Sure, you might be thinking: Facebook has forever poisoned our political discourse, allows if doesn’t outright encourage trafficking in conspiratorial bullshit amidst a global pandemic, and now, we learn, is emotionally crippling (or worse) an entire generation. But can it be said to have broken any laws? Specifically, any securities laws? Surely not, you may scoff. To which we say: Have you heard of Gary Gensler?
The Securities and Exchange Commission has been communicating with attorneys for Frances Haugen, the former Facebook product manager who blew the whistle on the company’s efforts to grapple with problems it played down in public, according to John Napier Tye, a lawyer representing her…. The issues cited by Ms. Haugen in her allegations may be material in the eyes of regulators, but they aren’t all traditional securities-fraud claims, according to lawyers.
Plus, you know, there’s still the lingering Madoff PTSD, with the SEC loathe to appear not to have done anything once personally presented with the goods.
“Given how much play this has gotten, especially with the revelation that the whistleblower went to the SEC, there is no way they are not looking at this and feeling pressure to bring some sort of case,” [former SEC San Francisco office director Marc] Fagel said…. In one whistleblower tip provided to the SEC, Ms. Haugen and her lawyers wrote that Facebook made “multiple material misstatements and omissions on the question of whether Facebook and Instagram impact teenage users,” according to a copy seen by the Journal.
What’s more, there’s precedent—on the whole poisoning of the political discourse thing—and, what’s more, it was set by a much less hyperactive SEC.
Two years ago, for instance, Facebook agreed to pay $100 million to the SEC to resolve allegations that it didn’t disclose the misuse of user data by consulting firm Cambridge Analytica.
Indeed, the further we get into this Wall Street Journal report ostensibly about how unusual an enforcement action over this would be, the less and less unusual it sounds. Indeed, it begins to look more and more like a slam-dunk.
One of Ms. Haugen’s tips to the SEC does seem to be more squarely in the agency’s wheelhouse, Mr. Rosenfeld said. In one complaint, she alleged that Facebook failed to disclose internal data showing “a contraction of the user base in important demographics, including American teenagers and young adults.”
The complaint also said Facebook hadn’t accurately modeled how duplicate accounts affected its reported user-growth estimates and the reach of its advertising…. “If Facebook had information that their actual numbers were much lower than what they are reporting or that clearly showed they were going to decline, that probably is the type of thing that should be disclosed,” [former SEC enforcement official David] Rosenfeld said. “And that type of thing is much closer to what the SEC would be interested in looking into.”
For more of the latest in litigation, regulation, deals and financial services trends, sign up for Finance Docket, a partnership between Breaking Media publications Above the Law and Dealbreaker.