SEC also Settles with Facebook, Naming Cambridge Analytica

The record-setting $5 billion FTC settlement against Facebook has captured the headlines and triggered a debate about the size of fines and the role of regulatory agencies. The FTC has touted the size of its fine, which is more than 18 times the size of the previously highest fine.

FTC Summary of Enforcement Actions

The settlement was actually comprised as a trio of related claims and settlements. None of these, however, were explicitly brought under election law violations though that manipulation has been at the heart of the public abuse.

In a companion settlement, the Securities and Exchange Commission fined Facebook $100 million for its deceptive practices involving Cambridge Analytica. Facebook made misleading public disclosures in its reporting documents regarding the misuse of Facebook user data.  “For more than two years, Facebook’s public disclosures presented the risk of misuse of user data as merely hypothetical when Facebook knew that a third-party developer had actually misused Facebook user data.”

The SEC summarized the legal standard. “Public companies must identify and consider the material risks to their business and have procedures designed to make disclosures that are accurate in all material respects, including not continuing to describe a risk as hypothetical when it has in fact happened.”

In the third settlement, the FTC took direct action against company Cambridge Analytica, even though the company was not named by the FTC in its case against Facebook. In addition, the FTC settlement included Cambridge Analytica’s former Chief Executive Officer Alexander Nix, and Aleksandr Kogan, an app developer who worked with the company.

Despite the liability for Cambridge Analytica, the real misconduct was promoted by Facebook and its culture of consumer fraud and abuse:

“Despite repeated promises to its billions of users worldwide that they could control how their personal information is shared, Facebook undermined consumers’ choices,” said FTC Chairman Joe Simons. “The magnitude of the $5 billion penalty and sweeping conduct relief are unprecedented in the history of the FTC. The relief is designed not only to punish future violations but, more importantly, to change Facebook’s entire privacy culture to decrease the likelihood of continued violations. The Commission takes consumer privacy seriously, and will enforce FTC orders to the fullest extent of the law.”

The FTC also gave some information on its process in the year-long investigation. The settlement included allegations that Facebook repeatedly used deceptive disclosures and settings to undermine users’ privacy preferences in violation of the 2012 FTC order. “These tactics allowed the company to share users’ personal information with third-party apps that were downloaded by the user’s Facebook “friends.” The FTC alleges that many users were unaware that Facebook was sharing such information, and therefore did not take the steps needed to opt-out of sharing.”

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