WASHINGTON — A dispute over Facebook Inc.’s statement of social and emotional threats posed by its products could test regulatory interest in cracking down on corporate risks that harm reputation rather than profits. There is.
According to his lead attorney, John Napier Thai, the Securities and Exchange Commission has whistled former Facebook product manager Frances Haugen about the company’s efforts to resolve public issues. I am in touch with a lawyer. Facebook did not respond to a request for comment, and the SEC declined to confirm whether it was investigating Mr.
But according to Mark Fagel, former director of the SEC’s San Francisco office, the agency will almost certainly do so. “Given how much play this has gotten, it’s clear that whistleblowers have specifically gone to the SEC so there’s no way they can see it and not feel any pressure to file any sort of proceedings.” .” Fagel said.
Facebook has been criticized for targeting young people and responding to abuse of the product since the Wall Street Journal began publishing a series of articles based on documents collected by Hogan.
A report in the Journal details the company’s internal research that links Instagram use by teens to anxiety and depression. Publicly, Facebook has consistently downplayed the negative impact of social platforms on teens. Although the company does not typically publish the study or make it available to scholars and lawmakers requesting it, Facebook released an annotated version of the two research decks in late September.
The report also showed how inadequate Facebook’s efforts were to prevent abuse of the platform by drug cartels and smuggling entities. Such problems were particularly acute in some developing countries, where Facebook’s user base is expanding significantly.
Securities enforcement measures may focus on whether a company or its executives tell investors a story about a known business risk or trend and only hide the worse news that has been shared internally. Misleading statements must be significant. In other words, it is expected to influence transaction decisions and voting on behalf of companies.
The issues Hogan cited in his claim may be important to regulators, but lawyers say they are not all traditional securities fraud claims. In one of the whistleblower tips provided to the SEC, Hogen and his attorney said that Facebook asked “the question of whether Facebook and Instagram affect juvenile users,” according to a copy the magazine observed. I have written that I have made many important mistakes and omissions.
The complaint states that the side effects of Instagram are significant for investors. This is because consumer feedback against the products is expected to drive down user engagement and advertising revenue.
“Traditionally, this is not something the SEC would consider,” said David Rosenfeld, a former senior SEC executive currently teaching law at Northern Illinois University, about the company’s more current financial situation. “
Classic securities enforcement cases typically involve allegations that public companies have forged their accounting or other metrics and that investors have not disclosed material facts that follow or state their performance. However, the SEC could argue that the disclosure was simply misleading, without the need to link the details to financial trends. Rosenfeld said this strategy has expanded the variety of events the SEC has brought in in recent years.
For example, two years ago, Facebook agreed to pay the SEC $100 million to settle a claim by consulting firm Cambridge Analytica that it had not disclosed misuse of user data. Facebook settled without admitting or denying the allegations.
You might ask, “What do these risks of misuse of customer data have to do with the profitability of the company?” But they turned it into an enforcement measure,” Fagel said.
Another reason the SEC is investigating Facebook’s claims is the growing interest of regulators in sending messages about how businesses should disclose environmental, social and governance issues.
In one example, the SEC is currently investigating Activision Blizzard. Ltd.
The Journal reported last month how video game makers handled and exposed episodes of sexual misconduct and harassment in the workplace. Activision said in July that it has hired law firms Wilmer Cutler Pickering Hale & Door LLP to consider policies for maintaining a polite work environment. The company also said that it is engaging employees to investigate employee concerns.
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According to securities lawyers and accountants, the short-term impact of ESG exposure on financial performance may be unclear. The long-term effects are more far-sighted. For example, climate change can damage a company’s supply chain or reduce demand for its products.
Still, securities lawyers said it was difficult to speculate and speculate on these results. Companies can usually address such scenarios through comprehensive written disclosures that warn of potential future problems when business trends or laws change.
According to Rosenfeld, one of Hogan’s advice to the SEC appears to be to be more honest in the wheelhouse of government agencies. In a complaint, she claimed that Facebook did not disclose internal data showing “a shrinking user base across key demographics, including US teens and young adults.”
The complaint also states that Facebook did not accurately model how duplicate accounts affected reported user growth estimates and ad reach. The complaint says that if that information becomes available, advertisers will be able to spend less money on Facebook and some investors will be skeptical of Facebook’s growth indicators.
“If Facebook had information that their actual numbers were much lower than what they reported, or that they were clearly showing a decline, it’s probably the type to be disclosed. That’s what Rosenfeld said.” Very close to anyone who wants to investigate.”
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