Oct 11, 2021 - Technology

New complaints unlikely to hobble Facebook

The Facebook thumbs up next to illustrations of money

Illustration: Shoshana Gordon/Axios

A former Facebook employee has filed eight complaints with the Securities and Exchange Commission alleging the social network deceived investors. But even if regulators find the company at fault, it’s unlikely to remake Facebook in a drastic way.

Why it matters: Critics of Big Tech companies like Facebook have increasingly pushed for the government to halt certain practices — driven by advertising business models — they say allow or encourage harmful content.

The big picture: Frances Haugen, who worked at Facebook from 2019 to 2021, told the SEC that the company has made misleading claims — via regulatory filings, congressional testimony and the press — about everything from its users (and the impact the network has on them), illicit activity like human trafficking, and removal of hate speech.

  • Yes, but: To charge the company, the SEC would have to prove that the statements were truly false or misleading (not just unclear), that the company knew they were false, and that they were material to investor decisions. It's not clear yet that there's enough to meet this bar.
  • Facebook says it is "ready to answer any questions regulators may have about our work," according to spokesperson Andy Stone.

Between the lines: Even if the SEC ultimately charges Facebook for violating the law, a negotiated settlement would be the most likely outcome.

  • About 80% of SEC cases get settled, according to Barnes & Thornburg partner David Slovick, a former lawyer in the commission's enforcement division.
  • Facebook has been fined by a lot of regulators, at home and abroad, and the company's tremendous profitability has shielded it from feeling much impact.
  • For example, in the second quarter of 2021, it netted $10.4 billion just in profits. That's more than twice the $5 billion it agreed to pay to settle with the Federal Trade Commission in 2019 over the Cambridge Analytica scandal (plus a $100 million settlement with the SEC) for violating its 2012 agreement with the agency.
  • That $5 billion is the largest it's paid in a single settlement (and one it prepared investors for), and is more than twice the largest civil penalty paid in an SEC settlement.
  • And that barely made a dent: Hours after announcing the deal, Facebook's quarterly earnings sent its stock price up in after-hours trading.

The intrigue: What about Facebook's CEO? While the harshest critics have clamored for Mark Zuckerberg to be held personally responsible for the company's conduct, the SEC would have to show he's truly unfit for the job in order to bar him from running the company, says Slovick.

  • Pinning down individual responsibility is also difficult in any quest to charge Zuckerberg (or another executive) personally, explains Slovick.

What to watch: More options in the SEC toolbox — in addition to just having Facebook agree not to violate the law again — include forcibly delisting Facebook from the Nasdaq (unlikely), constraining its abilities to raise capital (not a problem for Facebook), or installing an outside monitor (which can be quite the nuisance).

The bottom line: "The idea of the SEC is not always to put people out of business — the intention is to make it sufficiently painful that they don't do it again," says Slovick.

Go deeper