Report: Facebook to settle FTC lawsuit with $5 billion fine

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Zuckerberg is getting serious about Facebook's privacy policy, or is he?
Image: Facebook

Last Friday, the Wall Street Journal reported the Federal Trade Commission (FTC) came to terms with Facebook regarding its role in the Cambridge Analytica scandal. The publication noted the social network will pay $5 billion to settle the regulator’s lawsuit. Furthermore, the newspaper stated the federal government would place new restrictions on how the corporation handles its users’ information.

According to the Journal, the FTC voted 3-2 to approve the agreement, with three Republican commissioners for the measure and two Democratic commissioners against it.

Now that the FTC has approved the penalty, the U.S. Department of Justice’s civil division will need to review the settlement agreement. Currently, there is no timeline for the completion of the Justice Department’s review. If the $5 billion levy is approved, it will be the largest fine the FTC has ever issued. The previous record was set in 2012 when the agency won a $22.5 million judgment against Google.

As of this writing, neither Facebook nor the FTC has officially commented on a potential settlement.

Why the FTC’s Record-Setting Fine won’t Affect Facebook

For most corporations, a $5 billion fine would be a devastating or even fatal development. However, for the world’s largest social network, it’ll be nothing more than a speed bump. Indeed, Facebook first told its investors to expect a $3 billion to $5 billion FTC fine back in April. The corporation noted the punishment would have an impact on its 2019 earnings, but not a significant one.

Indeed, the service reported earning $14.9 billion in the first three months of the year. As such, the FTC’s record-setting fine will only consume a month of its income. For that reason, the Journal’s story about the $5 billion penalty caused the company’s stock to rise slightly. Accordingly, Facebook is unlikely to make any significant changes to its business model or methods of operation.

Indeed, Royal Bank of Canada analyst Mark Mahaney predicts Facebook’s Libra will bring in $35 billion by 2021.

It’s also worth noting that the FTC went relatively light on the social media corporation based on the scope of its alleged misdeeds. The agency filed suit against Facebook for failing to protect the privacy of 87 million of its users. If the regulator fined the company for each affected subscriber, its sanction could’ve run into the trillions.

Instead of facing an existential crisis, though, Facebook will have an underperforming quarter shortly.

Reactions to the Potential Settlement

The media, market analysts, and government officials have had mixed reactions to the potential FTC-Facebook settlement.

The Verge called the record-setting regulatory agreement an “embarrassing joke.” Additionally, TechCrunch called the FTC’s $5 billion fine a “slap on the wrist” for the social media firm. Lastly, Business Insider called the government’s sanction of Facebook “meaningless.”

Motley Fool noted that despite the size of the fine, it would have a “minimal” ongoing impact on the company’s financial performance. Conversely, the Washington Post noted Facebook’s profitability might be harmed by the firm’s new mandate to protect user data. Investor’s Business Daily also stated that the service’s stock is still a recommended buy despite its recent regulatory hurdles.

Capitol Hill Democrats have taken issue with the FTC’s reported settlement. Senator Richard Blumenthal (D-Ct.) said the agency’s $5 billion penalty was “chump change” for a corporation of Facebook’s size. Senator Ron Wyden (D-Or.) commented that the regulator “failed miserably” in its role of holding the service accountable. Furthermore, Senator Mark Warner (D-Va.) argued Congress should step in since the FTC didn’t force the Menlo Park, California-based company to protect its customers better.

Though Facebook’s conflict with the FTC may be reaching its conclusion, the corporation isn’t out of the regulatory woods yet. For example, the U.S. House of Representatives is currently investigating antitrust allegations made against the firm. Moreover, the European Union is prepping a similar inquiry into the company’s alleged anti-competitive practices.

Besides, as regulation of the tech sector is emerging as a critical issue of the 2020 Presidential Election, Facebook might face more government scrutiny as the contest grows closer.