Facebook's data crisis deepens as questions mount

Facebook is facing a crescendo of questions about how user data was harvested for political purposes, and for a secon...

Posted: Mar 20, 2018 8:55 PM
Updated: Mar 20, 2018 8:55 PM

Facebook is facing a crescendo of questions about how user data was harvested for political purposes, and for a second day investors dumped its stock over the risk the scandal poses to its business.

Some U.S. lawmakers are calling on Facebook CEO Mark Zuckerberg to testify. British members of Parliament are summoning Zuckerberg too. But for now he is remaining silent about the uproar.

Investors are taking the matter seriously. Facebook stock had fallen about 5% for the day as of midday Tuesday, compounding a nearly 7% decline the day before. More than $50 billion has been wiped off Facebook's market value this week.

The scandal erupted over the weekend when The New York Times and UK media reported that Cambridge Analytica tried to influence American voters using information improperly gleaned from 50 million Facebook users.

Facebook suspended Cambridge Analytica, but the ensuing controversy has seriously hurt the brands of both companies.

There's even a swell of search interest in "how to delete your Facebook account," although experts doubt Facebook will actually lose many users as a result.

In the wake of the damning stories, there may be multiple government investigations into Facebook's privacy practices.

The US Federal Trade Commission declined to comment on a Bloomberg report that it is investigating Facebook but said in a statement it is "aware" of the issues that have been raised.

"We take any allegations of violations of our consent decrees very seriously," it added, referring to the promises of privacy companies make to their users.

On Capitol Hill on Tuesday, Senate Judiciary Chairman Chuck Grassley called the Facebook breach a "serious issue."

Dianne Feinstein, the ranking Democrat on the committee, warned that if Facebook won't police themselves, "we will."

Later in the day, a Facebook spokesman said the company will brief multiple congressional committees this week.

The company is also holding a staff meeting on Tuesday to address questions about the Cambridge Analytica scandal and the company's policies on data protection, two sources with knowledge of the matter told CNN.

The questions of data privacy thrown up by the scandal strike at the heart of Facebook's business, which relies on more than 1.4 billion users engaging with the platform each day.

Every time they do, they share a bit of information about themselves: what they like, who their friends are, what they want to watch. That data is the product Facebook sells to advertisers who want to target specific customers.

If the Cambridge Analytica scandal leads to tougher data protection regulations -- as some policymakers are demanding -- or puts people off sharing as much about themselves online, that could hurt Facebook's revenue, and that of all social media platforms. (Google stock was also down on Tuesday, though not nearly as sharply as Facebook.)

"What matters for this stock, at this time, are the headlines," wrote analysts at Macquarie Capital.

Related: Facebook's Cambridge Analytica auditors stand down at UK request

Cambridge Analytica is also coming under government and public pressure. The London-based data analysis firm worked on President Donald Trump's campaign.

Facebook says the user data in question was initially properly gathered by a psychology professor, who then passed it to Cambridge Analytica. That breached Facebook's rules.

Cambridge Analytica says it deleted all the data in 2015 when it learned that Facebook rules had been broken. But a former contractor, Christopher Wylie, disputes that.

The company has agreed to an inspection by Facebook-hired auditors, Facebook said Monday.

Meanwhile, UK data protection officials are seeking a warrant to enter Cambridge Analytica's offices in London to inspect its servers and systems. They are also examining Facebook's response to the unauthorized use of its data.

An undercover TV report turned up the heat even more on Monday. It suggested that Cambridge Analytica was prepared to consider using bribes and entrapment to create videos for clients it could then post to the internet to sway voters.

Cambridge Analytica says it does not engage in bribery or entrapment and says the Channel 4 News report was a misrepresentation of how the company conducts its business.

More bad news could emerge later Tuesday. Channel 4 News will broadcast a new report at 3 p.m. ET on Cambridge Analytica's work in the United States.

Related: What you need to know about Facebook's data debacle

In a statement on Tuesday, Cambridge Analytica says it has been cooperating with the UK Information Commissioner's office on a number of matters, including the Facebook data, since early 2017 and offered to share "all the information it has asked for."

The European Union parliament has also said it will investigate.

"Only dictatorships impede social networks or block them, but a democracy must provide social networks with rules that prevent them from using citizens' private data against their will," said European Parliament President Antonio Tajani.

"This is why we ... have to be very strict, understand what happened, how a company that works with Facebook has used personal information for private interests, then we need to intervene. We need rules for this."

-- CNN's Dylan Byers, Sherisse Pham, Nelli Black, Carol Jordan, Lindsay Isaac, Simon Cullen and Nada Bashir contributed to this article.

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