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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

Oct 23, 2021 - Politics & Policy

Facebook stories fill newsfeeds

Photo: John Minchillo/Associated Press

A gusher of Facebook stories hit the web Friday night and will cascade into next week, as a consortium of at least 17 news organizations unfurl a series branded "The Facebook Papers," based on documents from whistleblower Frances Haugen.

Driving the news: The consortium's plan was for the stories to begin Monday. But one outlet after another jumped the gun last evening.

Blumenthal decries Facebook's "platitudes and bromides" on increased oversight

Photo: Stefani Reynolds/Bloomberg via Getty Images

Sen. Richard Blumenthal on Sunday appeared on CNN's "Reliable Sources," and took issue with past statements from Facebook officials, suggesting the company welcomed new oversight.

Why it matters: Blumenthal, who chairs the Senate Commerce subcommittee on consumer protections, made his remarks amid a broader discussion on government regulation of the tech industry and new revelations about Facebook's internal practices.

Oct 24, 2021 - Technology

Scoop: Facebook exec warns of "more bad headlines"

Illustration: Megan Robinson/Axios

In a post to staffers Saturday obtained by Axios, Facebook VP of global affairs Nick Clegg warned the company that worse coverage could be on the way: “We need to steel ourselves for more bad headlines in the coming days, I’m afraid.”

Catch up quick: Roughly two dozen news outlets had agreed to hold stories based on leaked materials from Facebook whistleblower Frances Haugen for Monday publication — but the embargo fell apart Friday night as participating newsrooms posted a batch of articles ahead of the weekend.