For a subset of users, Facebook leaked "page likes, birthday, and current city". Meanwhile, Equifax leaked the social security numbers of more than 145 million Americans, 200 thousand credit card numbers with expiration dates, and more than 175 thousand combined driver's licenses, tax/military ID cards, and passports. In fact, Equifax has a long history of incompetence in this regard. http://wikipedia.org/wiki/Equifax#Security_failings http://wikipedia.org/wiki/Equifax#Security_failings Where's the big fine for Equifax? http://reuters.com/article/idUSKBN1JN2YH http://reuters.com/article/idUSKBN1JN2YH ...Or the countless others who leaked much more sensitive data (medical records, for example) and at greater scale? http://wikipedia.org/wiki/List_of_data_breaches http://wikipedia.org/wiki/List_of_data_breaches Politicians and media have made Facebook a scapegoat to push their agendas, while others get away without consequence. The "embarrassing joke" is that the public buys into it.

ineedasername 7y ago
Regarding comparison to Equifax, I think it may not be equitable, which isn't to say that Facebook doesn't deserve the fine. I think they do. But Equifax does too. Facebook shouldn't forgo their fine because someone else got of lightly.
o10449366 7y ago
I would say the media is just as culpable here given how much influence they have on public opinion in America (and I would garner that's where most politicians get their information.) FB directly competes with most media publications for attention and content so they have a direct profit motive to target FB. The ironic part is that all the reporting is done under the guise of protecting or informing public privacy, but media publications continue to be amongst the worst offenders when it comes to user tracking and privacy violations. Of course, they'll never report on how they sell out your address, email, phone number, political views, etc. if you subscribe to their magazine because heaven forbid they hold themselves to some higher standard.

kellet 7y ago

Fines are always going to be a slap on the wrist to FB. The purpose here was to set precedent, but I don’t see it discouraging FB or any similar existing company to change their behavior, because that would also require them to change their business model. That’s not going to happen until users stop using their service. Ultimately the net effect of this fine is to provide a roadmap for future companies in how to formulate their business models. The problem there is that tech will always be ahead of regulations by its very nature. Btw, anyone know where that $5B gets put to use? Maybe it should subsidize our taxes so that we can benefit from some of the value we have generated for FB as users. Kind of like a refund for allowing them to monetize our personal data.

brianfitz 7y ago

Markets will factor in all known information ahead of a fine such as this — the possibility that it’s coming and some guess at the size and impact. In doing so, this would depress the price of the stock leading up to any news. Let’s assume that the estimate for the fine was exactly on the money — $5B. In this case, you’d still expect to see a jump in stock price due to the removal of uncertainty. Uncertainty can pull down prices just as much as bad news. Throwing out any opinions of what Facebook did, the size of the fine, etc. this is the type of simplistic reporting that gives the news media a black eye. It also happens quite a lot with science reporting such as an article last week on tube that could isolate sound based on its shape. The author made many leaps that were ripped apart on HN. Any particular instance won’t get noticed by the majority, but eventually an article will get published to an area of your expertise and it’s just glaring. When this happens enough times, you begin seeing the news in a much more nuanced and different light.

riffraff 7y ago

Doesn't this precedent open the gates for class actions? That seems more important than the actual fine.

tptacek 7y ago

No, it's not: * The fine, an FTC record-breaker, is equivalent to the cost of simultaneous acquisitions of multiple high-profile startups. * A mid-single-digits repetition of this fine would deplete Facebook's cash reserves entirely. * The fine covers specific conduct committed by Facebook (violations of their previous consent decree) that almost certainly netted the company multiple orders of magnitude less money than the fine cost them. * The fine was anticipated long before it was announced and has been priced into Facebook's stock; we can't look at the spot price now and know what it would have been without the fine factored in, because that's not how stock prices work. The purpose of the fine wasn't to punish Facebook for being Facebook; much as I might want that to happen, FTC doesn't have the authority to do that, nor should it, since it's an unelected administrative apparatus without lawmaking power. The point is to deter future violations of this and similar consent decrees at Facebook and other companies (Facebook being the largest of that cohort of companies). It surely accomplished that: whatever money Facebook made off of Cambridge Analytica and similar enterprises is surely dwarfed by the $5B fine, since chicanery like that isn't Facebook's core business. In the US, when a wealthy person parks in front of a fire hydrant, we don't give them a $100,000 parking ticket; the fine is scaled to the offense, not the offender.

11oitap 7y ago
>>The point is to deter future violations >>has been priced into Facebook's stock So, the fine has failed its purpose already - considering FB stock price has now gone up when compared to when the scandals became public (choose any point on the timeline that you wish). Anyone who thinks FB is going to change their behavior after this fine (I hope that's not what you are implying) is - how to put it nicely - not a very bright person.
- tptacek 7y ago
  On the contrary, I think FTC's willingness to fine companies $5B --- a sum squarely in line with what investment banks were fined during the 2007-2008 crash --- will absolutely influence Facebook's behavior in the future. People conceptualize Facebook as a single entity pursuing a single goal, and that's understandable given the company's management structure. Nonetheless, it is not that; it is a collection of organizations and product teams with differing incentive structures. The consent decree targeted specific operations in Facebook, not the company as a whole --- and those operations were idiosyncratic and outside the main flow of revenue to the company, to begin with. A business unit that makes $50MM and nets -$4.95B is one not long for this world. And, once again, you can't know how the market priced the fine, because it was priced in long ago, and you don't have a counterfactual price-without-fine to compare it to.