Early this week, the world witnessed Facebook Inc’s stock plummet following the Cambridge Analytica scandal. On Monday, their stock dropped by 7%, which has been their biggest decline in 4 years.
The decline was brought on by a recent discovery that Facebook had mishandled the data of 51.3 million of its users by sharing it with Cambridge Analytica, a political consulting firm used by Donald Trump’s presidential campaign in 2016. Last week, several news sources have disputed that Cambridge Analytica is still in possession of the data they harvested, despite claiming that they deleted it back in 2015.
Originally, Facebook established political campaigns in 2014 whereby they connected constituents to candidates. The campaign pulled basic data such as; where constituents lived, whether they were right or left leaning, and if they were registered to vote. Their data collection was innocent enough until Aleksandr Kogan, a professor of psychology at Cambridge University, launched the personality test app thisisyourdigitallife in 2015. With his app, Kogan was eventually able to provide over 50 million raw profiles to Cambridge Analytica. 270 000 individuals opted to take the test, and gave their consent to allow the app to use their personal data. However, the participants were all told that their data would be used for academic purposes, which was simply not the case. Kogan promised anonymity, and assured Facebook that the data would solely be used for research, yet, this was false. He did not comply with Facebook’s terms, which forbid selling this sort of personal data “to any ad network, data broker or other advertising or monetization-related service.”
In the wake of the Cambridge Analytica scandal, the Federal Trade Commission (FTC) has started to investigate Facebook to determine if they are in violation of government privacy rules. According to the New York Times, “The company could face fines of $40,000 a day per violation if the agency finds that Facebook broke the agreement.”
As a result of this contention, Facebook’s stock has suffered. On Monday, Facebook’s stock was down by 6.8%, and by Tuesday, their market value plunged by $82 billion from their closing price on Friday.
“He sold the 5.4 million shares prior to this week’s drop under the preconceived notion that they would be worth $910 million“
Prior to Monday’s massive stock decline, Mark Zuckerberg sold 5.4 million Facebook shares since the start of 2018, which ended up saving him millions. Although the recent controversy led to a $5 billion decrease in his net worth, the Chief Executive Officer also saved $70 million in the process. He sold the 5.4 million shares prior to this week’s drop under the preconceived notion that they would be worth $910 million, but according to the Securities and Exchange Commission filings, Zuckerberg made $980 million from the sales.
Facebook’s Spokeswoman, Vanessa Chan, stated that the reason behind the stock sales was to fund the Chan-Zuckerberg initiative, which is a philanthropic project that Zuckerberg and his wife Pricilla Chan established in 2015. According to Wall St. analysts, regulatory fillings proved that there was nothing suspicious about his stock sales. In the past, Zuckerberg announced that he planned to sell 35 to 75 million Facebook shares over the course of the year in order to finance the Chan-Zuckerberg initiative.
While it is clear the Facebook’s reputation will be affected by the recent scandal, many analysts seem to think that they will get through this rough patch relatively unscathed. In the coming weeks, the world will sit back and watch as Facebook tries to recover from this recent disaster.