Facebook’s $5B FTC fine is an embarrassing joke
theverge.com
theverge.com
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
Where's the big fine for Equifax? 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
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.
* 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.
What makes this fine different, other than being bigger? They can afford it. Why will they change their behavior now when they didn't before? Other companies of this sort haven't changed their behavior. Will Facebook finally learn after they commit even larger offenses and then get slapped with another larger fine 5 years later?
Like, realistically speaking: "Profit" here is not the goal, especially not in the earlier phase. FB making a billion dollars is a side effect of the other things they really want, which is growing a market and building lock-in - because those things are worth a LOT. It's the same reason Uber is willing to lose money on rides and eat legal penalties and get dragged into court: The costs are worth the result. So I'm not convinced slapping FB with a $5b fine after this long is really going to have a deterrent effect. Hopefully it does...
The problem is many people are very slow to adapt and understand that at this point enough "entities" are so rich and powerful that any scaling to the offense is practically impossible unless you want to scale the offense itself. It's the same when some people imagine everything "cyber" is perfectly analogous to the traditional ways. This also results in things that don't fit their purpose.
So either you consider Facebook's offense as far more egregious based on their size and reach and apply a proportional punishment, or you consider the offense as the same as anyone else's but you scale up the punishment.
Anything else is basically giving a get out of jail free card to the already powerful while helping eliminate their competition that can't take the same level of punishment. So without defining fines as percentage of revenue or directly punishing executives (much harder to pull off) these fines are indeed jokes. They do not achieve their purpose.
No, it's not, but it kinda works, well enough for most people. It punishes poor people too harshly and wealthy people can shrug it off too easily. But for the vast majority of people it works.
For companies it doesn't make sense at all, there just is too much variance between companies. I also doubt it is what happened here, the 5 billion looks scaled to the offender as well as the offense.
When a guy robs $1000 from a bank, he'll spend years in prison.
It's a much bigger offence than the loss of $1000.
Likewise, Facebook's offence in intentionally and recklessly disclosing private data on tens of millions of users has no relationship to how much money Facebook made from the disclosure.
>>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.
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.
The headline penalty amounts were inflated with bogus dollars that the banks never actually paid.
A great example was Bank of America's purported $17 billion settlement.
https://www.justice.gov/opa/pr/bank-america-pay-1665-billion...
This was really $7 billion in actual cash, plus double-counting $3 billion of pre-existing penalties that BofA hadn't paid yet, and then juiced further with totally bogus $7 billion in "homeowner relief".
That "homeowner relief" consisted of adding up "principal reductions" on bad debt that the bank had already suffered because they made bad loans, plus "new loans to credit worthy borrowers".
Like when there's a class action lawsuit for criminal corporate behavior and the "settlement" is a coupon for 20% off more purchases from the company.
The details aren't out on the Facebook settlement, but if the bank penalties are any guide, the cash actually paid could be a fraction of the $5 billion headline number.
Assuming FB actually has to cough up this fine and also assuming FB won't mend its ways (logical assumption ;) ), it would definitely affect the FB in serious manner.
But yeah, I am pessimistic that FB won't mend its ways and won't pay any fine either. The will power to do that is just not there.
So how big is the offense? 80 million people directly just in the Cambridge Analytica case, plus how many hundreds of millions indirectly through the resulting election hijinks?
Facebook was already sanctioned under the consent decree, and they deliberately and recklessly disclosed user data, and then tried to cover it up.
Scaling to the offense, I'd say that a fine of far less than $100 per user is extremely lenient under these circumstances.
And just wait -- months or years from now we'll learn that Facebook didn't even pay the full $5B, but had a large portion deferred or possibly even structured with bogus "in-kind" payments.
Really?
https://en.wikipedia.org/wiki/Liebeck_v._McDonald%27s_Restau...
My personal opinion is that that is the pointa that is probably most broken in the US legal system.
Fines should be penalties for breaking the law. And they should hurt, which means that fines for wealthy persons should be bigger than for less wealthy people, otherwise wealthy people can break law with no practical repercussions. And fines should be paid to the government, not to the victim.
On the other side of the coin, the payments due to damage caused due to illegal activities should just cover the damages and no more to the party that has been the victim of the damage. It is completely ridiculous that you can expect to get wealthy if you can convince a jury that the coffee you bought was too hot.
Yes, but the US's system of fines might be considered regressive (big enough to hurt poor people, small enough to mean nothing to rich people) compared to countries which use day fines which are in fact scaled to the offender.
It is an apples to oranges comparison. Acquisitions aren't easy and still cost a good amount of time for implementation. Paying a fine is easy.
> repetion... would deplete... the cash reserves.
This was deducted from their quarterly profits in their quarterly report. Not reserves.
> netted the company multiple orders of magnitude less money than the fine cost them.
Again apples to oranges comparison. Act has to be compared to the larger set of actions that netted profits. If a company runs 10 initiatives and gets fined for one, it should be compared to the returns on 10 initiatives.
I want to scream this was a settlement. Not a fine. Facebook said we will pay 5B. FTC said fine. In other words, a bribe against the American people.
Cambridge analytica is a result of Facebook behavior and not a result of decision making. Fb wanted advertisers to LEARN to use its platform before they had any idea on how to do that. And Many failed in the beginning. Had Fb not been more open with their product offerings, companies would never figure out how to utilize Fb. This was both reckless and necessary. This was calculated.
Today profits dwarf the fine.
"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.
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.
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.
That seems more important than the actual fine.