SAN FRANCISCO — Facebook said on Wednesday that it expected to be fined up to $5 billion by the Federal Trade Commission for privacy violations. The penalty would be a record by the agency against a technology company and a sign that the United States was willing to punish big tech companies. The social network disclosed the amount in its quarterly financial results, saying it estimated a one-time charge of $3 billion to $5 billion in connection with an “ongoing inquiry” by the F.T.C. Facebook added that “the matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.” Facebook has been in negotiations with the regulator for months over a financial penalty for claims that the company violated a 2011 privacy consent decree. That year, the social network promised a series of measures to protect its users’ privacy after an investigation found that its handling of data had harmed consumers. The F.T.C. opened a new investigation last year after Facebook came under fire again. This time, the company was accused of not protecting its users’ data from being harvested without their consent by Cambridge Analytica, a British political consulting firm that was building voter profiles for the Trump campaign. Facebook also suffered a data breach that exposed the personal information of nearly 50 million users.<doc-sep>NEW A vastly improved search engine helps you find the latest on companies, business leaders, and news more easily.<doc-sep>Pinterest CEO: Our goal is to get you offline Self-driving cars are coming. But Lyft co-founder says he'll need more drivers SAN FRANCISCO, CA - JANUARY 31: A Lyft driver places the Amp on his dashboard on January 31, 2017 in San Francisco, California. (Photo by Kelly Sullivan/Getty Images for Lyft) An Uber banner is displayed on the facade of the New York Stock Exchange on Friday, May 10. Screens display the Uber Technologies Inc. logo on the floor of the New York Stock Exchange (NYSE) during the company's IPO in New York, U.S., May 10, 2019. REUTERS/Andrew Kelly TOPSHOT - One hundred cardboard cutouts of Facebook founder and CEO Mark Zuckerberg stand outside the US Capitol in Washington, DC, April 10, 2018. - Advocacy group Avaaz is calling attention to what the groups says are hundreds of millions of fake accounts still spreading disinformation on Facebook. (Photo by SAUL LOEB / AFP) (Photo credit should read SAUL LOEB/AFP/Getty Images) (CNN Business) — Facebook is bracing for a massive fine from federal regulators after a year of data privacy scandals. Facebook (FB) said Wednesday that it expects an ongoing investigation from the Federal Trade Commission could result in fines ranging from $3 billion to $5 billion. The company set aside $3 billion in legal expenses related to the investigation, which cut into its profit for the first three months of 2019. Facebook’s profit for the quarter was $2.4 billion, a decrease of 51% from the same period a year ago. “This matter is not resolved so the actual amount of payment remains uncertain,” David Wehner, Facebook’s CFO, said on a conference call with analysts on Wednesday after the earnings report. “However we are estimating this range of loss to be $3 to $5 billion.” An FTC spokesperson declined to comment. Facebook’s confirmation of a massive fine, which had been rumored in recent months, didn’t appear to unnerve investors, though. Shares of Facebook rose as much as 10% in after hours trading Wednesday following the news. The fine would mark the first financial penalty for Facebook in the US since the Cambridge Analytica scandal came to light last March. Since then, Facebook has also come under public scrutiny for offering more of its users’ data to companies than it had previously admitted. Both incidents raised the prospect that Facebook had violated a 2011 consent agreement with the FTC, which required the social network to have a “comprehensive privacy program” and to get the “express consent” of users before sharing their data. Previous FTC fines against technology firms had minimal teeth. In 2012, the FTC fined Google $22.5 million for violating an earlier privacy agreement with the agency. That same year, Google topped $50 billion in annual revenue for the first time. But former FTC officials previously told CNN Business the agency may feel more pressure to make a statement with its fine against Facebook in light of all the public attention the company’s data privacy scandals have received. Even without the fine, analysts had expected the company to post a rare profit decline, as Facebook had indicated it would invest heavily in infrastructure and efforts to protect the platform from abuse. The company previously said it expects its total expenses to increase by 40% to 50% in 2019 compared to the year prior, as it puts more money in data centers, augmented and virtual reality technology, and in safety and security. At a conference in February, Wehner called the safety and security efforts “a big multi-billion dollar investment,” which is “important for the long-term sustainability of the business.” But on the call Wednesday, Wehner signaled expenses this year may be lighter than expected, not counting the money set aside for the FTC fine. Last month, CEO Mark Zuckerberg said the company would emphasize private, encrypted and ephemeral conversations across its products in an attempt to reposition Facebook as a “privacy-focused” platform. “People want to use both private and public platforms,” Zuckerberg said on a conference call Wednesday. “Delivering this is both in the interests of our community and our business.” That said, Zuckerberg did admit some aspects of the shift to more privacy-focused features have the potential to hurt the business. “Reducing the permanence of data may have some impact,” he said. For all its scandals, Facebook’s ad sales business continues to chugg along. Facebook’s revenue for the quarter topped $15 billion, a 26% increase from a year earlier. “Advertisers continue to be stuck on Facebook, despite its many challenges,” said Debra Aho Williamson, principal analyst at eMarketer. “What they care most about is its vast user base and its targeting capabilities, and both are continuing to provide strong performance for them.” But there may be challenges ahead for its advertising platform. Wehner said Facebook expects “ad targeting headwinds will be more pronounced” in the second half of the year, in part because of product tweaks and user behavior changes in the wake of sweeping data protection regulation in Europe. CNN’s Donna Borak contributed to this report.<doc-sep>
It might've seemed like Facebook got away lightly in the wake of the Cambridge Analytica scandal, with no long-term effects after the initial wave of bad publicity. However, the company expects it will soon have to pay the price for its lapses: a sum between $3 billion and $5 billion. Facebook has just released its results for the first quarter of 2019, with a bleak prediction for shareholders. "In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion in connection with the inquiry of the [Federal Trade Commission] into our platform and user data practices, which accrual is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet," the company said. "We estimate that the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome." The fine, whatever it eventually amounts to, is the result of an investigation by the FTC following the Cambridge Analytica data scandal in 2018, which involved the personal data of up to 87 million users being shared without their permission. Why is Facebook being fined? As Facebook was quick the explain at the time, the scandal wasn't a security breach, and none of Facebook's systems were hacked. Instead, it was the result of a third-party app called thisisyourdigitallife, which took the form of a personality test. It looked benign, but the app also pulled data about their test-taker's friends on Facebook and sent it to Cambridge Analytica, which was able to use it to target voters with specific messages. This was seriously bad news for Facebook, which had reached a settlement with the FTC in 2011, in which it agreed that third parties would be unable to get their hands on users' data without those users' explicit permission. In a statement released on March 26 2018, the FTC said it "takes very seriously recent press reports raising substantial concerns about the privacy practices of Facebook. Today, the FTC is confirming that it has an open non-public investigation into these practices." What happens next? As Wired reports, the FTC and Facebook have spent months in negotiations, but there were also rumors that Facebook might fight against the fines. Now, however, it appears to have resigned itself to a sizable bill hitting its mailbox very soon. A fine that size certainly won't bankrupt Facebook (it was possible that it could have been even higher, considering the number of people affected), but it'll certainly be felt. "The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome," the company said in its report. The final cost is likely to be revealed in the coming months.