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Facebook parent Meta and Mark Zuckerberg are under siege

·Technology Editor
·5 min read
In this article:
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This article was first featured in Yahoo Finance Tech, a weekly newsletter highlighting our original content on the industry. Get it sent directly to your inbox every Wednesday by 4 p.m. ET. Subscribe

Everyone's coming for Mark Zuckerberg and Meta

On Monday, Washington D.C.’s attorney general cited Cambridge Analytica in a new lawsuit seeking to hold Meta (FB) CEO Mark Zuckerberg personally responsible for the social media giant’s privacy lapses. For those unaware, the consulting firm is one of the biggest stains on company's history.

That scandal, which came to light in 2018, saw more than 50 million users’ data exploited by a political consulting firm to sway the 2016 election in Donald Trump’s favor without their knowledge. That breach continues to haunt Facebook parent Meta and Zuckerberg despite their pledges to do better.

“While Facebook and Zuckerberg have, a full three years later, publicly condemned Cambridge Analytica’s data collection, its condemnation, in reality, only demonstrates that what Zuckerberg and Facebook say publicly is part of an intentional plan to mask the devastating consequences of their actions (or inactions),” the complaint reads.

For any other company, that complaint would be a massive headache. But Meta isn’t like other companies.

D.C. Attorney General Karl Racine’s suit marks the latest blow to Facebook as it confronts the most perilous time in its history. Meta is also staring down an antitrust suit filed by the Federal Trade Commission, as well as potential privacy regulations around the world.

Facebook Chairman and CEO Mark Zuckerberg testifies at a House Financial Services Committee hearing in Washington, U.S., October 23, 2019. REUTERS/Erin Scott
Facebook Chairman and CEO Mark Zuckerberg testifies at a House Financial Services Committee hearing in Washington, U.S., October 23, 2019. REUTERS/Erin Scott

And let’s not forget it’s in the midst of a major reinvention as a metaverse company, costing it billions each quarter. In its most recent quarter, Meta said it would scale back on spending, but its stock price is still down more than 43% over the last 12 months.

Additionally, it’s contending with challenges from Apple’s (AAPL) iOS privacy changes and inflation that are slamming ad sales.

To say Meta and Zuckerberg are besieged would be an understatement.

D.C.’s attorney general wants Zuckerberg to pay

Racine’s lawsuit isn’t his first swipe at Zuckerberg. In October, the attorney general tried to attach Zuckerberg to a 2018 suit against Meta related to Cambridge Analytica. However, a judge blocked the move, saying Racine waited too long to add Zuckerberg to the then-three-year old suit.

That’s where Monday’s suit comes in. It’s clear Racine is dead set on taking on Zuckerberg and making him pay for Cambridge Analytica in some way. It’s unclear how successful Racine’s gambit will be, though.

“Given what's in the complaint, it's a tough sell,” explained New York University Law School professor of practice Randal Milch. “The case is, Facebook did something really bad with Cambridge Analytica, and Zuckerberg is in charge of Facebook, therefore he's liable. That generally is not enough to hold a corporate executive liable.”

Still, Racine’s suit will ramp up the pressure against Zuckerberg and Meta — and that’s something the company can’t afford.

“Having something like this against the company isn't helpful to either [Meta] or to [Zuckerberg],” said Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware.

“No one likes to have to deal with something like this. And that's why typically, companies tend to resolve these things sooner than later because of the overhang it creates,” Elson added.

Meta and Zuckerberg are surrounded

It’s not just Racine’s lawsuit looming over Meta and Zuckerberg. The company is also currently navigating an especially difficult business environment. Advertising spending is taking a hit as inflation and interest rates rise, cutting into Meta’s revenue.

The company missed top line estimates in the first quarter, due to headwinds from the war in Ukraine and inflation. Despite that, Meta’s shares rose from $174.95 on April 27 to $223.41 after Zuckerberg vowed to cut back on capital spending. That bump didn’t last long, and as of Wednesday afternoon, Meta shares were trading at $182.09.

Compounding the problem is the fact Apple’s iOS privacy changes, called App Tracking Transparency, make it more difficult for advertisers to gauge the effectiveness of their campaigns on Meta’s platforms. As a result, advertisers are purchasing fewer ads through Meta.

As if that weren’t enough, Meta and Facebook have antitrust regulators circling overhead, too.

FILE - In this April 21, 2021, file photo, Lina Khan, nominee for Commissioner of the Federal Trade Commission (FTC), speaks during her confirmation hearing on Capitol Hill in Washington. Khan was sworn in as FTC chair Tuesday, June 15, just hours after the Senate confirmed her nomination as a commissioner.  (Saul Loeb/Pool via AP, File)
FTC Commissioner Lina Khan is leading the government's antitrust effort against Meta. (Saul Loeb/Pool via AP, File)

In its lawsuit initially filed in 2020 and refiled in 2021, the FTC alleges Meta tried to squeeze out smaller competitors it saw as potential threats to its business by running a “buy-or-bury” scheme. According to the FTC, Meta would buy rivals or outright copy their offerings to crush them. The FTC’s ultimate goal is to break up Meta.

Lawmakers in Washington and around the globe are also targeting Meta, as well as other major tech companies, with new antitrust legislation designed to reign in their power via a raft of bills. Some of these bills would prohibit companies from flattening smaller competitors or buying out rivals.

Amid all of this pressure, Meta is attempting to pivot from being a social media empire to a metaverse business. The move, which is costing the company billions each quarter, isn’t expected to fully pay off for at least 10 years, if ever, and could prove to be a costly blunder if it fails — especially since Zuckerberg changed the company’s name to signal its new direction.

With all of those distractions on its plate, Racine’s suit, regardless of its success, adds to the morass that Meta and Zuckerberg find themselves in.

Now it’s up to the CEO lead Meta. through its tangle of conflicts, regulations, and business maneuvers without falling on his face. And if Racine has his way, Zuckerberg will pay for his mistakes along the way.

By Daniel Howley, tech editor at Yahoo Finance. Follow him @DanielHowley

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