Facebook paid billions to spare Zuckerberg in data suit, shareholders allege | Hacker News Reader

Facebook paid billions to spare Zuckerberg in data suit, shareholders allege

politico.com

611 pointscroes345 comments

FB also pays $12M a year for Zuckerberg's security details? In comparison, Amazon pays $1.2M for Bezos. So, I was wondering what kind of security could possibly cost $12M. Sounds like a tax-free way of spending on house decoration?

If you want a few guys for security at any given time, and you want security 24/7, and you need security at multiple locations, then this all adds up really fast.

3 people in three shifts is 9 people needed per day. Given that people aren't going to work 7 days a week, you need extra people for coverage and weekend shifts. Let's be conservative and say 15 total. This is per location. Office, house, second house. That's 45 people. That's $266k per year in cost per person. Given the expenses of the motor pool, motor pool maintenance, travel accommodations and expenses for personal, the admin overhead of managing 45 people, etc etc this sounds fairly reasonable to me. If I was a billionaire I'd be spending at least that much too.

the Secret Service has an annual budget of almost $2.5 billion (though they do have some responsibilities aside from protecting POTUS)

I mean, the protect EVERY living president not just the current one.

They also protect visiting foreign dignitaries.

And they get to use more exciting/expensive tools that would otherwise be illegal for private citizens/companies to use.

They also investigate monetary fraud I believe.

Also counterfeit items, I think.

And the extent of their protection is not comparable to anything some rich CEO should have. Zuck doesn't need snipers on the roof and armed soldiers hiding in bushes around his house.

And he doesn't have to transport a 20,000lbs limousine and ~40 other vehicles behind a private jumbo jet wherever Zuckerberg travels.

US Presidents don't have to, either. No other elected officials apart from the POTUS do, not even similarly-hated ones like Xi, Bolsonaro or Putin.

They spend the money because it's not their money, because they can, and to flex on other leaders who are more budget conscious. Even for Zucks a billion a year on security theater would be a bit rich - because he spends his own money.

Whatever private security firm Zuckerberg uses is going to be closer to mall cops than the Secret Service.

Pretty naive considering the amount of money FB and Zuck roll in

He probably has mostly off duty/retired cops working for him so they can bypass concealed carry permit restrictions and let them all carry firearms in every state under LEOSA. It's also a good way to avoid jurisdictions that are very restrictive with issuing CCWs since they sometimes require bribes as part of the application process[0][1].

[0]https://www.sccgov.org/sites/da/newsroom/newsreleases/Pages/...

[1]https://sanfrancisco.cbslocal.com/2021/08/17/update-embattle...

One if their main duties is to go after counterfeiting of the currency. In fact it's what they were founded to do

https://www.secretservice.gov/about/history

We are one of America’s oldest federal law enforcement agencies, originally created in 1865 to stamp out rampant counterfeiting in order to stabilize America's young financial system. By the end of the Civil War, nearly one-third of all currency in circulation was counterfeit. As a result, the country’s financial stability was in jeopardy. To address this concern, the Secret Service was established in 1865 as a bureau in the Treasury Department to suppress widespread counterfeiting.

Another bit of trivia: Lincoln signed the bill creating the secret service on the day of his assassination, which is why the Treasury is tasked with executive protection.

Well, they were. Secret Service moved from Treasury to DHS after 9/11.

Will you ever address this counterfeiting?

https://fred.stlouisfed.org/series/M2SL

The Secret Service is one of the largest federal law enforcement agencies, responsible for investigating most financial and computer crimes. They have thousands of investigators and over 100 field offices in the U.S. (more than the FBI).

Some people get paid to investigate financial and computer crimes, other people get paid better to commit them...

"Hey Sheryl, where are we gonna hide our offensive computer security team's budget?" "Let's put them dozen as 'personal security' for Mark."

> the Secret Service has an annual budget of almost $2.5 billion (though they do have some responsibilities aside from protecting POTUS)

In much the same way that the USMC has some functions besides providing West Wing sentries.

Not that high. Unless it's premium plus kick-backs plus slush fund.

Your estimates are pretty spot on. I'd also add that security companies generally contract at double the hourly rate for officers, and $133,000/yr, $66.50/hr is simply not a mind-boggling number to be paying good quality armed security that need significant vetting and training.

I had always thought military pay was pretty low, but apparently $133,000/yr is around what a First Lieutenant with 10yrs service makes. So perhaps that is quite reasonable for real security.

https://myarmybenefits.us.army.mil/Benefit-Library/Federal-B...

> a First Lieutenant with 10yrs service

Are there First Lt's with 10 years of service? I thought it was up or out.

There has been more flexibility in that recently, as I understand (also, promotions from the ranks could easily do it, but those—at least for more than 4 year enlisted service—have different pay scales at at the O-1 to O-3 or -4, I forget, level)

Sure.

You make E-6, and then go to OCS. Now you're a 1LT with 10 years service. More frequent in National Guard.

Update: hang on, despite the reference to bimonthly paychecks in the link, other sources seem to imply the numbers in the table are monthly rates, which would put $133,000 closer to Brigadier General. That would be a very different story!

My understanding is you need to account for base allowance for housing (BAH) and if deployed overseas, you get tax exemptions, healthcare, full retirement + pension after 20 years, etc, etc.

Military pay for newly enlisted is quite low, but if you're living on base and not paying for housing or food, it's not bad. Officers get paid pretty well all in.

Comparing to military pay is generally somewhat misleading since military comes with free housing (which is fairly considerable)

Food, housing, health care, and many businesses offer discounts. It does create an apples to oranges comparison to the private sector.

Surely the 30 people in that calculation at the locations Zuck is not currently at would be on-call, and not on full hourly rates though?

I'd be a pretty sweet security gig, hanging out at Zuck's 2nd or 3rd house doing nothing much for weeks on end... (You'd probably have enough on-the-clock free time to get paid to learn to code and crank out a few startup ideas...)

Just because a location is unoccupied doesn't mean it's safe to leave it unsecured. Besides the risks of people sneaking in to steal, take photos, or plant bugs, you also have stalkers that range from "I just wanted to meet my hero" to "I'm already in your bed, so we're going to have sex or I'm accusing you of rape" to "Your skin would make a nice jacket." They probably do have on call staff, but realistically he has 3-5 guards assigned to him specifically at all times with 24/7 coverage of key locations.

And you're correct about chilling out and learning on the clock, it's kinda how I got my current gig. Most just watch Netflix though.

>"Your skin would make a nice jacket."

I think this part describes the cost differential between Zuckerberg and Besos; Besos is no longer good jacket material.

Rich people don't usually do "on call" because that would suggest using a service-for-hire. Rich people hire everyone as directly as they can because it gives them maximum control.

It's much more fun to think one of the richest people in the world is committing tax fraud by getting extra "spotter" security people hired that are less trained and more spread out on the property, and then handed yard/cleaning supplies and told "well, while you're in the area, maybe clean up a bit, okay?"

Ok how does Bezos do it 10x cheaper? This is a very Amazon vs. Facebook stat haha.

Totes his own nines...

(Part of his bad boy puffer jacket fashion makeover...)

Bezos likely just pays for it directly rather than having Amazon pay for it. There could be a million reasons for that, but in either case it's like not Bezos gives a single fuck about $10 million a year

Frugality

Accomplish more with less. Constraints breed resourcefulness, self-sufficiency and invention. There are no extra points for growing headcount, budget size, or fixed expense.

Doesn't explain how Bezos gets away 1o times less in company expenses.

Maybe Bezos is more confident in strangers?

You mean Zuck values his privacy, like, a lot? Who would have thought!

In front of Zuckerberg’s house in San Francisco, 24 hours a day, there is a man sitting in a black escalade watching his house. That’s not free.

I imagine it’s like that across his numerous properties, as well as more who travel with him at all times.

OP's is a sensible question to ask really. made me wonder what makes his security cost 10x, not why it's needed.

I guess the point being more that 1.2 million seems really quite low to do it properly, 24/7.

Perhaps after all the steroids bezos doesn't need the help.

Or maybe he taught that robot dog to bite: https://cdn.geekwire.com/wp-content/uploads/2018/03/180319-b...

What’s the address :P?

I wonder how many of them spend all day with AR glasses on clicking on things that aren't threats, to train the AI that'll put them out of a job?

(I wonder if you could sign up for that job, and poison the training set so Zuck can never get near, say, a fire hydrant or a puppy - without the robots all going to defcon 5?)

Defcon 5 is exactly where they should be if they want to pet a puppy.

Why Mark Zuckerberg’s Personal Security Costs Eclipse the Rest of Silicon Valley

https://medium.com/swlh/why-mark-zuckerbergs-personal-securi...

$65K a day.

Wow.

No sources cited for any of the interesting claims, nor does this article actually answer the question in concrete terms. This is someone who turned their opinion on why his security is so expensive into a full length article.

Tldr the author thinks it's because so many people use Facebook, have strong opinions on their policies, and because Zuck as the founder is synonymous with the company.

I’d say it’s more shocking how little they pay. These are founders who’ve created trillion dollar properties. Them being hurt or even hassled would potentially destroy billions in market value. If I was a shareholder, I’d insist on spending POTUS-tier security.

Probably not, taxpayers spend a couple of BILLION a year just for the helicopters

Zuck is worth $120B+.

Whatever is going on, it's not about him saving tax on $0.012B

Wealth and income are very different concepts, however. The first result on Google says that he earned $25M (total comp.) last year from Facebook. While the original comment states that FB provides the security detail, so it is not a personal liability of his, an amount equal to half of your purported income from said business is still quite significant and not something you would ignore if a tax benefit is present. Especially when you have that kind of money to hire the best tax professionals around to take care of it for you.

His yacht has two smaller yachts that follow it with security teams on board. Seriously.

I guess the difference between running an online store and running a hate machine. Bezos' main concern (as with any run-of-the-mill billionaire) is kidnapping. On the other hand, if your business model has driven people to literally commit genocide, you're going to experience blowback that warrants some extra protection.

You know he is the CEO of Facebook. He needs some @@##$Privacy...

In any case, they overpaid the fine by thousands of times compared to what was required, so there is another shareholders lawsuit coming their way. You cannot be a public company and mismanage the company money like this.

Impressive. Does this count as a benefit that Zuck owes taxes on? Or does FB write it off as a loss that reduces their tax burden at no cost to Zuck?

I don't reckon this is something that is taxed. We don't get taxed if an employer pays for us to go to a conference, offers us legal advice, etc.

Actually here if the employer pays too much for going to a conference (for some countries more than 24€ per day for food) then that amount needs to be taxed.

Wow, which countries? 3 meals for 24 euros sounds like a trip I wouldn’t want to take. My tastes are plain.

In the UK it's called Benefit in Kind. There are special rules for company cars, loans, and accommodation. But significant private use of phones and computers and such can be treated as taxable income. As can non-business travel and entertaining.

All of which are grey areas.

You invite some visitors from another company out for a meal after a meeting. Unsurprisingly, you spend some time talking about business - and some not.

Is that business entertaining, or not?

You're self employed, you spend a lot of time on social media, partly because every so often you find something that's useful for your business, even though most of it is just noise, and some of it is entertainment.

Business use of your computer, or not?

It's all debatable, and can cause real issues if the Inland Revenue expects business use to mean business hours in an office and nothing but.

In Germany the tax free reimbursed for a day of domestic travel is capped at 28€ for a full 24h day and 14€ for partial days. If any meals are provided by the company (e.g. as part of a dinner with clients) that’s reduced by 20% for breakfast and 40% for lunch and dinner respectively.

For comparison, for San Francisco the rate is 51€.

The conference and some sorts of legal expenses are pretty legitimate expenditures if you operate with the opinion that going to a conference makes you a more productive employee. Training employees definitely shouldn't be double taxed (we might even want to subsidize it as a society) but it's a hard area of activities to define.

Legal expenses brought on solely due to your employment (i.e. the rando manager at dominion that a bunch of people sued last year) also shouldn't be considered individual benefits. Employers should never have the ability to shift liabilities onto employees without really good cause (i.e. gross negligence). That's why, if there's an accident at an autoshop with a lift and you're injured you're generally better off suing the shop rather than the employee.

For the corporation, it depends on the fine. Normally they cannot write off fines but apparently it does happen if it is not considered an official penalty or fine: https://www.pbs.org/wgbh/frontline/article/how-80-billion-in...

So it's a "donation" to avoid legal trouble. I'm not a lawyer, but that certainly stinks like bribery (or perhaps extortion) to me.

Excuse me good Sir. In America bribery is illegal - this was just an inventive application of Lobbying which is entirely distinct and perfectly legal.

Fines are not lobbying. Lobbying contributes to a future campaign. Fines go to the government directly

So is Zuckerberg saying he values his privacy that much? I mean, what does he have to hide?

Meanwhile, FB itself buys info on people to "augment" their understanding of them as users. And for those who don't willingly participate - they create shadow profiles.

I get you’re attempting to make a point, but liability != privacy. They didn’t pay 5 billion for his privacy. At least that wasn’t the main goal, even if it is a byproduct

Zuckerberg is Facebook - he has controlling interest.

Keep in mind he lives in a house in Palo Alto, CA where he bought all the houses around him to gain more privacy. He clearly values it.

Nobody is arguing that Zuck doesn't value his privacy..

He does rent the houses back to the original owners. He had people offering money to these neighbors so they could live next to Zuckerberg.

How much to add a gag order / classify the whole agreement, NSA letter style ? Asking for a friend. At some point these decisions get made by a committee of people who are themselves way below the pay grade for these decisions… I wonder how that works. The math is hard to make consistent.

"Shareholders" doesn't mean much here.

Facebook has Class A shares that each get one vote.

Facebook has Class B shares that each get ten votes.

The board has Class B shares.

The Zuckerbergs control most of the Class B shares.

Enough to have a majority of the votes.

That's what owners of Class A shares bought into when they bought their Class A shares.

If the article didn't ignore this, it would be a lot less interesting. So it does.

How does that impact the lawsuit? There's no vote involved, it's a courtroom. Whatever their voting power, they lose the same amount of money.

that doesn't mean class B shareholders can do anything they want that hurts class A shareholders.

There’s no evidence (in the article) that any shareholders were harmed.

Businesses pay money to settle legal issues all the time.

The larger payment settled the issue (with the Federal Government). The smaller alternative would not have (according to the article).

In the end some shareholders disagree with other shareholders.

And anyone can sue anyone.

Class B shareholders can do anything they want that hurts class A shareholders, so long as class A shareholders can't successfully sue. 67.8% of Fortune 500 companies incorporate in the state of Delaware[1], largely because Delaware has a Court of Chancery that handles corporate cases and is renowned for making shareholder lawsuits unsuccessful.

[1] https://www.legalzoom.com/articles/incorporating-in-delaware...

I am extremely uncomfortable with these less voting right shares that so many companies(FB, Google et al) favor these days.

It perverts the open market and reminds me of shenanigans in Eastern European stock markets and Asian ones where it is the norm for minority shareholders to be left out to dry.

It creates a conflict of interest for those with more voting rights than ownership. Usually the interests are aligned but there are no checks and balances anymore.

In the old days a corporate raider could challenge a badly run company and threaten to overturn the board.

So now you have 14% of company but have 65% of voting rights you can do whatever to those 85% "minority" shareholders.

So those with Class B shares get to have their cake and eat it too.

This is close to FB building a 5B money hole(https://www.youtube.com/watch?v=JnX-D4kkPOQ) in a desert.

> you have 14% of company but have 65% of voting rights

Good point. It makes no difference if the other shareholders have 1 or 0 votes per share. They have no control of the company, they just loaned it money - in practice they have variable yield bonds.

Also, viewed that way, the company has a much smaller market cap and a huge debt.

One point I think a lot of people are missing here: it's not likely that Zuckerberg would have paid anything out of his own pocket even if he had been sued individually. Generally most large companies agree to indemnify and defend their executives against any civil liability stemming from their position with the company.

> The FTC also said in court that Facebook’s fine would have been closer to $106 million, but the company agreed to the $5 billion penalty to avoid having Zuckerberg or Chief Operating Officer Sheryl Sandberg deposed and any liability for the CEO, the suit alleged.

This is bizarre. I get throwing in a little extra to shield executives, but $5 billion?

This is crazy money, yeah, for us.

It's not the amount. It's the ratio. They overpaid by over 47 times. A company filled with world class lawyers and business executives, as well as an experienced board does that? Why?

Because the boss told them to?

yes....that's what's crazy: why? Not sure the why folks are confused about folks being confused about this.

There must be some logical reason they would pay out close to 50x the demanded payout, but none of us for the life of us can imagine why beyond shielding personal liability. So, why is that possible?

It’s not only personal liability - surely Zuckerberg and Sandberg being deposed would be a liability for Facebook as well.

Or maybe it would be a long overdue cleanup

Perhaps precedent. The difference between Facebook as a firm being liable for everything that has happened or will happen, vs an individual being liable?

The settlement happened after the 5B was paid. The 5B likely included a fine they were seeking, too.

The fine was 109M.

Not sure why you felt the need to clarify that the settlement happened after the 5B was paid when the 5B was conditional on Zuckerberg / Sandberg not being liable in the settlement.

The question is what did these people know / do that was worth 47x the fine to keep them safe.

The point is, the 5B was a fine, accepting full penalty for whatever "wrong thing", over that part which was being investigated.

The 47x number is apples and oranges. They are two different fines / issues.

What Zuck knew isn't relevant, for, the fine was likely "if all the bad things we think you did, happened, then this is the fine".

So, in essence, he admitted to all the questions being asked.

Zuck / Facebook paid, rather then shine greater light on things. So yeah, bad stuff surely, but I see no direct connection to the other fine.

In fact, by relating it to the other fine, people are missing that it may have been an entirely other (very bad) matter.

The bit about personal liability, etc, etc is standard boilerplate stuff.

I believe the term "fuck you money" has never been more apt.

This case may have elevated it to "fuck society money"

well zuck basically has full decision rights over FB shares. If I am not mistaken, only he has voting rights, no FB common share holder holds any voting rights

Minority and even non-voting shareholders still have rights, the majority cannot arbitrarily deprive them of the benefits of ownership. The legal doctrine is "shareholder oppression".

If Zuckerberg really did pay more than he had to solely for his benefit at the expense of minority holders then it would be an example of this.

He already has bad relations with minority shareholders[0], so I wouldn't be surprised if someone tries to sieze this opportunity.

[0] https://www.dailymail.co.uk/news/article-8261775/Facebook-in...

I’m sure a high priced lawyer would argue that Mark Zuckerberg in prison would be a worse outcome than a $5B fine for FB shareholders (I’d tend to agree, but I don’t own any FB outside of index positions exactly for the regulatory/legal risk that FB is exposed to, which I feel the market underestimates)

That's a counterfactual.

Having your CEO in prison would not do good things for the share price, I’m not sure what you mean by counterfactual.

It’s a simple calculation of utility: minus $5B in market cap for the fine, vs unknown market cap loss from CEO in prison

I mean, you are assuming if he is deposed then he will go to prison, whereas we don't actually know what consequences will really occur because you are talking about situation that did not happen (counterfactual to reality).

In America it's often the case that being indicted or accused is enough to brand you a criminal. Him taking a stand with some propoganda thrown around to make him look a bit guilty could cause significant damage regardless of the truth of the matter.

Market cap != cash in the bank. Market cap is just a fantasy number that reflects how much people are willing to pay for your stock. I'm sure FB's market cap barely budged after this $5B payout.

It reflects how much people think the company is worth, which is 5B less (-0.5%) than it was before.

The discussion was about fiduciary duty to shareholders, and share holders care a great deal about market cap since it is a reflection of the current share price. My point was also that Mark Zuckerberg being deposed and/or imprisoned would affect the share price more than the fine.

The market cap is a ‘fantasy number’ in the sense that the liquidity doesn’t exist to market sell/buy all outstanding shares at the current bid/ask, I’ll grant you that.

I really don't like Facebook but I think it's quite accurate. Zuckerberg is the face of Facebook and revealing dirty secrets of his would likely hurt the company value beyond the 5B pricetag.

I don't think it's just though.

A great way to not go to prison is to not break the law. It’s also cheaper.

I think that Matt Levine ( https://www.bloomberg.com/opinion/authors/ARbTQlRLRjE/matthe... ) some time ago mentioned a similar case?

A CEO being as well a shareholder of the company wears 2 hats => as CEO he has to act in the best interest of the company (which includes all shareholders?) => a conflict with remaining shareholders arises if he as CEO acted for his own personal benefit? Something like this? I think that Matt Levine's conclusion was open, but I'm not sure... .

Common shares vote, insider shares just vote 10x more per share. He isn't the only one that has them, but the way things are structured he has control of the company and more than half the total votes.

The latest figures seem to indicate he has about 58% of the voting shares.[1]

1. https://www.bloomberg.com/news/articles/2021-05-26/facebook-...

> I get throwing in a little extra to shield executives, but $5 billion?

If i had singular control of a company the size of FB and the ability to spend it's money to avoid any sort of liability, i'd take the offer too.

It’s a hell of an upsell, though. That’s 50 times the initial price. Zuckerberg must have been really worried, or really, really unwilling to take any personal risk.

The marginal utility of $5b of facebook’s money to Zuck is very low, but the cost of even a low chance of serious personal liability is high.

Guessing he had a few people fired from their 100k jobs for only generating a mil in profits for the company and thus being a drag on the metrics.

Zuckerberg is worth $130 billion.

And this $5 billion isn't even his money; it's the company's.

> Zuckerberg must have been really worried, or really, really unwilling to take any personal risk.

I’m not so sure. If you asked a random person if they could wash the dishes, or not do them but someone other person would have to pay 5 billion dollars, what would the result be?

Depends on whether or not they're psychopathic enough to be CEO material.

I feel like these figures -- 50x and $5B -- are good things for people to keep in mind next time their company asks them for uncompensated self-sacrifice.

I'm sorry guys - we're unable to offer a CoL adjustment or performance raises this year. We really wish we could but the CEO just mauled a few pedestrians in his lambo.

> That’s 50 times the initial price.

There is no limit of someone else's money i'd spend - repercussion free - to avoid the slightest bit of liability. I can imagine the same thing applies to Mark. tbh can't fault him for it.

The blame for this behavior lies in the FTC for brokering a deal (as if the US needed money? Was it for a big-number press cycle?) and for early stage investors in FB for allowing a business with such a brass stock agreement.

Oh in point of fact this was illegal if it's true, and I don't know how you ignore the law in who you can "fault" with respect to corporate officer conduct.

But he personally has a controlling stake in the company, it’s like at least half his money in some sense.

or is just really rich. perspectives are different at that scale.

if he has the ability to make fb pay for it why not?

It's just like me not giving a second thought to getting in my car, driving down to the market that's 1.5 blocks away to pick up some eggs. When I didn't have money, didn't have a car, that was unbelievable to me. But now it's just second nature.

To people with wealth at that scale, hundred million vs single digit billion might not be such a big deal. (I mean it's one order of magnitude to go from x00 million to y billion, so it's not that far fetched for a rich person to take that as is)

The real discussion should be why the fine was so low and wasn't in the hundreds of billion to trillion range in the first place. That's the real steal.

Minority shareholders aren't just supposed to be along for whatever frolic you whimsically decide to send them on.

Queue the shareholder lawsuit.

USA is home of justice to the highest bidder.

Cue*

Er, yes. The topic of the linked article - the reason that this is coming to light in the news now - is indeed, that a shareholder lawsuit has been brought against them (Zuckerberg, Sandberg, etc are named defendants and the company is nominal defendant). Direct link, from the article: https://655e71e2-f98d-40e9-822b-081bc894b6af.filesusr.com/ug...

Also, lawsuits aren't just raw competitions between two entities about who is willing to spend the most.

Not to mention the "minority" shareholders are only minority in voting rights, not minority in shares owned. The multi-class share system is designed to enable exactly this kind of executive behavior, where even a broad shareholder revolt isn't enough.

But in this case the Facebook board (which has a fiduciary duty to the company, not to Zuck) paid $5B when the BATNA had them pay $100M. The extra money bought the company nothing; the only benefits were to Zuck and Sandberg personally, which makes the $4.9B undeclared income -- if they didn't disclose it as part of their compensation on the relevant SEC documents and W2s, it's tax and securities fraud. And hence this lawsuit.

It seems pretty clear that the company considered avoiding depositions of Zuckerberg and Sandberg to not be worth $0.

Are they not? It's not exactly a secret he has full control.

How did he get and maintain full control?

What are other startups / companies where the founder is in full control?

Is it possible, as a founder, to maintain complete control of the board and the company through Series A - E ?

I've seen several short answers on this in other threads, but I want to know more about this.

> How did he get and maintain full control?

It's his company. When you make the company and give out shares, just get the lawyers to agree to allow you to keep control. Its just legal documents. If you have a good startup VCs and angels may be willing to give you better terms.

> Is it possible, as a founder, to maintain complete control of the board and the company through Series A - E ?

Sure. I've noticed several company IPO announcements on HN lately included the founder-control shares in their IPO prospectus, so it can't be too unique.

The way they do this is by having share classes. Eg Class A shares each gets x% of company and y% of votes. Class B shares get X% of company and [Y/20]% (or 0 sometimes) of votes. The 1/20 is arbitraty btw, it can be any ratio. Sometimes i see A, B, C shares where A is founder/vc tier with extra votes, B is "regular" with smaller votes, and C is no-vote shares, and often C is sold through IPOs into the exchanges.

I have no data on how common these different schemes are, but they're things ive seen in HN-announced start-ups and IPOs in the last year, so take that as anecdotal.

It honestly just comes down to a question of what the investors will let you get away with - if you're viewed as incompetent but sitting on a golden goose investors will push to dis-empower you as much as possible whenever you come knocking for emergency funds. If the company is successful and just seeking some marginal funding that could, alternatively, be secured by bank loans... then you've not given them as much leverage to work with.

He maintained full control by growing the value of Facebook so quickly and with so little capital that he could raise financing at astronomically low dilutions.

Facebook has two types of stock. Class A and Class B. Class B stock gets 10 votes per share, while Class A stock gets 1 vote.

Zuckerberg and other very early people had Class B stock so they can continue to have more than 50% of the vote even when they own less than 50% of the stock.

This was a really popular stock structure in Silicon Valley for a while because it cements founders in control - Evan Siegel at Snap has the same deal, and Adam Neumann at WeWork was about to do it. But now there's a lot of push back against it, and some indexes like the S&P 500 refuse to list new stocks with this dual class structure.

why just new ones? delist the old ones.

Hard to delist Facebook and Alphabet.

Note that the S%P doesn't have the power to delist stocks. They can drop them from their index (which certainly would cause some reputational harm and probably lower the stock price a bit, at least temporarily), but FB will continue to trade on Nasdaq.

Class A $SNAP have no voting rights.

Some info here: https://www.latimes.com/business/hiltzik/la-fi-hiltzik-mark-... but the gist of how he controls it is pretty simple:

"Zuckerberg owns or controls 88.1% of Facebook’s Class B shares, which each have 10 votes at the annual meeting — 3.98 billion votes overall. There are only 2.4 billion Class A shares, which are the only shares ordinary investors can buy. So any proposal Zuckerberg doesn’t like will fail by nearly a 2-1 margin, assuming all Class A investors vote together, which never happens. (Zuckerberg owns 0.5% of the Class A shares.)"

Clearly all throughout the funding rounds he made sure he controlled the shares that mattered.

Of course it's posssible for a founder to maintain complete control through those rounds. You just have to convince the investors to do the deal on terms that leave you in control. Nothing illegal about that.

And the investors here are very sophisticated venture capitalists. They understand very well what deals look like, and risks, and whatever else. Probably better than the founders themselves.

And they wanted in badly enough that they were willing to sign on terms that kept Zuck in control. And that decision made them very, very, obscenely, filthy, rich. Not a bad investment decision at all.

Minority shareholders do have rights, but keeping control as a founder is easy if the VCs want in badly enough. With facebook, they did.

They can sue him if they feel that he abused his position as executive or majority shareholder.

There's still a myth floating around that companies are legally obligated to make the maximum amount of profit for shareholders.

https://skeptics.stackexchange.com/questions/8146/are-u-s-co...

It's in the bylaws of the corporation typically. Feduce duty lawsuits are very common and it certainly isn't a "myth".

Within some constraints you can put whatever you want in your corporation's bylaws when you found it, including a directive not to make a profit should you so choose.

Can you give an example of a company with it their bylaws? I’ve never seen it, and Facebook doesn’t.

https://s21.q4cdn.com/399680738/files/doc_downloads/governan...

It's absolutely not typically in the bylaws of corporations, that they must seek to optimize for profit. The parent comment dances around the language of the premise. It's extraordinarily rare to put anything remotely close to that in the bylaws, because it's a super dumb way to set yourself up for entirely unnecessary legal problems in the future.

The lawsuits may happen, however they also almost never win.

It isn't necessarily in the bylaws, it comes with being a director of a Delaware corporation.

https://corpgov.law.harvard.edu/2020/03/10/directors-fiducia...

Profit isnt even mentioned there. Which paragraph were you referring to?

The myth part is that fiduciary duty != maximizing profits. There’s no quantity that you have to take a maximum of. You can’t spend the shareholder’s money on things that can’t be justified as business expenses, but that doesn’t keep companies from buying corporate jets or spending money on high-end travel. Or even just paying people more than they’re worth. Who’s to say what they’re worth?

This is a special case where saying “business judgement rule” might not be enough to get Facebook out of trouble, though I’m sure Facebook’s lawyers will dispute that.

Also, paying $5B to bail out your CEO and focusing on maximizing long term shareholder returns are far from mutually exclusive. Shareholders should be looking beyond a quarterly earnings report

Ah, but if Mark Zuckerberg is the majority shareholder, isn't spending an obscene amount of money to keep him from facing liability actually in the best interest of... the majority of your shareholders?

yep

Was he at the time? Majority requires 50%+ ownership and not just voting power, right?

Voting power.

Zuckerberg is the majority shareholder.

No he’s only the majority of the voting shares

That makes him (effectively) the majority shareholder. If you can't vote (or your vote is effectively meaningless) then you don't have ownership and your shares are just a loan with wildly variable interest.

Although the preferred stock holders get paid before Zuck and co.

Preferred stockholders (get paid first but can't vote) and common stock (can vote) are normal; the tech innovation is multiple classes of shares so that they get the benefits of an IPO without risking loss of control. Without that, Zuck would have waited as long as possible to list because once he loses control he loses the ability to spend company money on himself. Which he's breaking the law by doing; hence this suit.

that's quite a stretch. There's a massive difference in an equity investment and a debt investment regardless of giving up voting rights. Let's be real, even voting rights in 99% of SPX companies don't mean anything. It's a representative democracy, shareholders only vote on the very, very biggest decisions in public companies, like "should we accept this merger". In every single SPX company you invest in, you are effectively giving up control of 99% of decisions to the executives and those under them at the company, regardless of whether your shares are class A or C

You’re effectively saying that representative democracy is a sham.

Zuck has set up the share structure so that even if all the other shareholders collectivised to move against him on *any* issue he’d still have his way. That’s a dictatorship.

I've been told more than once by my employer that "this is not a democracy". They meant that staff can have opinions, but don't get to vote; they weren't talking about shareholders. But AFAIA, stockholder corporations are not supposed to be democracies - FSVO "democracy".

Investors in Faceache get no dividends; the only reason they're there is to speculate on the value of their stock. With no dividends, there's no reason for stockholders to worry about profits. They just want to see the share-price increase.

I dunno, I'm not an investor. The last two decades are littered with the corpses of social networking firms that failed. I imagine Faceache must own assets, in the form of IP and so on; I doubt their value comes anywhere close to the company's market valuation.

That valuation is suspended from the fickle thread of shareholder sentiment; so on my reading, Faceache shares amount to a bubble.

I should have said it's a representative aristocracy for the shareholders, as when you do get a vote, your vote is obviously weighted by how many shares you have and not equally. However, whether you have 1 share or 100,000 shares of public company X, your day to day involvement is still essentially equal at 0 unless you are an executive or on the board.

It's not that clear cut. If you can prove in court that the majority shareholders are acting to the detriment of minority shareholders, that's actionable. See Dodge v. Ford (https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.) The majority gets control over the vote but that doesn't mean they can freely screw over minority shareholders. If an environmental activist organization somehow managed to buy a majority stake in Shell, they couldn't just vote to pump it all back in the ground, cap it, and wait for bankruptcy. They could however decide to trade financial assets with the innovative strategy of "buy high, sell low" so long as you couldn't prove they were making terrible decisions with intent to screw over the rest of the shareholders.

> If you can prove in court that the majority shareholders are acting to the detriment of minority shareholders, that's actionable.

Interesting. Thanks!

There’s a pretty big difference between “companies don’t have to seek maximum return for shareholders” and “companies can spend billions of dollars to prevent their executives from being personally liable”.

I reckon FB share price would dip more than $5Billion of Zuck got deposed.

I don't agree that they should be allowed do this, but it seems like the obvious move if they can get away with it - for shareholder value as well.

The magnitude is so large as to make me doubt this in its entirety. There must have been some other benefits that were gotten from the deal, or there wasn't clarity that the number wouldn't swell beyond the $106 million number, right? How else do you possibly justify paying roughly 50x what was asked?

unless there was a criminal potential, and these billionaires don't like sitting in cages for any amount of time.

If the liability of what would have been revealed by deposing Zuck is even higher than 50x.

The math is "potential damage from a deposition + fine" vs "paying 50x the fine up front".

> If the liability of what would have been revealed by deposing Zuck is even higher than 50x.

Was thinking about this. Would be curious to know what information was worth $5bil.

Im guessing The precedent of being made personally liable for every ill that Facebook could be responsible for in the past, present and future.

Isn't the question why was it 50x? I agree that there's definitely a value prop here where it's worth upfront money to avoid potential damage (moral caveats aside lol). But it seems unlikely that the FCC was like "100 million and we depose Zuck, or 5 BILLION and we let it go", which feels borderline blackmail-y. Why did FB propose 50x as opposed to some smaller number as part of the proposed deal?

What pisses me off is -- WHERE exactly is that $5B going to be spent.

We hear about fines and such going into the "general fund" -- I think this is BS - the public should be specifically the ones to benefit _directly_ from such corporate overreach fines and such.

Housing fines should buy houses.

Financial fraud should pay those defrauded - directly.

Cyber [crimes?] should be paid to directly protect users

etc....

We have heard of so many fines in the past, but no real transparency on exactly how they are spent.

And it shouldnt be in some obtuse web/budget location to determine...

There should be a dedicated fines.gov or some such that lists every single company fined, how much and how it was spent.

Apparently most of the fines go straight to the "US Treasury." Basically, congress decides how to spend the money. That makes some sense: at least it is being spent by people who are elected, so that there is a chance at accountability.

However, it also doesn't make sense, because it doesn't seem "fair." The money from fines should be used to compensate victims.

That being said, compare this to the common practice of civil forfeiture: The money often goes back to the very same government entities who took the money. This is very bad because it incentivizes government agencies to be way too aggressive.

On balance, I think it might be better for the money to go back to the general fund. That way the temptation for corruption is severely mitigated. Though, I'm not sure about this, as I haven't spent much time thinking about it. There could, perhaps, be a more nuanced approach, based on each unique agencies needs/situation. That would require a lot of legislation, though.

Earmarking money at a too granular level is a great way to lower the efficiency of government. I also don't see why it should be the case that this money gets spent in the same domain it was levied, the whole point of democratic institutions is to be able to set priorities dynamically.

Many excellent points -- and this is a key part of the discussion when it comes to fine.

The post above has emotion -- and I'm personally ok with that -- but I think it would be better received without the two letter abbreviations for swear words.

Maybe they can now get sued for securities fraud? (Per Matt Levine)

Zuckerberg is worth vastly more than $5 billion to Facebook.

Well, we don't actually know that. Can a different CEO do a better job with Facebook? We haven't any idea as we have never had the opportunity to find out. But I agree that it's generally bad for shareholders if your CEO ends up in prison.

5 companies have ever been worth more than $1 trillion, Facebook is one of them. Could a different CEO have made more money? Possibly. But the notion is a bit like thinking that you could have done better than Tom Brady as a quarterback because he lost 3 Super Bowls. I mean, yes, it's true, you can imagine a quarterback that didn't lose those 3 games. But he also won 7, which, chances are, your replacement QB would have not. When a person has made more money for shareholders than 99.999995% of people in history, it's an extraordinary claim that someone else could have made more, one that would require extraordinary evidence.

> When a person has made more money for shareholders than 99.999995% of people in history, it's an extraordinary claim that someone else could have made more

That claim is not being made. The question is not whether another CEO could have made money from the start, the question is whether another CEO could have made more money from the point at which Facebook paid billions to shield Mark Zuckerberg. What has he personally done to move the needle that much in the past two years?

A Google side panel says last quarter Facebook doubled it's net income to $10 billion.

So year over year, Facebook made that money back last quarter.

If the lower settlement might have slowed year over year growth, five billion would likely be money well spent.

Particularly if there wasn't an obviously better return for the cash. When you have billions of cash on hand finding investments that size is a hard problem.

Keep in mind that the fine is an operational expense. Right off the top, there's potential double digit return from reducing taxable income. In addition, the company better maintains the book value of goodwill assets without the depositions and can borrow money at more favorable rates.

On top of that, executives and staff aren't spending time in depositions and answering tough questions from the press.

The interesting thing is figuring out why it makes sense despite my direct experience. Even though I would have preferred they gave me some of that money instead.

Yes nailed it.

Executives of a certain vintage learned a lot watching the carnage from US v Microsoft. Talk about destruction of shareholder value. I would say for Facebook this is money well spent.

> Executives of a certain vintage learned a lot watching the carnage from US v Microsoft

Please elaborate.

I’m sure there have been books or well researched blog posts you could dig up but here’s my best take:

Look at the influence and trajectory of Microsoft before and after the lawsuit. The executive team was distracted for a year. The employees were demoralized by bad press coverage. Competitors were emboldened. And for internet and mobile, Microsoft got put on the back foot before the 21st century even began.

Facebook management and board is full of people who observed and lived that experience. There is a case study of corporate distraction and they have read it.

The DNA goes deep. Microsoft invested $240 million in Facebook back in 2007 for it's series C.

https://www.vox.com/2017/10/23/16412108/facebook-microsoft-2...

If the narrative doesn't make sense, maybe it's not true. Or wildly exaggerated.

> This is bizarre. I get throwing in a little extra to shield executives, but $5 billion?

I think it's bizarre that is what you find bizarre. You've already accepted paying more to shield the executives, so after that it's just negotiation.

What I find bizarre is that essentially "donating" money to a government regulator can induce the regulator to cover up and turn a blind eye to a person's alleged or suspected breaches in the course of investigations and prosecutions.

In the world of plebs, this is either bribery or blackmail, depending on who blinks first, and conspiracy.

I understand corporations "agreeing" to punishment with regulators like it's some cordial negotiation. It seems perverse but if the alternative is horrendously long expensive court cases that the regulator can't afford and doesn't have a good chance of winning, then sure. It does tell me the legislation and regulatory environment is broken (probably by design), but at least I understand regulators operating as they do in the environment they find themselves in.

But this? "Slip us some cash under the table and Mark's little problem goes away" veers into the fundamentally unethical and unjust to me. I'm sure it's just that my tiny pleb brain is not sophisticated or rich enough to understand.

> this is either bribery or blackmail, depending on who blinks first, and conspiracy.

It doesn't much matter to me what the flavor is, what matters is that this is corruption in action, pure and simple.

> I think it's bizarre that is what you find bizarre. You've already accepted paying more to shield the executives, so after that it's just negotiation.

To one up you - i find it bizare that you think that's the bizare part.

The entire point of a corporation, as a governance structure, in general is to limit liability for its shareholders. That's true for all corporations not just facebook. Its the reason people establish corporations instead of running businesseses informally as an individual.

The only surprising thing is the cost benefit trade-off here seems a bit much. Its not surprising that the facebook corporation tried to do its entire reason for existing.

> The entire point of a corporation, as a governance structure, in general is to limit liability for its shareholders. That's true for all corporations not just facebook. Its the reason people establish corporations instead of running businesseses informally as an individual.

Except they're not doing it to protect Zuckerberg or Sandberg as shareholders they're doing it to protect them as decision making executives. More to the point if they didn't have liability due to the structure of a corporation they would never have been in "danger" and therefore the pay-off would have been unnecessary.

You are confusing shareholders (people who own the company) and executives (people who are running it).

Mark is both, but his problem wasn't due to his share of the company but rather due to his actions or inaction as an executive.

Law does not protect executives breaking the law. It protects shareholders from executives who break it.

Or at least it was supposed to work this way. It seems when billions are on the table culpability is subject to negotiation.

I'm not sure if you've replied to the wrong message, but I'm obviously talking about executive actions and alleged breaches, not shareholder liability.

No one, the comment you're replying to included, is shocked that Facebook is willing to throw money at problems to make them go away.

The outrageous part is that someone accepted that money.

My two cents: I don't think you can find ANY government (icluding Scandinavia countries, Switzerland and what not) that is NOT engaged in - "donating" money to a government regulator can induce the regulator to cover up and turn a blind eye to a person's alleged or suspected breaches in the course of investigations and prosecutions." That's how government regulation works, more regulation more opportunities for corruptions.

I agree that this has been normalized throughout the world, that's the weird thing about it, it's blatant corruption and everybody just goes about pretending it's okay or no big deal.

It's only a problem when a "hostile" government does it. Then you'd make a big deal on the media of how corrupt their government and country is.

Those who think it's not OK, often to want to deregulate. With no one to bribe, that brand of corruption goes away.

But they/we tend to be dismissed as crazy extremists by polite society.

with no one to regulate, facebook would never have to answer to anyone, ever.

I know this is old fashioned, but in a free society, I don't think you should have to answer to anyone, unless you commit a crime.

You don't think an international megacorp with the 1.2 trillion dollar market cap, under investigation for possible action or inaction leading to the subversion of the democratic process, should have to answer to anyone?

You're not wrong - "might makes right" is certainly old-fashioned.

Unfortunately, large corporations like this often utilize lobbying and regulatory capture to actually squash smaller competition which is not able to buy "justice".

Might makes right is not old fashioned at all, the mighty are just better at fooling people.

Ah yes, the old "end crime by making everything legal" gambit.

This is not corruption. Nobody is abusing their position for personal gain, the government (on behalf of the society at large) is simply accepting a payment to compensate for certain activity with negative externalities.

I disagree and I think it is corruption, and I'm astounded people don't.

The idea that someone can buy their way out of breach of laws and regulations like this is fundamentally unjust.

I'm not saying in any one particular instance of it happening any people are taking explicit kickbacks. But the regulating body and process as a whole has become corrupt by allowing this to happen. Whether it's because they get promoted because they netted a lot of fines, or because they later go work for private industry who scratches their backs, or simply that the government likes the revenue so they allow rich people to buy their way out of trouble and that's mutually beneficial for both parties, it is corruption.

So no regulation would yield a perfect utopia then? An obvious fallacy.

The GP made a falsifiable statement. Please attack that instead of creating a straw man.

> My two cents: I don't think you can find ANY government (icluding Scandinavia countries, Switzerland and what not) that is NOT engaged in - "donating" money to a government regulator can induce the regulator to cover up and turn a blind eye to a person's alleged or suspected breaches in the course of investigations and prosecutions." That's how government regulation works, more regulation more opportunities for corruptions.

This comment, taken as a whole, is notable in what it does not mention.

For example, it doesn't talk about the many kinds of corruption that regulation mitigates (yes, imperfectly).

"Is government regulation good or bad?" is perhaps an ok introductory question to start off with. However, it is simplistic and overly generalized. So if one does not progress beyond it, one hasn't gotten very far. A practical question is "What kinds and implementations of government regulation serve our goals?"

The problem with this is we then don't get notification of the crime. Chances are there's a lot of these deals happening that aren't so high profile, and when you cut a deal nothing comes out to the rest of society.

The prosecutor should just not be allowed to cut such deals. Pursue every case to a conclusion, so that we know what corruption there is.

That is just one of many relationships in play.

Regulation also can help mitigate many forms of corruption. A systems analysis is one good (systematic!) way to consider all the factors.

What I find weird is that for Facebook to pay a big lump of money to avoid personal liability seems like it would be unethical and possibly (I'm not a lawyer, so I don't know all the fine points here) actually something that Facebook could be successfully sued for by their shareholders, and yet the FTC was fine with it. Doesn't that make them complicit? I mean, it seems like that ought to be against FTC policy or something to accept deals that benefit the founder but throw the shareholders under the bus.

What does the FTC do with that $5b?

Typically, proceeds from large fines go to the US Treasury.

The other bizarre part is why did ftc agree? The ftc isn't motivated by shareholder profit, why would they take the $5B deal if they thought something was there?

As a regulator, having one of the largest settlements ever paid by a social media company (or any company at all for that matter) is a major win. Especially traded off against the possibility that you lose in court.

That doesn’t really help shareholders does it? Except Zuck has his own shareholder class so it really does!

This is another reason against multiple classes of share

FB's valuation is currently around $1T. Shareholders should be pretty happy with what Zuck has done with FB's business and this seems sufficient to justify protecting him from what would have been a major personal distraction.

But by all means, have sympathy for all those shareholders who were forced to invest their money in FB stock against their will and without any knowledge of the ownership structure.

Who exactly was forced to invest money into FB stock?

Why should we have any sympathy for them given the stock is up 200% over the past 5 years?

I was being sarcastic.

My apologies, that went over my head. Thank you for clarifying.

My friends mocked me for buying on IPO day. Sold 1/2 a few months ago. I don't use the network but thanks for the money Zuck!

Weird flex. Do you have a system I can buy that will let me reproduce your results?

Dice. Purchase from your local gaming house.

Anyone with a retirement account in an index fund!

Anyone with a retirement account can pick a different fund. They can be even buy individual stocks to collect their own portfolio. Or even buy anti-Facebook security.

But there's no demand for that as far as I see. So I guess shareholders are actually happy, and unhappy are the people here on HN who are not shareholders.

There is a rather large number of investors that are not happy, and aren't quiet about it. That's why Facebook faces investor lawsuits every so often.

Investors sue because they can, not because they are unhappy.

Where does this logic end? If Zuck shoots a guy in the middle of the street, is it fine for FB to finance his legal defense fund? Hire operators to bust him out of jail if he's convicted? Both of those "protect shareholder value" in the same sense as this.

It ends in illegal activities. If you disagree with the settlement you should harp on the FTC for having offered it. Zuck is no saint but this "where does it end" is a poor argument.

FTC seemed to think that Zuck was taking part in illegal activities right up until he offered a few extra billion in the deal. So it ends, well, before the article being discussed?

You can't prove it's illegal if you stop it from ever going to court.

> Where does this logic end?

When there is an actual cost to Zuckerberg's behavior. So far, Silicon Valley is fine working for Facebook and Wall Street fine financing it. Users aren't rebelling. Advertisers are docile.

Where is a politician aspiring to take Zuckerberg on supposed to find berth? (Genuine question.) The only fecund ground, to my sense, is the far right accusing Facebook of censoring its Nazism and far left upset that Zuckerberg is rich. Neither makes for a sustainably extensible base.

What about the far middle who have been hearing for years how Facebook is eroding democracy, providing a platform for misinformation, instilling anxiety in teenage girls (the latest headline), and on and on. Zuckerberg continually makes decisions that benefit him and shareholders to the detriment of society and humanity. I think there's a greater appetite for change than it might appear, but I also think for the average person, it's really, really hard to imagine what that might be.

>instilling anxiety in teenage girls

If it wasn't facebook it would be tv, magazines, or something else. I find it exhausting how people blame facebook for being a reflection of societies ailments as opposed to trying to solve the underlying ailments.

Seems pretty clear. Zuck helped some people make a decent return on their investment so he shouldn't be held accountable for anything and it's cool for him to pillage the company coffers to bribe governments to let him off.

s/shouldn't/can't/ but you've pretty much got it.

Obviously Facebook should not do something illegal to protect Zuckerberg.

However, if there is a legally permitted action that Facebook can take to protect him personally, and only Facebook can take it, I don't see the problem with them deciding to do so.

If Zuckerberg is accused of a crime as a private citizen, he is of course capable of paying for his own defense. These are the examples you gave but they do not reflect the situation here. The story here is that the FTC wanted Facebook to pay a $5B fine. Not that they made Zuckerberg pay a $5B fine and Facebook decided to reimburse him for the expense.

>If Zuckerberg is accused of a crime as a private citizen, he is of course capable of paying for his own defense. These are the examples you gave but they do not reflect the situation here. The story here is that the FTC wanted Facebook to pay a $5B fine. Not that they made Zuckerberg pay a $5B fine and Facebook decided to reimburse him for the expense.

The story here is that Zuck was going to be accused of a crime as a private citizen, until FB decided to up its settlement offer from 100 million to 5 billion.

Legitimate question: what crime would they have accused him of? Or would they just be civil offenses that aren't actually crimes? That is a meaningful distinction, but I haven't managed to read anything talking about what the actual charges would have been.

Stealing's a crime; breaking contracts between FB and the FTC is not.

There are many, many things that are legal but are still corrupt, wrong, and despicable.

I'm not sure what you think minority ownership of a public company should entail, but surely you'd agree that it should protect them from the majority shareholder spending unlimited amounts of company cash to save themselves from personal inconvenience/embarrassment?

"Personal inconvenience/embarrassment" will hurt his ability to operate the company efficiently. Protecting CEO is (usually) in the best interest of minor shareholders.

This is why companies pay for personal security of CEOs or for their personal PR (most large companies, not just Facebook).

> spending unlimited amounts of company cash

This is clearly not the case here.

$4.9B over what the fine would otherwise have been is pretty hefty. I don't think any human alive is worth $4.9B to their employer.

Perhaps damage to Z would result in damage to FB for more than 5B (company market cap would definitely fall for more than that, and it could result in large mismanagement in the following years), so he is worth it.

I meant "really" worth, for some reasonable definition of "really." But I can't argue that market cap is a more pragmatic definition of worth, so your point is fair enough I guess.

So if I buy a share today at the $1T valuation, I DON'T support Zuck in this case, but if I bought one ten years ago I DO, because he made me rich?

> So if I buy a share today at the $1T valuation, I DON'T support Zuck in this case, but if I bought one ten years ago I DO, because he made me rich?

If you bought a share today, you presumably aren't doing it out of charity.

This wouldn't be a "distraction", this would be him owning his shit. The distraction from that is what he fills the rest of his life with.

They bought under the condition of the ownership structure and also the law. If, as alleged, the law was broken, then there is nothing wrong with shareholders seeking redress.

I would argue against that argument. Arguably, Zuckerberg was instrumental in getting FB to where it is today. It is not inconceivable that protecting him is protecting shareholder value.

From which alternate reality, where you were able to observe how a Facebook "fork" governed in a non-dictatorial fashion has turned out, did you learn this "arguable" information?

I am genuinely not sure why this is a controversial statement. Allow me to rephrase this in a very quantifiable way.

FB IPO opened at $38 ( https://www.fool.com/investing/2019/11/17/if-you-invested-50... ). Today it trades at $346 ( https://finance.yahoo.com/quote/FB?p=FB ). That is 9 times the initial investment value.

Now, we can argue how much of that increase should be given to Zuckerberg in the form of credit for directing the company, but I am relatively certain that the answer is not zero.

I stand by my initial post. It is very much arguable.

edit: Hatred of Zuckerberg really should not be blind. I mean there is enough there to dislike him for. There is no need to invent stuff.

"That was on Thursday. What did he do on Friday?"

> It is one thing for the media to say false things about my work, but it's crossing the line to say I'm riding an electric surfboard when that video clearly shows a hydrofoil that I'm pumping with my own legs.

Just read that incredibly smug quote from him in response to the many recent articles critiquing Facebook.. It is not blind hatred, I would say it is very well targeted hatred of someone who has an enormous impact on the world while only caring about Facebook. His denial and stubbornness is approaching that of a very recent ex president.

https://m.facebook.com/photo.php?fbid=10113917270654841&set=...

That was then and this is now. As they say, past performance is no guarantee of future results

I think you are right. It is not a guarantee, but in real life there are no guarantees. However, there are ways to make things more likely. And given that one of the best predictors for what person will do is what they have done..investors would likely be more assured that FB is with Zuckerberg at the helm than not.

> Arguably, Zuckerberg was instrumental in getting FB to where it is today.

I agree that it would not be where it is today, but they are a troubled massive corporation beset on all sides by issues. They duck and dodge any issues and responsibility without fixing root causes. He definitely helped with the rise, but he will definitely also be responsible if it falls.

He could have protected himself by making his shares the same voting rights as common class and not selling them, signalling his loyalty to shareholders. It should be illegal to issue shares to public with lower voting rights in my view. Our world would be a different place if google/facebook had only one type of voting class and I dont think what I view is strictly political.

Sadly, our world could be decidedly worse as well.

I used to discuss putting obvious skinnerian and behavioral systems in games as a joke back in the day when Diablo 2 came out. Years later what I thought as an awful joke was the mobile gaming business model.

There are many jokes I can make about how to run Facebook more “efficiently”. How to take the wrong lessons from the many, many business propaganda efforts that have been successful.

Sorry, at this point I am a bit disheartened just thinking about it. I was trying to connect to your point, but I really can’t thin of anything positive to say anymore.

If we’re talking about this from strictly the shareholders’ perspective, deposing Zuckerberg would do more than $5 billion in damage to Facebook.

Why do you assume that?

I think Facebook has a lot of dirty secrets.

FB investors seem pretty happy with Zuck's leadership of the company, and it's pretty easy to see the argument that the additional cost was well worth it to keep him at the helm.

The full headline is “Facebook paid billions extra to the FTC to spare Zuckerberg in data suit, shareholders allege”. This is just an allegation.

Yeah, a journalist has to say "alleged" because it's a lawsuit that hasn't been settled in court yet. But it happened, and there's evidence. So it's more than "just an allegation."

I'm curious how the FTC could make Zuckerberg personally liable in any lawsuit.

Not letting you know that was worth $4.9 billion

I don't understand how this kind of deal is even legally allowed? This is clearly against the Shareholders' interests to overpay the fine in order to protect the personal interests of some top FB executives.

It is not, but the FTC is the entity enforcing that. This is corruption, pure and simple.

Another thread mentioned that as a figurehead of Facebook, Zucc being named in this could conceivably lead to bad outcomes for shareholders via bad press.

My question is, if he was named would that lead to an investigation of his personal actions and dealings becoming public? If visibility into internal workings of the CEO is bad for shareholders then that's the way it ought to be I feel.

Serious question : I would like a person familiar with law to explain how is this not a bribe essentially? (Cos clearly it’s not treated like one. Where/what is the reasoning that invalidates my question )

It's a negotiated settlement between a regulatory agency and a business. This isn't a payment to an individual abusing their government authority to seek bribes.

So in essence if a crime or wrong doing is done by an entity and money is exchanged to reduce penalty it is considered a settlement. But the same thing done between people is a bribe.

Here the entity is technically abusing their people given authority to enrich itself and people it’s responsible to and letting go of the other entity responsible for wrongdoing. Charging more money for that is ok. But if you swap that entity for people or person it’s a crime?

I understand this is all interpretations but seems like a pretty dated way to bring “justice”

I'm much more concerned with apparent corruption at the FTC: They took money to look the other way? What Zukerberg allegedly did, is it illegal? Is that a fair characterization?

Billions is the currency that guys like Zuckerberg trade in. In this case Facebook allegedly paid off the FTC when it fact Zuckerberg should have paid it. So Zuckerberg just pays back FB the four billion and everyone is happy. It's like you and me trading nickels.

Not to sound snide, genuinely curious how this is different from bribery?

I have no idea how those shareholders are going to argue saving Zuckerberg in a suit about Facebook is not in the companies direct interest.

Like literally, other than being the CEO, he is also the founder, majority shareholder and the brand of the company.

P.S. this is a PR ploy.. shareholders will never win a suit like this in a Deleware court.

I think perhaps you mean you have no idea how these shareholders are going to win that argument. The argument is worth making.

Shareholders want the board to consider many options and make a decision on behalf of their duties. Spending $5B to shield one particular leader is one option. There are others. There are many examples where boards and shareholders oust a particular CEO.

Wait, I'm missing something. Wouldn't overpayments to a government entity have to be reported? Why are we just hearing about this now?

This isn't a loaded question, I'm genuinely curious if a lawyer or someone more educated than me could explain this.

In this instance, no. The FTC authorized the settlement of $5 billion, and that's what Facebook paid. It's not like the FTC authorized a settlement for $1 billion and Facebook paid $5 billion.

The "overpayment" alleged by the lawsuit is that the settlement should've been far, far less than $5 billion, but was increased to that amount in order to prevent Zuckerberg from being individually targeted, thereby "overpaying".

Caveat: I'm not a lawyer, and I just have a basic understanding of this entire issue.

> The FTC also said in court that Facebook’s fine would have been closer to $106 million...

Fines need to keep up. This is ... nothing. $106M is what, 1.5 DAYS of revenue. 1 and 1/2 DAYS. Gah! That's ridiculous!

In English - Zuckerberg bought himself out of the legal system.

Allegedly.

This headline desperately needs to be corrected to reflect the fact that this is an allegation in a lawsuit, not something Politico is reporting as fact.

I have to say seeing all these posts about Zuckerberg's privacy is very hilarious to me. He's as entitled to privacy as his users are.

Disgusting.

So money fixes everything.

Nice way to sneak in a little political cash off the books.

That's a regular suit with a Data mask.

The best democracy that money can buy.

So do we consider this a fine or a bribe? Either way it's someone who did (and continues to do) something terrible getting away with a slap on the wrist.

If the director of the FTC uses it to buy herself a yacht, it's a bribe.

If not, it's 'fine'.

You can't bribe a government, you can bribe an official. Though I suppose executive position after year or two doesn't count...

I don't follow, why can't one bribe a government? This actually sounds a lot like that.

Bribe is something that government prosecutes for paying. So agreeing on a fine imposed by them is not a bribe. Even if it can get you out of lot of trouble.

It is a bribe if it is going into some official's pocket. Making a settlement with a government agency is fully legal.

Distinctions like this are why people feel the government is hopelessly corrupt. It really makes no difference whose pocket it’s going into. It’s paying money to game the system.

Exactly this, I couldn't agree more.

In theory, isn't the difference that a settlement with a government agency can be used by the government for public good? Whereas a bribe to the official just makes the official richer?

I'm honestly not sure why that difference is of any importance.

You really don't understand what corruption is. Countries with widespread corruption are a lot more dysfunctional than this one.

The existence of countries that are even more corrupt doesn't make the corruption here any more acceptable.

I don’t think my comment was clear enough if that’s your response. This country is not especially corrupt. I agree we should root out and eliminate corruption at home. This article is not an example of corruption.

America's corruption is legalized which I think is worse because

1. There is a legal framework for the rich (and only the rich) to get away with their misdeeds.

2. Since there is a legal framework, even ordinary citizens will defend the rich being able to do this because there is a legal framework to do so.

3. Americans don't feel like their country is especially corrupt because of these very same legal frameworks.

Seems like a tautological argument for calling any law you dislike “corruption.” That isn’t particularly persuasive.

Fair enough. Our disagreement, then, is not about the acceptability of corruption, it's about whether or not this is an example of it. In my opinion, it's a very blatant example of it.

Making an absurdly large settlement in exchange for a favor is a bribe. It doesn't have to go into any official's pocket.

But I'm going by the plain meaning of "bribe". The law may define it differently (probably does), but that doesn't change anything.

The distinction is that a penalty paid to the government is getting put toward the public's use and not toward the private enrichment of an individual (or small group of individuals).

If a cop pulls me over and I offer to pay him a "fine" (wink-wink) on the spot if he doesn't write me a ticket, that money is going to his pocket (and maybe his partner's). If I get a ticket and I pay that ticket, the money is going into the state's general budget or state controlled funds (for example, speeding tickets in my state put money into a head injury fund).

Responding to a different reply:

> Distinctions like this are why people feel the government is hopelessly corrupt. It really makes no difference whose pocket it’s going into. It’s paying money to game the system.

I definitely understand that sentiment. However, I think there's a difference between money going to a private individual against what we as the public have decided vs. going to the government in a way that we have some control over.

For example, I've heard that in Singapore there are lots of fees for everything. These fees are standard, on-the-book government fees. The money goes into the government's hands and the government compensates its workforce with reasonably high salaries. I think most people would consider this completely above board. The government can set standard taxes and fees and the government can compensate its employees.

This situation is a bit different because the fine that Facebook paid isn't a standard fine. It's a negotiated fine. These certainly leave a worse taste in one's mouth, especially if the company is paying it to avoid liability for an individual executive. However, the government needs some leeway to negotiate deals and we have some indirect control over this process via our elected officials. Yes, it can be frustratingly indirect given a two-party system where there are more important issues than whether someone appointed someone at the FTC who negotiated a settlement you think is wrong.

At the same time, a lot of our criminal and civil law system works like this. Prosecutors don't want to have to try every single small case so plea-bargaining is a thing. Maybe someone agrees to a smaller punishment than you would like, but the prosecutor is guaranteed the win and doesn't have to expend resources. Companies negotiate all the time to avoid trial.

In this case, is the settlement that the FTC came to in the best interests of the government and the American people? It can be hard to say. On the one hand, they got a lot more money out of Facebook and a guaranteed win. On the other hand, it means that Mark Zuckerberg didn't need to face any personal risk. Given that we're pretty terrible at prosecuting executives, it seems like a reasonable deal to negotiate.

I mean, the Sackler family is getting immunity for $4.5B when they created an epidemic that's killed people and destroyed countless more lives. You can hate on Facebook/Zuckerberg as much as you like and I'm not trying to say that the Cambridge Analytica scandal was nothing, but compared to the Sackler deal it seems like the FTC got a lot. The Sacklers are going to remain one of America's richest families and escape any real consequences of something far worse and nefarious.

So, do you take the easy win of getting $5B out of Facebook (47x more than anticipated) when, realistically, you weren't going to go after Zuckerberg to begin with or do you try to win against Facebook and then try the harder task of winning against Zuckerberg personally? If it went on for years, would the public continue to care? Would someone above you reassign you to something they deemed a more worthy use of your time?

The answer might be "no." There is something satisfying and important about holding people accountable for their actions. However, I think it's hard to call that a bribe. The odds for any real liability against Zuckerberg were probably reasonably small (and this was a civil suit so it's not like he was going to be serving jail time) and the settlement seems mostly about letting Zuckerberg avoid being embarrassed personally than about letting him off the hook. He lost a lot more money with the $5B settlement than if the FTC got $106M out of Facebook and another $106M out of him personally.

I think the biggest issue is that which the shareholders are bringing up: that he also spent their money protecting his. ~30% of that settlement would basically be coming out of his shares ($1.5B), but it's a little unfair to other shareholders to use their money for his protection.

I see this general argument throughout this thread, that somehow bribery is only bribery if the money goes in the the official's pocket, but that's really not what the dictionaries I've looked at say on the matter.

Here's Merriam Webster for instance:

"to influence the judgment or conduct of (someone) with or as if with offers of money or favor : to induce or influence by or as if by bribery"

https://www.merriam-webster.com/dictionary/bribe

If, as the suit alleges, FB offered the government money with a condition not to press charges against their CEO, and the government took up this offer, that very much sounds like bribery, and I'd wager that the government official they negotiated with is indeed a real identifiable person who took a bribe.

It doesn't seem to make much difference to the general public what the motivations for taking such a bribe are, the big problem is that there are 2 sets of rules, one for those with the ability to bribe, and another for the rest of us.

> You can’t bribe a government

Well, maybe we can’t, but Zucc sure can!

I see this more as a mafia racket. If you don’t give us a lot of money we’re going to make your life impossible, asking you to testify again and again.

News flash: Facebook is a corrupt company, and anyone working there is morally bankrupt. Duh.

Two different classes of criminals made a deal with eachother. News at 11.

This is America.

Where did the money go?

We, taxpayers, have the right to know.

To the FTC. It's in the (linked) headline.

And how are they going to spend it?

"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," one of the suits alleged.

"... or even required to sit for a deposition."

Has he even sat a deposition since the Winklevoss case.

Years ago there was a shareholder suit against Facebook et al. that was going to trial (rare). Zuckerberg was scheduled to testify.

IIRC, Facebook settled on the eve of his scheduled appearance.

The plaintiffs counsel was quoted in the press as saying something along the lines of "Mark Zuckerberg may know computers, but I know ..." Clearly he was looking forward to it. :)

Surely there are more litigators out there who would love to have a go at Mark Zuckerberg.

Also, many years ago in the back and forth between Zuckerberg and Greenspan at Harvard, Zuckerberg made a remark that suggested he was frightened of federal court.

Testifying before Congress is not the same as testifying in federal court. Congress is a big step up from appearing before some Harvard administrator for disciplinary violations, but its not under oath and the consequences of lying are, lets be honest, non-consequential.

IMO, if a plaintiffs lawyer or prosecutor ever gets Zuckerberg into a federal courtroom to testify, he will halt and catch fire under questioning. Even with all the resources at his disposal, he is likely "uncoachable". He only knows how to lie, and as we have all seen he isnt very good at it.

"They amended the complaints last month after receiving internal files about the board's discussions on privacy, which a federal judge had ordered Facebook to provide."

There is value in discovery in litigation and regulatory proceedings against Facebook and Big Tech, regardless of the likely success of any of the indivdual cases, IMHO.

These companies rely on non-transparency to carry out their surveillance "business" without public backlash. Every lawsuit against them is a chance to learn more of what they do and potentially publish about it. Much of what we know has come from regulatory proceedings or lawsuits. The more we learn about what goes on behind the scenes, the stronger the future allegations that lawyers can make. Bit by bit, they unpeel the onion.

Wasnt it Zuckerberg and Google's CEO Schmidt who told the people they have nothing to fear about sharing what they know with Big Tech. When we ask Big Tech's staff to share what they know, they resist. Perhaps someone will remove the friction (as in "frictionless sharing").

Anyway, the question what price will Facebook be willing to pay this time to keep these shareholder suits from going to trial and Zuckerberg having to testify. That amount will not be public information. :)

Crazy and so corrupt.

This title is leaving off 2 very important words at the end:

Facebook paid billions extra to the FTC to spare Zuckerberg in data suit, SHAREHOLDERS ALLEGE

Added eventually. Thanks!

"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,” one of the suits alleged."

Don't even think about messing with Mark's personal assets.

“The most sacred of the duties of a government [is] to do equal and impartial justice to all citizens."

-Thomas Jefferson

I'm sure the gov't would be happy to take 5B to let you and I off the hook for white-collar crimes as well. See, perfectly equal!

The law, in its beautiful equality, forbids rich and poor alike from sleeping under bridges.

Please note - if you own the bridge you may find yourself exempt.

The cynic in me realizes that white collar criminals of Zuckerberg's stature really only likely serve time if it involves a huge amount of tax evasion. This money keeps Zuckerberg's name off of any official filings, but I don't think there was ever any real threat of him going to jail. So the $5b is, in a way, pure profit.

You think billionaires go to jail for avoiding taxes? Are you sure you have any cynic in you whatsoever?

millionaires go to jail for avoiding taxes, billionaires write the laws so they don’t actually have to pay any taxes

It’s usually interesting to find the context for these quotes. In this case the language is a bit obscure, but he seems to have been arguing that taxing both income and sales is a form of double taxation? [1]

This is in a note about a book by Antoine Destutt de Tracy, who was apparently a philosopher who coined the word “ideology.”

Anyway, I guess it’s repeated because it sounds good, but most people don’t care what Jefferson meant and might not agree with his point about double taxation.

[1] https://founders.archives.gov/documents/Jefferson/03-09-02-0...

Thanks for doing that footwork. Ever since I was old enough to pay income taxes (started aged 14) it has burned me that my “share” of my income is then taxed at various steps along its way to some other citizen’s income, where the remainder is taxed yet again.

Does the foundations of society not enable the transfer of that money to the next citizen?

I'm not sure that we should be taking advice on "impartial justice" from a slaver -- especially one who helped craft one of the most deeply ironic sentences that a slaver has ever crafted in history:

>We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness

I only bring this up, because of how jarring the idea of "impartial justice" is in the context of Thomas Jefferson.

Were slaves citizens?

I would be interested to hear you expound on your rebuttal.

The US again proving its two tier justice system. It’s frankly disgusting the Silicon Valley acolytes that deny this.

Maybe so, but please don't fulminate on Hacker News. A good comment adds new information, not just bilious repetition.

https://news.ycombinator.com/newsguidelines.html

If that outrages you, how about using threats of fines as an end run around congressional appropriations to fund pet projects?

See: https://www.wsj.com/amp/articles/will-biden-restore-charitab...

This has been an ongoing problem since Bush Jr, it was halted under Trump, and it looks like this admin has brought it back.

It's a nice bit of work: We'll settle with you, for a reduced amount, but you have to make a tax-deductible donation to these foundations we specify. Don't worry that they are in no way helping the victims of your malfeasance.

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