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Facebook's data crisis deepens as questions mount

Facebook's data crisis deepens as questions mount
20 Mar
2018

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

Claims by The New York Times and UK media that Cambridge Analytica tried to influence how Americans voted using information improperly gleaned from 50 million Facebook users have already seriously hurt its brand.

The London-based data analysis firm worked on President Donald Trump's campaign. It has denied the claims and says it did not use Facebook data in the 2016 campaign.

Facebook was holding a staff meeting 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 to CNN.

The US Federal Trade Commission declined to comment on a Bloomberg report that it is investigating Facebook but said in a statement it was 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.

An undercover TV report Monday is also turning up the heat. 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.

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

Facebook (FB) shares suffered their biggest one-day fall in four years on Monday wiping $37 billion off the company's value. They fell again on Tuesday, dropping 6%.

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

Facebook CEO Mark Zuckerberg hasn't commented publicly since the scandal broke late on Friday.

But 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. (Other tech stocks suffered in Monday's sell-off too.)

More bad news could emerge later Tuesday. Channel 4 News will broadcast a new report at 3:00 p.m. ET on Cambridge Analytica's work in the United States.

Meanwhile, Zuckerberg is facing calls to testify before lawmakers in the United States and United Kingdom.

"The American people deserve answers about social media manipulation in the 2016 election," tweeted Senator Mark Warner.

Damian Collins, chair of the UK parliament's media committee, requested on Tuesday that the CEO give evidence about Facebook's connection to Cambridge Analytica.

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.

"We're looking at whether or not Facebook secured and safeguarded personal information on the platform and whether when they found out about the loss of the data they acted robustly and whether people were informed," Information Commissioner Elizabeth Denham told BBC radio on Tuesday.

In a statement on Tuesday, Cambridge Analytica says it has been cooperating with the 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."

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