Photo: Collected
A court in the US state of New Mexico last Wednesday ordered Meta to pay a fine of $25 billion. Mark Zuckerberg’s company, which owns Facebook, Instagram and WhatsApp, has never before faced such a large fine.
The ruling came on the basis of a jury’s decision after a two-week trial earlier this year. It says Meta lied to the public for years about how Facebook users’ data is handled.
The judge said, ‘The misrepresentations are not confined to Facebook’s data management.’ In his words, these lies ‘extend to the very heart of Facebook’s core business operations’.
Meta’s chief legal officer CJ Mahoney said the ruling had made it ‘almost impossible’ for the company to do business in New Mexico. Meta will appeal against the ruling; Mahoney claimed they would win on appeal.
This is the largest of the fines imposed on Meta so far. This year the company has also paid fines or settled in several other cases. One of these is an $18 billion settlement with California over child safety.
The New Mexico case has its origins in the Cambridge Analytica scandal, when Meta still did business as Facebook. The political consultancy Cambridge Analytica had at the time exploited the data of millions of Facebook users, part of which was used in work related to the 2016 US presidential election. It was in that election that Donald Trump first became president.
The New Mexico authorities had further alleged that the company deliberately misled the public about how Meta profits from hateful content and how it enforces its own policies against such speech. The jury found Meta guilty on this charge too.
Meta, however, has denied all the allegations. Mahoney said, ‘At its core, this case aims to tax speech in order to enforce new rules on what people can say online.’
As the basis of the case, New Mexico’s lawyers brought forward various statements made by Meta executives over the years. Those statements claimed that users’ data was never given to third parties without their permission and that third parties could not access it either. The lawyers alleged that in reality exactly the opposite happened.
The lawyers claimed that nearly 2 million residents of the state were harmed by Meta’s dishonesty about how it controls user data. According to the jury’s decision, Meta broke state law more than 40 million times.
New Mexico Attorney General Raúl Torrez said on Wednesday, ‘For too long, powerful tech companies have operated as if their size and influence placed them above the law. Today’s ruling makes clear that no company is so powerful that it can be kept beyond accountability.’
The state’s lawyers had sought a fine of up to $40 billion from Meta. Meta argued that any fine above $3.4 billion would be unconstitutional.
In Wednesday’s ruling, Judge Francis Mathew took a tough stance on the fine; he set the amount close to the company’s profit for one quarter.
According to the judge, the breaches of the law and the misleading of the public over how Facebook users’ data was used and shared were ‘wilful’. These took place over more than 11 years, from 2010 to 2021.
Judge Mathew wrote in his order that various documents of communication among Meta’s senior executives ‘were crafted to mislead the public’.
Based on thousands of violations of state law, Meta’s total fine had come to $219 billion. The judge reduced it to $25 billion.
Earlier, in 2019, the US Federal Trade Commission had fined the company $5 billion over Meta’s role in protecting the privacy of user data.
New Mexico is one of Meta’s most vocal opponents in court. This very year the state fined Meta nearly $1 billion for misleading the public about how safe social media is for children.
The judge in that case ultimately compared Meta’s operations, in terms of mental harm and sexual exploitation of children, with air pollution from industrial plants. In his words, in Meta’s case the pollution is ‘mental harm and sexual exploitation of children’.
Despite such a large fine, Meta is pouring far more money than this into infrastructure to keep pace with other tech companies in the artificial intelligence (AI) race.
In a call with financial analysts, Zuckerberg said Meta’s consumer AI tool ‘Muse’ is already being used by 10 million people. He said, ‘Our goal and strategy is to make Muse fit for use by billions of people.’
To this end, Meta plans to spend at least $135 billion this year, most of it on AI-related projects. Total spending could even reach $145 billion.
Massive investment in AI has turned Meta’s cash flow negative. According to the company’s earlier financial filings reviewed by the BBC, Meta’s cash flow has turned negative by more than $2 billion for the first time in its 14 years as a listed company.
Cash flow is the money a company has left after meeting operating costs and investment. In other words, although its income is higher than ever, Meta is now spending more than it earns.
Meta’s revenue, however, keeps growing. In the July-September quarter this year, the company’s revenue rose 26 per cent year on year to $64.5 billion. Over the same period, profit nearly tripled to $9.8 billion.
Even so, the company is planning to increase its AI investment further. On the same call with analysts, Meta’s chief financial officer Susan Li announced a new share split, under which current shareholders will receive one share each of a new class without voting rights. Li said this new class of shares is not being allocated to any specific investment right now. But referring to the ongoing AI spending, she hinted that the company may need ‘more flexibility in financing’ next year.
Background
According to a 1 October report by the Albuquerque Journal, a Santa Fe jury ruled on 25 September that Meta had violated the state’s Unfair Practices Act; the jury found 26 of 29 statements by top executives, including Mark Zuckerberg and Sheryl Sandberg, to be ‘false or misleading’.
The sources differ: the original report says the trial took place earlier this year, but according to the Albuquerque Journal the jury’s verdict came on 25 September.
By the numbers
The same report said Meta itself had proposed a fine of between $345 million and $3.45 billion; under state law the maximum fine for each violation is $5,000.
