The Securities and Exchange Commission (SEC) has announced that it has charged social media giant Facebook Inc. (NASDAQ:FB) for making misleading disclosures regarding the risk of misuse of Facebook user data.
According to the Commission report, in 2014 and 2015, the now-defunct advertising and data analytics company, Cambridge Analytica, paid an academic researcher, through a company he controlled, to collect and transfer data from Facebook to create personality scores for approximately 30 million Americans. In addition to the personality scores, the researcher, in violation of Facebook’s policies, also transferred to Cambridge Analytica the underlying Facebook user data, including names, genders, locations, birthdays, and “page likes.” Cambridge Analytica used this information in connection with its political advertising activities.
Facebook discovered the misuse of its users’ information in 2015, but did not correct its existing disclosure for more than two years. Instead, Facebook continued to tell investors that “our users’ data may be improperly accessed, used or disclosed.”
Facebook has already agreed to pay $100 million to settle the charges.
Public companies must accurately describe the material risks to their business,” commented Stephanie Avakian, Co-Director of the SEC’s Enforcement Division. “As alleged in our complaint, Facebook presented the risk of misuse of user data as hypothetical when they knew user data had in fact been misused. Public companies must have procedures in place to make accurate disclosures about material business risks.
We allege that Facebook exacerbated its disclosure failures when it misled reporters who asked the company about its investigation into Cambridge Analytica,” said Erin E. Schneider, Director of the SEC’s San Francisco Regional Office. “This gave further weight to Facebook’s misleading statements in its public filings.