SEC Complaint: Facebook Concealed ‘Shrinking’ User Base to Investors

(Photo:Brett Jordan/Unsplash) It’s only Wednesday, and Facebook is already having a bad week. After going offline for several hours Monday, the social platform has found itself at the center of a nasty allegation: an ex-employee and recent whistleblower has accused the company of misleading investors about its shrinking user base.

According to former Facebook product manager Frances Haugen, Facebook willfully misinformed investors and advertisers about the size of its user base, which has been declining in recent years. By concealing the true nature of its demographics and content production rates, Facebook was able to maintain a reliable and successful facade. Haugen contacted the US Securities and Exchange Commission regarding the omissions and filed a complaint, released Monday.

“Our anonymous client is disclosing original evidence showing that Facebook, Inc. has, for years past and ongoing, violated U.S. securities laws by making material misrepresentations and omissions in statements to investors and prospective investors, including, inter alia, through filings with the SEC, testimony to Congress, online statements and media stories,” the complaint reads. 

Though some of Facebook’s misrepresentations could possibly be considered accidental (for example, in the way its algorithms failed to distinguish “Single Users with Multiple Accounts”   (SUMA) from true individual users, and therefore misinformed advertisers regarding their potential reach), it’s pretty obvious most of its sins were intentional. “Facebook’s stock valuation is based almost entirely on predictions of future advertising revenue,” the SEC points out. Facebook overcharged advertisers for marketing and then “boasted” about the inflated ad revenue to its investors. It also told investors the platform was still popular with teens (its most profitable ad demographic), despite internal documents showing that teen and young adult usage has been declining since 2012, and that 15 percent of new teen accounts are SUMA. It’s simple—a falsely magnified user base means more money for Facebook, and the company saw dollar signs when it realized it could lie about declining use among teens, who (like Elon Musk) view the platform as “lame.” 

Haugen testified before the Senate consumer protection panel Tuesday. (Photo: Drew Angerer/Getty Images)

But now Facebook’s joyride through investors’ and advertisers’ pockets may come to an end. Since leaving the company in May of this year, Haugen has filed a total of eight SEC complaints. Haugen—and the thousands of internal documents she took with her—allege that Facebook fueled and incentivized the spread of misinformation and hateful content and didn’t enforce its terms when it came to high-profile “whitelisted” users. The whistleblower testified before the Senate yesterday, after appearing on a 60 Minutes interview and revealing her identity earlier this week.

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