Lawsuit Alleges Facebook Paid $4.9 Billion to Protect Zuckerberg

Shareholders sue the company after it paid overcompensating fines to save Zuckerberg from deposition.
Ameya Paleja
Fines saved Zuckerberg from being responsible for privacy loss.COM & O / iStock

Mark Zuckerberg's Facebook is in dire straits these days. The Federal Trade Commission thinks the company is too big, monopolistic, cares little for individual privacy, and must be split into Facebook, WhatsApp, and Instagram. Adding to their woes is a lawsuit from its own shareholders that alleges that the company paid excessive fines to shield the founder CEO from deposition, Politico reported

The lawsuit pertains to the Cambridge Analytica scandal that broke in 2018, where the personal data of 87 million Facebook users was harvested without their consent. In 2019, the Federal Trade Commission sent the social media company a draft complaint that even listed the company's top brass as defendants. The Washington Post accessed a draft order through the Freedom of Information Act and found that the FTC was considering holding Zuckerberg personally responsible. 

In the court, the FTC also submitted that it was considering a fine of about $106 million, Politico reported. The previous record fine for privacy-related issues was $168 million, Ars Technica reports. However, the company board at that time that consisted of Zuckerberg, Peter Thiel, Marc Andreessen, and Jan Koum, intentionally paid a $5 billion fine to the "FTC as an express quid pro quo to protect Zuckerberg from being named in the FTC's complaint, made subject to personal liability, or even required to sit for a deposition," the lawsuit alleges. This overpayment is a breach of fiduciary duty, the shareholders who filed the lawsuit in Delaware's Court of Chancery, said. 

Speaking to Politico, one of the shareholders said, "The Board has never provided a serious check on Zuckerberg’s unfettered authority. Instead, it has enabled him, defended him, and paid billions of dollars from Facebook’s corporate coffers to make his problems go away."

Another lawsuit filed by the shareholders, Politico reports, alleges that in 2012, Facebook hired PricewaterhouseCoopers to audit its privacy compliance but Zuckerberg and COO Sheryl Sandberg refused to participate in them and allowed other managers to provide untrue statements about the company's practices, while also never submitting the audit report to the board. The audit had found that "Facebook’s privacy controls were not operating with sufficient effectiveness," the lawsuit says. 

In a series of reports called The Facebook Files, Wall Street Journal reports that the social media company knows that its platform is "riddled with flaws that cause harm" and Facebook has not fixed them. Even internal research teams have flagged the harmful effects of Instagram but the company has downplayed them, even in comments to the Congress, says one report. Another report flags how the platform is being used by drug cartels and human traffickers but the company has chosen to do little to nothing about it. 

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