What happens to Facebook Inc. after a former Senate employee testified that the social media company kept making profits before its users?
Well, probably not much. Executives and directors of public companies are expected to place shareholder value or profit creation high on their lists as part of their fiduciary duty to investors. As is often seen in such controversies, it is not the actions of executives that generate allegations, but the lies they tell to cover up those actions.
Product manager Frances Haugen told a Senate subcommittee on consumer protection, product safety and data security Tuesday that the social media giant has lied to investors and the public about its practices and that it would be workable.
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"The documents I have provided prove that Facebook has repeatedly misled us, as evidenced by its own research into child safety, its role in spreading hateful and polarizing news, and more," Haugen said in her testimony on the Capitol Hill.
Haugen was the primary source of documents in the Wall Street Journal's recent investigation, The Facebook Files, and her identity was revealed when she spoke to "60 Minutes" for an article that aired Sunday night before testifying to Senators on Tuesday. The coordinated rollout coincided with an unprecedented six-hour downtime in Facebook services on Monday, as well as the largest drop in its inventory in nearly a year.
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Facebook and its investors should be concerned about the aftermath. Haugen has filed several complaints with the Securities and Exchange Commission, highlighting many of the company's misleading statements in its previous testimony before Congress and in conference calls with investors, including "How it feels about its role in perpetuating misinformation and violent extremism in investors." Connection with 2020 has been misleading ". Presidential elections and the January 6 uprising. "
Stephen Diamond, associate professor of law at Santa Clara University, said Haugen's filing should spark an SEC investigation into whether Facebook made misleading statements or omitted material information to investors.
"The real question is whether or not Facebook has given its investors a balanced picture of the impact of this type of activity," he said.
Senators appeared to be preparing to ask Facebook exactly about this, with some reports suggesting that CEO Mark Zuckerberg should be invited next after a disappointing performance by Antigone Davis, a minor Facebook executive who heads global security , last week before the same body.
Instead of justifying itself, Facebook attacked Messenger on Tuesday. A Facebook manager described the information Haugen provided to authorities and the media in a television interview as "stolen," and the company issued a statement discrediting Haugen by stating that she was less than worked for the company for two years, reported no direct information and did not attend C-level board meetings.
"We disagree with her characterization of the many topics she testified about," said Lena Pietsch, director of political communication, in a statement.
That kind of reaction isn't going to play well. Haugen was praised by many senators during the hearing for her courage to stand up, and she was compared on all sides to Jeffrey Wigand, a former tobacco industry executive who had manipulated data on the addictive effects of nicotine and the harm it caused to the industry Blowing a pipe of smoking cigarettes.
If Facebook continued to track a whistleblower and try to circumvent the bigger questions about his actions, it would only spur lawmakers into more dramatic action. For example, Haugen's testimony could lead to a real reform of Section 230, the law created in 1996 to protect internet platform companies that publish third-party content from litigation. Congress has been hesitant to take action for two years, Senator Amy Klobuchar (D., Minnesota) noted during the hearing.
"The time to act is now," she said.
Earlier this year Rep. Tom Malinowski (D., NJ) and Rep. Anna G. Eshoo (D., California) reintroduced the Protecting Americans from Dangerous Algorithms Act, a law to large social media platforms for their algorithmic Reinforcement to hold accountable harmful, radicalizing content that leads to offline violence. The bill would remove liability immunity for a platform if its algorithms reinforce content related to encroachments on civil rights and acts of international terrorism. The previous version of this bill was tabled a year ago and withered in Congress.
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Facebook could see further consequences beyond an SEC investigation and charging lawmakers to set new guidelines for the internet. Shareholders could be next in line with class action lawsuits alleging investors are making misleading statements. Diamond also noted that criminal liability could be another potential issue if an SEC investigation finds intentional violations of securities laws.
The past few years have brought wave after wave of negative news about Facebook, but nothing has caught the company, which was worth $ 1 trillion two weeks ago. Investors who stuck with the stock during the controversy should realize that this time around, the company's Teflon protection may finally break.
"There's a dynamic here that suggests Facebook has some serious problems," Diamond said.