Here's why Facebook is paying a fine of $3 billion to $5 billion

  • Facebook is estimating that it could be subject to a $3 to $5 billion fine by the Federal Trade Commission (FTC), according to the company's earnings report filed on Wednesday. 
  • The fine could come as a result of Facebook violating a 2011 agreement with the FTC regarding consumer privacy. 
  • As part of that agreement, Facebook agreed to get users' consent before sharing their data with third parties, such as Cambridge Analytica. It also agreed to take steps to better protect users' data.
  • The FTC began investigating the social-media giant in March 2018 after news of Facebook's mishandling of user data in the case of Cambridge Analytica became public. 
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Facebook said it plans to pay a fine of $3 billion to $5 billion for potentially violating a previous settlement with federal regulators about the social network's privacy practices. 

"In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion in connection with the inquiry of the FTC into our platform and user data practices," Facebook said in its first-quarter earnings report on Wednesday.

"The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome," Facebook said.  

RELATED: Take a look at the companies Facebook confirmed it shared information with: 

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Companies Facebook confirms it shared data with
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Companies Facebook confirms it shared data with

Apple

(REUTERS/Heinz-Peter Bader)

Samsung

(REUTERS/Kim Hong-Ji)

Amazon

(REUTERS/Abhishek N. Chinnappa)

Blackberry

(REUTERS/Mark Blinch)

Microsoft

(REUTERS/ Mike Blake)

Huawei  -- Chinese company is the world's third-largest smartphone maker

(REUTERS/Yves Herman)

Lenovo

(REUTERS/Gleb Garanich/File Photo)

OPPO -- Chinese smartphone maker

(REUTERS/Edgar Su)

TCL Corp. -- China's largest television and cellphone producer

(REUTERS/Claro Cortes IV CC/JJ)

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Facebook didn't provide details about the inquiry or the specific data practices under scrutiny by the Federal Trade Commission (FTC).

So what is Facebook expecting to pay all this money for? 

The FTC began investigating the social-media giant in March 2018 after its mishandling of user data, according to reports. That incident involved the Trump-linked political-research firm Cambridge Analytica, which misappropriated personal information of tens of millions of Facebook members for use in targeted political ads. 

But that's just one of many privacy missteps by Facebook in recent years, including a hacking incident that left the personal information of 30 million users exposed. Business Insider's Rob Price reported this month that Facebook also uploaded the email contact information of 1.5 million new users without informing them or seeking their consent. 

Which of these incidents are covered by the $3 billion to $5 billion fine, and which are not, will be crucial for Facebook and its investors going forward. 

 

The settlement that Facebook may have violated was reached in 2011 over separate charges of privacy violations. As a part of that agreement — known as a consent decree — Facebook agreed to get users' consent before sharing their data with third parties, like Cambridge Analytica. It also agreed to takes steps to better protect users' data.

 

Reports of the potential fine became public in February, but no figures were given at the time other than estimates that it could be in the "multibillion-dollar" range. Facebook's call out of the fine in its earnings report confirms earlier estimates, though no definite numbers will be known until a settlement with the FTC is reached or the case goes to trial. 

 

Facebook finished Q1 with $45 billion in cash on its balance sheet. Shares of Facebook jumped 5% in after-hours trading on Wednesday.

 

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SEE ALSO: Facebook expects to be hit with $3-5 billion fine by the FTC, as it beats Wall Street's revenue expectations for Q1

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