$5b fine and yet Facebook is smiling

Washington: The United States Federal Trade Commission has alleged that Facebook misled users about its handling of their phone numbers as part of a wide-ranging complaint that accompanies a settlement ending the government’s privacy probe, according to two people familiar with the matter.

In the complaint, which has not been released, federal regulators take issue with Facebook’s earlier implementation of a security feature called two-factor authentication. It allows users to request a one-time password, sent by text message, each time they log onto the social-networking site. But some advertisers managed to target Facebook users who uploaded those contact details, perhaps without the full knowledge of those who provided them, the two sources said. The misuse of the phone numbers was first identified in media reports and by academics this year.

The FTC also plans to allege that Facebook had provided insufficient information to users - roughly 30 million - about their ability to turn off a tool that would identify and offer tag suggestions for photos, the sources added. The sources spoke on the condition of anonymity. The facial recognition issue appears to have first been publicized earlier this year by Consumer Reports.

The FTC declined to comment. Facebook also declined to comment.

As part of the complaint, the US regulator is expected to unveil a settlement with Facebook – a reported $5 billion fine that might be the least painful part of the agreement for the social network. The deal, which follows a lengthy investigation by the Federal Trade Commission (FTC), allows Facebook to avoid prosecution for its data protection lapses.

The real question, however, remains what type of restrictions and requirements will be placed on the internet giant to ensure future compliance. CEO and founder Mark Zuckerberg holds a firm grasp on the reins of Facebook, which has some 2.7 billion users, and he will be held personally responsible for implementation of the settlement, according to the Wall Street Journal.

The young billionaire will be required to check in quarterly with the FTC to certify that his company is abiding by stipulations. A false statement, the WSJ reported, would be subject to penalties, an anonymous source with knowledge of the situation told the newspaper.

Also responsible for compliance would be the company’s board of directors. Additionally, the FTC will allege that Facebook misled users about how it used their phone numbers and even a facial recognition tool, in a complaint that accompanies the settlement.

The regulator’s five-member board adopted the settlement deal in a 3-2 vote, the two votes against being from the panel’s only Democrats, according to US media.

Investors saw the Democrats’ votes as a sign that restrictions will not be overly severe, pushing share prices higher.

Initial negotiations had included tens of billions of dollars in fines and strict measures.

The personal data that Facebook collects from more than 2.7 billion users is its most valuable asset, which it uses to generate immense advertising revenue thanks to refined targeting capabilities.

It is precisely because of the way this data is used that the social network has found itself in hot water and is facing a serious crisis of confidence.

The FTC announced last year it reopened its investigation into a 2011 privacy settlement with Facebook after revelations that personal data on tens of millions of users was hijacked by the political consultancy Cambridge Analytica, which was working on the Donald Trump campaign in 2016.

However the $5 billion fine, the largest penalty ever imposed by the FTC for privacy violations, is not likely to affect the company’s overall health — Facebook earned more than $22 billion in 2018 alone after hauling in $55 billion in total revenue.

The company will publish its quarterly earnings Wednesday after Wall Street closes, which will undoubtedly provide Zuckerberg an opportunity to speak on the matter.

He also could comment on the Justice Department’s Tuesday announcement that it will launch a vast antitrust review of major online platforms, believed to include Facebook, to determine if they have “stifled” innovation or reduced competition.

— Washington Post