Facebook sets aside billions of dollars for potential FTC fine, sales keep climbing

The investigation could also target Facebook founder and CEO Mark Zuckerberg personally. (AP Photo/J. Scott Applewhite)

Facebook says it expects to face a record US$3 billion ($4.55b) fine from the Federal Trade Commission for its mishandling of its users' personal information, an indication that the US government is willing to extract much larger penalties for privacy violations.

That amount, which Facebook budgeted in its first-quarter earnings report to Wall Street as a "legal expense," would represent the largest privacy-related fine the FTC has ever imposed.

The sheer size of the legal expense - more than 100 times greater than the size of the previous largest fine imposed on a technology company - would reset the baseline for future privacy investigations and could put the US on par with Europe in its willingness to go after technology firms who mishandle users' data.

Facebook and the FTC continue to negotiate the exact amount of a settlement that would end the agency's investigation.

But Facebook's recent scandals are already taking a toll on its balance sheet in a big way.

The anticipated FTC fine knocked 20 per cent off Facebook's profits this quarter and could ultimately range between $3b to $5b, it said.

Facebook's decision to set aside billions of dollars is effectively its first admission that it expects to be penalized by the government.

The FTC, which declined to comment for this story, began its investigation last year, amid reports about Facebook's entanglement with Cambridge Analytica, a political consultancy that improperly accessed data on 87 million of the social site's users.

The probe sought to determine whether Facebook's relationship with the firm violated a 2011 agreement with the US government to improve its privacy practices, known as a consent decree.

Since then, the social network has acknowledged a series of additional data mishaps, prompting federal officials to expand their inquiry, according to two people familiar with the matter.

Both spoke on condition of anonymity because the probe is supposed to be confidential under law.

The Washington Post previously reported on the expected size of the fine.

"This is the new commission flexing its muscles and announcing its presence, assuming the civil penalty against Facebook amounts to somewhere between $3 (billion) to $5 billion," said David Vladeck, who served as the director of the Bureau of Consumer Protection at the FTC in 2011.

"It's also supposed to send a message to the other companies the FTC has under order, which are many, basically making it clear the agency takes violations of the consent decrees very seriously."

Privacy advocates said a large fine would signal that the US government has the power and will to penalize Silicon Valley over the worst privacy offenses.

The investigation could also target Facebook founder and CEO Mark Zuckerberg personally, perhaps subjecting him to new oversight of his leadership, The Post first reported.

The largest fine was levied on Google in 2012, when the company had to pay $22.5 million to settle charges that it misrepresented to users of Apple Safari web browser that it would not place tracking "cookies" or serve targeted ads to those users.

Stock surges on Q1 revenue

Facebook announced the allocation for the FTC fine as part of its first-quarter earnings.

Its revenues of $15.1 billion beat analyst estimates and were 26 per cent higher than the same quarter the previous year.

The company's shares surged as high as $202.25, up 11 per cent, after the report.

"We had a good quarter and our business and community continue to grow," Zuckerberg said in a news release.

"We are focused on building out our privacy-focused vision for the future of social networking, and working collaboratively to address important issues around the internet."