[HN Gopher] Facebook paid billions to spare Zuckerberg in data s...
___________________________________________________________________
Facebook paid billions to spare Zuckerberg in data suit,
shareholders allege
Author : croes
Score : 353 points
Date : 2021-09-23 17:47 UTC (5 hours ago)
(HTM) web link (www.politico.com)
(TXT) w3m dump (www.politico.com)
| GrumpyNl wrote:
| Crazy and so corrupt.
| hellbannedguy wrote:
| "Zuckerberg, Sandberg, and other Facebook directors agreed to
| authorize a multi-billion settlement with the FTC as an express
| quid pro quo to protect Zuckerberg from being named in the FTC's
| complaint, made subject to personal liability, or even required
| to sit for a deposition," one of the suits alleged."
|
| Don't even think about messing with Mark's personal assets.
| [deleted]
| scott00 wrote:
| One point I think a lot of people are missing here: it's not
| likely that Zuckerberg would have paid anything out of his own
| pocket even if he had been sued individually. Generally most
| large companies agree to indemnify and defend their executives
| against any civil liability stemming from their position with the
| company.
| comeonseriously wrote:
| > The FTC also said in court that Facebook's fine would have been
| closer to $106 million...
|
| Fines need to keep up. This is ... nothing. $106M is what, 1.5
| DAYS of revenue. 1 and 1/2 DAYS. Gah! That's ridiculous!
| GoodJokes wrote:
| Why do any of you still work there or use this app? Have some
| respect for yourselves.
| yWrykKFMoW wrote:
| I work in one of the FAANG. Every thread on HN about one of
| these companies has a sub thread that reads something like
| this. Asking genuinely, where is the line?
|
| I now work at FAANG, but even before that I used
| products/services from FAANG for email/online shopping/grocery
| shopping/staying in touch with family and friends/electronic
| devices etc etc. I am not sure if anyone can completely exclude
| themselves from using all product/services from FAANG. I worked
| at a small startup before, but as a company we used tech/OSS
| from FAANG, used their products/services e.g. email/ cloud
| services etc. Even if I am not a customer, I always held FAANG
| stock and benefited from them in my retirement account
| (indirectly via index funds). So honestly, I am curious, where
| is the line?
| xutopia wrote:
| So money fixes everything.
| throwaway3975 wrote:
| The full headline is "Facebook paid billions extra to the FTC to
| spare Zuckerberg in data suit, shareholders allege". This is just
| an allegation.
| jaywalk wrote:
| Yeah, a journalist has to say "alleged" because it's a lawsuit
| that hasn't been settled in court yet. But it happened, and
| there's evidence. So it's more than "just an allegation."
| throwoutway wrote:
| That doesn't really help shareholders does it? Except Zuck has
| his own shareholder class so it really does!
|
| This is another reason against multiple classes of share
| dqv wrote:
| If we're talking about this from strictly the shareholders'
| perspective, deposing Zuckerberg would do more than $5 billion
| in damage to Facebook.
| pydry wrote:
| Why do you assume that?
| dqv wrote:
| I think Facebook has a lot of dirty secrets.
| avalys wrote:
| FB's valuation is currently around $1T. Shareholders should be
| pretty happy with what Zuck has done with FB's business and
| this seems sufficient to justify protecting him from what would
| have been a major personal distraction.
|
| But by all means, have sympathy for all those shareholders who
| were forced to invest their money in FB stock against their
| will and without any knowledge of the ownership structure.
| skeeter2020 wrote:
| So if I buy a share today at the $1T valuation, I DON'T
| support Zuck in this case, but if I bought one ten years ago
| I DO, because he made me rich?
| JumpCrisscross wrote:
| > _So if I buy a share today at the $1T valuation, I DON 'T
| support Zuck in this case, but if I bought one ten years
| ago I DO, because he made me rich?_
|
| If you bought a share today, you presumably aren't doing it
| out of charity.
| sfg wrote:
| They bought under the condition of the ownership structure
| and also the law. If, as alleged, the law was broken, then
| there is nothing wrong with shareholders seeking redress.
| CamelCaseName wrote:
| Who exactly was forced to invest money into FB stock?
|
| Why should we have any sympathy for them given the stock is
| up 200% over the past 5 years?
| avalys wrote:
| I was being sarcastic.
| edoceo wrote:
| My friends mocked me for buying on IPO day. Sold 1/2 a few
| months ago. I don't use the network but thanks for the
| money Zuck!
| skeeter2020 wrote:
| Weird flex. Do you have a system I can buy that will let
| me reproduce your results?
| edoceo wrote:
| Dice. Purchase from your local gaming house.
| neonnoodle wrote:
| Anyone with a retirement account in an index fund!
| asteroidbelt wrote:
| Anyone with a retirement account can pick a different
| fund. They can be even buy individual stocks to collect
| their own portfolio. Or even buy anti-Facebook security.
|
| But there's no demand for that as far as I see. So I
| guess shareholders are actually happy, and unhappy are
| the people here on HN who are not shareholders.
| cool_dude85 wrote:
| Where does this logic end? If Zuck shoots a guy in the middle
| of the street, is it fine for FB to finance his legal defense
| fund? Hire operators to bust him out of jail if he's
| convicted? Both of those "protect shareholder value" in the
| same sense as this.
| vasco wrote:
| It ends in illegal activities. If you disagree with the
| settlement you should harp on the FTC for having offered
| it. Zuck is no saint but this "where does it end" is a poor
| argument.
| cool_dude85 wrote:
| FTC seemed to think that Zuck was taking part in illegal
| activities right up until he offered a few extra billion
| in the deal. So it ends, well, before the article being
| discussed?
| COGlory wrote:
| You can't prove it's illegal if you stop it from ever
| going to court.
| viscanti wrote:
| Seems pretty clear. Zuck helped some people make a decent
| return on their investment so he shouldn't be held
| accountable for anything and it's cool for him to pillage
| the company coffers to bribe governments to let him off.
| JumpCrisscross wrote:
| > _Where does this logic end?_
|
| When there is an actual cost to Zuckerberg's behavior. So
| far, Silicon Valley is fine working for Facebook and Wall
| Street fine financing it. Users aren't rebelling.
| Advertisers are docile.
|
| Where is a politician aspiring to take Zuckerberg on
| supposed to find berth? (Genuine question.) The only fecund
| ground, to my sense, is the far right accusing Facebook of
| censoring its Nazism and far left upset that Zuckerberg is
| rich. Neither makes for a sustainably extensible base.
| shmageggy wrote:
| What about the far middle who have been hearing for years
| how Facebook is eroding democracy, providing a platform
| for misinformation, instilling anxiety in teenage girls
| (the latest headline), and on and on. Zuckerberg
| continually makes decisions that benefit him and
| shareholders to the detriment of society and humanity. I
| think there's a greater appetite for change than it might
| appear, but I also think for the average person, it's
| really, really hard to imagine what that might be.
| avalys wrote:
| Obviously Facebook should not do something illegal to
| protect Zuckerberg.
|
| However, if there is a legally permitted action that
| Facebook can take to protect him personally, and only
| Facebook can take it, I don't see the problem with them
| deciding to do so.
|
| If Zuckerberg is accused of a crime as a private citizen,
| he is of course capable of paying for his own defense.
| These are the examples you gave but they do not reflect the
| situation here. The story here is that the FTC wanted
| Facebook to pay a $5B fine. Not that they made Zuckerberg
| pay a $5B fine and Facebook decided to reimburse him for
| the expense.
| cool_dude85 wrote:
| >If Zuckerberg is accused of a crime as a private
| citizen, he is of course capable of paying for his own
| defense. These are the examples you gave but they do not
| reflect the situation here. The story here is that the
| FTC wanted Facebook to pay a $5B fine. Not that they made
| Zuckerberg pay a $5B fine and Facebook decided to
| reimburse him for the expense.
|
| The story here is that Zuck was going to be accused of a
| crime as a private citizen, until FB decided to up its
| settlement offer from 100 million to 5 billion.
| jreese wrote:
| Legitimate question: what crime would they have accused
| him of? Or would they just be civil offenses that aren't
| actually crimes? That is a meaningful distinction, but I
| haven't managed to read anything talking about what the
| actual charges would have been.
|
| Stealing's a crime; breaking contracts between FB and the
| FTC is not.
| lordlic wrote:
| I'm not sure what you think minority ownership of a public
| company should entail, but surely you'd agree that it should
| protect them from the majority shareholder spending unlimited
| amounts of company cash to save themselves from personal
| inconvenience/embarrassment?
| asteroidbelt wrote:
| "Personal inconvenience/embarrassment" will hurt his
| ability to operate the company efficiently. Protecting CEO
| is (usually) in the best interest of minor shareholders.
|
| This is why companies pay for personal security of CEOs or
| for their personal PR (most large companies, not just
| Facebook).
|
| > spending unlimited amounts of company cash
|
| This is clearly not the case here.
| howaboutnope wrote:
| This wouldn't be a "distraction", this would be him owning
| his shit. The distraction from that is what he fills the rest
| of his life with.
| A4ET8a8uTh0 wrote:
| I would argue against that argument. Arguably, Zuckerberg was
| instrumental in getting FB to where it is today. It is not
| inconceivable that protecting him is protecting shareholder
| value.
| Slartie wrote:
| From which alternate reality, where you were able to observe
| how a Facebook "fork" governed in a non-dictatorial fashion
| has turned out, did you learn this "arguable" information?
| A4ET8a8uTh0 wrote:
| I am genuinely not sure why this is a controversial
| statement. Allow me to rephrase this in a very quantifiable
| way.
|
| FB IPO opened at $38 (
| https://www.fool.com/investing/2019/11/17/if-you-
| invested-50... ). Today it trades at $346 (
| https://finance.yahoo.com/quote/FB?p=FB ). That is 9 times
| the initial investment value.
|
| Now, we can argue how much of that increase should be given
| to Zuckerberg in the form of credit for directing the
| company, but I am relatively certain that the answer is not
| zero.
|
| I stand by my initial post. It is very much arguable.
|
| edit: Hatred of Zuckerberg really should not be blind. I
| mean there is enough there to dislike him for. There is no
| need to invent stuff.
| croes wrote:
| "That was on Thursday. What did he do on Friday?"
| bostonsre wrote:
| > Arguably, Zuckerberg was instrumental in getting FB to
| where it is today.
|
| I agree that it would not be where it is today, but they are
| a troubled massive corporation beset on all sides by issues.
| They duck and dodge any issues and responsibility without
| fixing root causes. He definitely helped with the rise, but
| he will definitely also be responsible if it falls.
| izelnakri wrote:
| He could have protected himself by making his shares the same
| voting rights as common class and not selling them,
| signalling his loyalty to shareholders. It should be illegal
| to issue shares to public with lower voting rights in my
| view. Our world would be a different place if google/facebook
| had only one type of voting class and I dont think what I
| view is strictly political.
| intended wrote:
| Sadly, our world could be decidedly _worse_ as well.
|
| I used to discuss putting obvious skinnerian and behavioral
| systems in games as a joke back in the day when Diablo 2
| came out. Years later what I thought as an awful joke was
| the mobile gaming business model.
|
| There are many jokes I can make about how to run Facebook
| more "efficiently". How to take the wrong lessons from the
| many, _many_ business propaganda efforts that have been
| successful.
|
| Sorry, at this point I am a bit disheartened just thinking
| about it. I was trying to connect to your point, but I
| really can't thin of anything positive to say anymore.
| 8note wrote:
| That was then and this is now. As they say, past performance
| is no guarantee of future results
| A4ET8a8uTh0 wrote:
| I think you are right. It is not a guarantee, but in real
| life there are no guarantees. However, there are ways to
| make things more likely. And given that one of the best
| predictors for what person will do is what they have
| done..investors would likely be more assured that FB is
| with Zuckerberg at the helm than not.
| InvaderFizz wrote:
| If that outrages you, how about using threats of fines as an end
| run around congressional appropriations to fund pet projects?
|
| See: https://www.wsj.com/amp/articles/will-biden-restore-
| charitab...
|
| This has been an ongoing problem since Bush Jr, it was halted
| under Trump, and it looks like this admin has brought it back.
|
| It's a nice bit of work: We'll settle with you, for a reduced
| amount, but you have to make a tax-deductible donation to these
| foundations we specify. Don't worry that they are in no way
| helping the victims of your malfeasance.
| pdabbadabba wrote:
| This headline desperately needs to be corrected to reflect the
| fact that this is an _allegation in a lawsuit_ , not something
| Politico is reporting as fact.
| randmeerkat wrote:
| "The most sacred of the duties of a government [is] to do equal
| and impartial justice to all citizens."
|
| -Thomas Jefferson
| dfxm12 wrote:
| The cynic in me realizes that white collar criminals of
| Zuckerberg's stature really only likely serve time if it
| involves a huge amount of tax evasion. This money keeps
| Zuckerberg's name off of any official filings, but I don't
| think there was ever any real threat of him going to jail. So
| the $5b is, in a way, pure profit.
| drunkpotato wrote:
| You think billionaires go to jail for avoiding taxes? Are you
| sure you have any cynic in you whatsoever?
| skrtskrt wrote:
| millionaires go to jail for avoiding taxes, billionaires
| write the laws so they don't actually have to pay any taxes
| skybrian wrote:
| It's usually interesting to find the context for these quotes.
| In this case the language is a bit obscure, but he seems to
| have been arguing that taxing both income and sales is a form
| of double taxation? [1]
|
| This is in a note about a book by Antoine Destutt de Tracy, who
| was apparently a philosopher who coined the word "ideology."
|
| Anyway, I guess it's repeated because it sounds good, but most
| people don't care what Jefferson meant and might not agree with
| his point about double taxation.
|
| [1]
| https://founders.archives.gov/documents/Jefferson/03-09-02-0...
| biztos wrote:
| Thanks for doing that footwork. Ever since I was old enough
| to pay income taxes (started aged 14) it has burned me that
| my "share" of my income is then taxed at various steps along
| its way to some other citizen's income, where the remainder
| is taxed yet again.
| shmageggy wrote:
| I'm sure the gov't would be happy to take 5B to let you and I
| off the hook for white-collar crimes as well. See, perfectly
| equal!
| margalabargala wrote:
| The law, in its beautiful equality, forbids rich and poor
| alike from sleeping under bridges.
| munk-a wrote:
| Please note - if you own the bridge you may find yourself
| exempt.
| gordon_freeman wrote:
| I don't understand how this kind of deal is even legally allowed?
| This is clearly against the Shareholders' interests to overpay
| the fine in order to protect the personal interests of some top
| FB executives.
| rscoots wrote:
| Another thread mentioned that as a figurehead of Facebook, Zucc
| being named in this could conceivably lead to bad outcomes for
| shareholders via bad press.
|
| My question is, if he was named would that lead to an
| investigation of his personal actions and dealings becoming
| public? If visibility into internal workings of the CEO is bad
| for shareholders then that's the way it ought to be I feel.
| eurasiantiger wrote:
| It is not, but the FTC is the entity enforcing that. This is
| corruption, pure and simple.
| brudgers wrote:
| "Shareholders" doesn't mean much here.
|
| Facebook has Class A shares that each get one vote.
|
| Facebook has Class B shares that each get ten votes.
|
| The board has Class B shares.
|
| The Zuckerbergs control most of the Class B shares.
|
| Enough to have a majority of the votes.
|
| That's what owners of Class A shares bought into when they bought
| their Class A shares.
|
| If the article didn't ignore this, it would be a lot less
| interesting. So it does.
| drummer wrote:
| Two different classes of criminals made a deal with eachother.
| News at 11.
| fallingknife wrote:
| This title is leaving off 2 very important words at the end:
|
| Facebook paid billions extra to the FTC to spare Zuckerberg in
| data suit, SHAREHOLDERS ALLEGE
| paxys wrote:
| I'm curious how the FTC could make Zuckerberg personally liable
| in any lawsuit.
| OldHand2018 wrote:
| Not letting you know that was worth $4.9 billion
| naveen99 wrote:
| How much to add a gag order / classify the whole agreement, NSA
| letter style ? Asking for a friend. At some point these decisions
| get made by a committee of people who are themselves way below
| the pay grade for these decisions... I wonder how that works. The
| math is hard to make consistent.
| r00fus wrote:
| So is Zuckerberg saying he values his privacy _that much_? I
| mean, what does he have to hide?
|
| Meanwhile, FB itself buys info on people to "augment" their
| understanding of them as users. And for those who don't willingly
| participate - they create shadow profiles.
| 1vuio0pswjnm7 wrote:
| "Zuckerberg, Sandberg, and other Facebook directors agreed to
| authorize a multi-billion settlement with the FTC as an express
| quid pro quo to protect Zuckerberg from being named in the FTC's
| complaint, made subject to personal liability, or even required
| to sit for a deposition," one of the suits alleged.
|
| "... or even required to sit for a deposition."
|
| Has he even sat a deposition since the Winklevoss case.
|
| Years ago there was a shareholder suit against Facebook et al.
| that was going to trial (rare). Zuckerberg was scheduled to
| testify.
|
| IIRC, Facebook settled on the eve of his scheduled appearance.
|
| The plaintiffs counsel was quoted in the press as saying
| something along the lines of "Mark Zuckerberg may know computers,
| but I know ..." Clearly he was looking forward to it. :)
|
| Surely there are more litigators out there who would love to have
| a go at Mark Zuckerberg.
|
| Also, many years ago in the back and forth between Zuckerberg and
| Greenspan at Harvard, Zuckerberg made a remark that suggested he
| was frightened of federal court.
|
| Testifying before Congress is not the same as testifying in
| federal court. Congress is a big step up from appearing before
| some Harvard administrator for disciplinary violations, but its
| not under oath and the consequences of lying are, lets be honest,
| non-consequential.
|
| IMO, if a plaintiffs lawyer or prosecutor ever gets Zuckerberg
| into a federal courtroom to testify, he will halt and catch fire
| under questioning. Even with all the resources at his disposal,
| he is likely "uncoachable". He only knows how to lie, and as we
| have all seen he isnt very good at it.
|
| "They amended the complaints last month after receiving internal
| files about the board's discussions on privacy, which a federal
| judge had ordered Facebook to provide."
|
| There is value in discovery in litigation and regulatory
| proceedings against Facebook and Big Tech, regardless of the
| likely success of any of the indivdual cases, IMHO.
|
| These companies rely on non-transparency to carry out their
| surveillance "business" without public backlash. Every lawsuit
| against them is a chance to learn more of what they do and
| potentially publish about it. Much of what we know has come from
| regulatory proceedings or lawsuits. The more we learn about what
| goes on behind the scenes, the stronger the future allegations
| that lawyers can make. Bit by bit, they unpeel the onion.
|
| There is some sweet irony in all of this because it was
| Zuckerberg and Google's CEO Schmidt who told the people they have
| nothing to fear about sharing what they know with Big Tech.
| Nothing to hide, nothing to fear or some such. When we ask Big
| Tech's staff to share what they know with us, they resist.
| Perhaps someone will remove the friction (as in "frictionless
| sharing").
| tombert wrote:
| Wait, I'm missing something. Wouldn't overpayments to a
| government entity have to be reported? Why are we just hearing
| about this now?
|
| This isn't a loaded question, I'm genuinely curious if a lawyer
| or someone more educated than me could explain this.
| paxys wrote:
| > The FTC also said in court that Facebook's fine would have been
| closer to $106 million, but the company agreed to the $5 billion
| penalty to avoid having Zuckerberg or Chief Operating Officer
| Sheryl Sandberg deposed and any liability for the CEO, the suit
| alleged.
|
| This is bizarre. I get throwing in a little extra to shield
| executives, but _$5 billion_?
| samstave wrote:
| What pisses me off is -- _WHERE_ exactly is that $5B going to
| be spent.
|
| We hear about fines and such going into the "general fund" -- I
| think this is BS - the public should be specifically the ones
| to benefit _directly_ from such corporate overreach fines and
| such.
|
| Housing fines should buy houses.
|
| Financial fraud should pay those defrauded - directly.
|
| Cyber [crimes?] should be paid to directly protect users
|
| etc....
|
| We have heard of so many fines in the past, but no real
| transparency on exactly how they are spent.
|
| And it shouldnt be in some obtuse web/budget location to
| determine...
|
| There should be a dedicated fines.gov or some such that lists
| every single company fined, how much and how it was spent.
| boplicity wrote:
| Apparently most of the fines go straight to the "US
| Treasury." Basically, congress decides how to spend the
| money. That makes some sense: at least it is being spent by
| people who are elected, so that there is a chance at
| accountability.
|
| However, it also doesn't make sense, because it doesn't seem
| "fair." The money from fines should be used to compensate
| victims.
|
| That being said, compare this to the common practice of civil
| forfeiture: The money often goes back to the very same
| government entities who took the money. This is _very bad_
| because it incentivizes government agencies to be way too
| aggressive.
|
| On balance, I think it _might_ be better for the money to go
| back to the general fund. That way the temptation for
| corruption is severely mitigated. Though, I 'm not sure about
| this, as I haven't spent much time thinking about it. There
| could, perhaps, be a more nuanced approach, based on each
| unique agencies needs/situation. That would require a lot of
| legislation, though.
| autokad wrote:
| well zuck basically has full decision rights over FB shares. If
| I am not mistaken, only he has voting rights, no FB common
| share holder holds any voting rights
| jdsully wrote:
| Minority and even non-voting shareholders still have rights,
| the majority cannot arbitrarily deprive them of the benefits
| of ownership. The legal doctrine is "shareholder oppression".
|
| If Zuckerberg really did pay more than he had to solely for
| his benefit at the expense of minority holders then it would
| be an example of this.
| zepearl wrote:
| I think that Matt Levine ( https://www.bloomberg.com/opinio
| n/authors/ARbTQlRLRjE/matthe... ) some time ago mentioned a
| similar case?
|
| A CEO being as well a shareholder of the company wears 2
| hats => as CEO he has to act in the best interest of the
| company (which includes all shareholders?) => a conflict
| with remaining shareholders arises if he as CEO acted for
| his own personal benefit? Something like this? I think that
| Matt Levine's conclusion was open, but I'm not sure... .
| quickthrowman wrote:
| I'm sure a high priced lawyer would argue that Mark
| Zuckerberg in prison would be a worse outcome than a $5B
| fine for FB shareholders (I'd tend to agree, but I don't
| own any FB outside of index positions exactly for the
| regulatory/legal risk that FB is exposed to, which I feel
| the market underestimates)
| nerbert wrote:
| A great way to not go to prison is to not break the law.
| It's also cheaper.
| tantalor wrote:
| That's a counterfactual.
| munk-a wrote:
| I really don't like Facebook but I think it's quite
| accurate. Zuckerberg is the face of Facebook and
| revealing dirty secrets of his would likely hurt the
| company value beyond the 5B pricetag.
|
| I don't think it's just though.
| quickthrowman wrote:
| Having your CEO in prison would not do good things for
| the share price, I'm not sure what you mean by
| counterfactual.
|
| It's a simple calculation of utility: minus $5B in market
| cap for the fine, vs unknown market cap loss from CEO in
| prison
| tantalor wrote:
| I mean, you are assuming if he is deposed then he will go
| to prison, whereas we don't actually know what
| consequences will really occur because you are talking
| about situation that did not happen (counterfactual to
| reality).
| munk-a wrote:
| In America it's often the case that being indicted or
| accused is enough to brand you a criminal. Him taking a
| stand with some propoganda thrown around to make him look
| a bit guilty could cause significant damage regardless of
| the truth of the matter.
| im3w1l wrote:
| He already has bad relations with minority shareholders[0],
| so I wouldn't be surprised if someone tries to sieze this
| opportunity.
|
| [0]
| https://www.dailymail.co.uk/news/article-8261775/Facebook-
| in...
| mgiampapa wrote:
| Common shares vote, insider shares just vote 10x more per
| share. He isn't the only one that has them, but the way
| things are structured he has control of the company and more
| than half the total votes.
| odiroot wrote:
| Maybe they can now get sued for securities fraud? (Per Matt
| Levine)
| brudgers wrote:
| A Google side panel says last quarter Facebook doubled it's net
| income to $10 billion.
|
| So year over year, Facebook made that money back last quarter.
|
| If the lower settlement might have slowed year over year
| growth, five billion would likely be money well spent.
|
| Particularly if there wasn't an obviously better return for the
| cash. When you have billions of cash on hand finding
| investments that size is a hard problem.
|
| Keep in mind that the fine is an operational expense. Right off
| the top, there's potential double digit return from reducing
| taxable income. In addition, the company better maintains the
| book value of goodwill assets without the depositions and can
| borrow money at more favorable rates.
|
| On top of that, executives and staff aren't spending time in
| depositions and answering tough questions from the press.
|
| The interesting thing is figuring out why it makes sense
| despite my direct experience. Even though I would have
| preferred they gave me some of that money instead.
| encoderer wrote:
| Yes nailed it.
|
| Executives of a certain vintage learned a lot watching the
| carnage from US v Microsoft. Talk about destruction of
| shareholder value. I would say for Facebook this is money
| well spent.
| DaiPlusPlus wrote:
| > Executives of a certain vintage learned a lot watching
| the carnage from US v Microsoft
|
| Please elaborate.
| encoderer wrote:
| I'm sure there have been books or well researched blog
| posts you could dig up but here's my best take:
|
| Look at the influence and trajectory of Microsoft before
| and after the lawsuit. The executive team was distracted
| for a year. The employees were demoralized by bad press
| coverage. Competitors were emboldened. And for internet
| and mobile, Microsoft got put on the back foot before the
| 21st century even began.
|
| Facebook management and board is full of people who
| observed and lived that experience. There is a case study
| of corporate distraction and they have read it.
| vineyardmike wrote:
| > I get throwing in a little extra to shield executives, but $5
| billion?
|
| If i had singular control of a company the size of FB and the
| ability to spend it's money to avoid any sort of liability, i'd
| take the offer too.
| [deleted]
| pydry wrote:
| There's still a myth floating around that companies are
| _legally obligated_ to make the maximum amount of profit for
| shareholders.
|
| https://skeptics.stackexchange.com/questions/8146/are-u-s-
| co...
| ocdtrekkie wrote:
| Ah, but if Mark Zuckerberg is the majority shareholder,
| isn't spending an obscene amount of money to keep him from
| facing liability actually in the best interest of... the
| majority of your shareholders?
| sjg007 wrote:
| yep
| DelightOne wrote:
| Was he at the time? Majority requires 50%+ ownership and
| not just voting power, right?
| ipaddr wrote:
| Voting power.
| lilyball wrote:
| There's a pretty big difference between "companies don't
| have to seek maximum return for shareholders" and
| "companies can spend billions of dollars to prevent their
| executives from being personally liable".
| nceqs3 wrote:
| It's in the bylaws of the corporation typically. Feduce
| duty lawsuits are very common and it certainly isn't a
| "myth".
| skybrian wrote:
| The myth part is that fiduciary duty != maximizing
| profits. There's no quantity that you have to take a
| maximum of. You can't spend the shareholder's money on
| things that can't be justified as business expenses, but
| that doesn't keep companies from buying corporate jets or
| spending money on high-end travel. Or even just paying
| people more than they're worth. Who's to say what they're
| worth?
|
| This is a special case where saying "business judgement
| rule" might not be enough to get Facebook out of trouble,
| though I'm sure Facebook's lawyers will dispute that.
| pydry wrote:
| Within some constraints you can put whatever you _want_
| in your corporation 's bylaws when you found it,
| including a directive _not_ to make a profit should you
| so choose.
| WillPostForFood wrote:
| Can you give an example of a company with it their
| bylaws? I've never seen it, and Facebook doesn't.
|
| https://s21.q4cdn.com/399680738/files/doc_downloads/gover
| nan...
| adventured wrote:
| It's absolutely not typically in the bylaws of
| corporations, that they must seek to optimize for profit.
| The parent comment dances around the language of the
| premise. It's extraordinarily rare to put anything
| remotely close to that in the bylaws, because it's a
| super dumb way to set yourself up for entirely
| unnecessary legal problems in the future.
|
| The lawsuits may happen, however they also almost never
| win.
| sjg007 wrote:
| Zuckerberg is the majority shareholder.
| olliej wrote:
| No he's only the majority of the voting shares
| the_other wrote:
| That makes him (effectively) the majority shareholder. If
| you can't vote (or your vote is effectively meaningless)
| then you don't have ownership and your shares are just a
| loan with wildly variable interest.
| tmccrary55 wrote:
| Although the preferred stock holders get paid before Zuck
| and co.
| rebuilder wrote:
| It's a hell of an upsell, though. That's 50 times the initial
| price. Zuckerberg must have been really worried, or really,
| really unwilling to take any personal risk.
| barkingcat wrote:
| or is just really rich. perspectives are different at that
| scale.
|
| if he has the ability to make fb pay for it why not?
|
| It's just like me not giving a second thought to getting in
| my car, driving down to the market that's 1.5 blocks away
| to pick up some eggs. When I didn't have money, didn't have
| a car, that was unbelievable to me. But now it's just
| second nature.
|
| To people with wealth at that scale, hundred million vs
| single digit billion might not be such a big deal. (I mean
| it's one order of magnitude to go from x00 million to y
| billion, so it's not that far fetched for a rich person to
| take that as is)
|
| The real discussion should be why the fine was so low and
| wasn't in the hundreds of billion to trillion range in the
| first place. That's the real steal.
| vineyardmike wrote:
| > That's 50 times the initial price.
|
| There is no limit of someone else's money i'd spend -
| repercussion free - to avoid the slightest bit of
| liability. I can imagine the same thing applies to Mark.
| tbh can't fault him for it.
|
| The blame for this behavior lies in the FTC for brokering a
| deal (as if the US needed money? Was it for a big-number
| press cycle?) and for early stage investors in FB for
| allowing a business with such a brass stock agreement.
| scotuswroteus wrote:
| Oh in point of fact this was illegal if it's true, and I
| don't know how you ignore the law in who you can "fault"
| with respect to corporate officer conduct.
| patentatt wrote:
| But he personally has a controlling stake in the company,
| it's like at least half his money in some sense.
| ivalm wrote:
| The marginal utility of $5b of facebook's money to Zuck is
| very low, but the cost of even a low chance of serious
| personal liability is high.
| shapefrog wrote:
| Guessing he had a few people fired from their 100k jobs
| for _only_ generating a mil in profits for the company
| and thus being a drag on the metrics.
| pc86 wrote:
| Zuckerberg is worth $130 billion.
|
| And this $5 billion isn't even his money; it's the
| company's.
| lostlogin wrote:
| > Zuckerberg must have been really worried, or really,
| really unwilling to take any personal risk.
|
| I'm not so sure. If you asked a random person if they could
| wash the dishes, or not do them but someone other person
| would have to pay 5 billion dollars, what would the result
| be?
| [deleted]
| jjoonathan wrote:
| Depends on whether or not they're psychopathic enough to
| be CEO material.
|
| I feel like these figures -- 50x and $5B -- are good
| things for people to keep in mind next time their company
| asks them for uncompensated self-sacrifice.
| munk-a wrote:
| I'm sorry guys - we're unable to offer a CoL adjustment
| or performance raises this year. We really wish we could
| but the CEO just mauled a few pedestrians in his lambo.
| unyttigfjelltol wrote:
| Minority shareholders aren't just supposed to be along for
| whatever frolic you whimsically decide to send them on.
| landemva wrote:
| Queue the shareholder lawsuit.
|
| USA is home of justice to the highest bidder.
| fakedang wrote:
| Cue*
| collectedparts wrote:
| Er, yes. The topic of the linked article - the reason
| that this is coming to light in the news now - is indeed,
| that a shareholder lawsuit has been brought against them
| (Zuckerberg, Sandberg, etc are named defendants and the
| company is nominal defendant). Direct link, from the
| article: https://655e71e2-f98d-40e9-822b-081bc894b6af.fil
| esusr.com/ug...
| scotuswroteus wrote:
| Also, lawsuits aren't just raw competitions between two
| entities about who is willing to spend the most.
| potatolicious wrote:
| Not to mention the "minority" shareholders are only
| minority in voting rights, not minority in shares owned.
| The multi-class share system is designed to enable exactly
| this kind of executive behavior, where even a broad
| shareholder revolt isn't enough.
| [deleted]
| meltedcapacitor wrote:
| Are they not? It's not exactly a secret he has full
| control.
| echelon wrote:
| How did he get and maintain full control?
|
| What are other startups / companies where the founder is
| in full control?
|
| Is it possible, as a founder, to maintain complete
| control of the board and the company through Series A - E
| ?
|
| I've seen several short answers on this in other threads,
| but I want to know more about this.
| vineyardmike wrote:
| > How did he get and maintain full control?
|
| It's his company. When you make the company and give out
| shares, just get the lawyers to agree to allow you to
| keep control. Its just legal documents. If you have a
| good startup VCs and angels may be willing to give you
| better terms.
|
| > Is it possible, as a founder, to maintain complete
| control of the board and the company through Series A - E
| ?
|
| Sure. I've noticed several company IPO announcements on
| HN lately included the founder-control shares in their
| IPO prospectus, so it can't be too unique.
|
| The way they do this is by having share classes. Eg Class
| A shares each gets x% of company and y% of votes. Class B
| shares get X% of company and [Y/20]% (or 0 sometimes) of
| votes. The 1/20 is arbitraty btw, it can be any ratio.
| Sometimes i see A, B, C shares where A is founder/vc tier
| with extra votes, B is "regular" with smaller votes, and
| C is no-vote shares, and often C is sold through IPOs
| into the exchanges.
|
| I have no data on how common these different schemes are,
| but they're things ive seen in HN-announced start-ups and
| IPOs in the last year, so take that as anecdotal.
| munk-a wrote:
| It honestly just comes down to a question of what the
| investors will let you get away with - if you're viewed
| as incompetent but sitting on a golden goose investors
| will push to dis-empower you as much as possible whenever
| you come knocking for emergency funds. If the company is
| successful and just seeking some marginal funding that
| could, alternatively, be secured by bank loans... then
| you've not given them as much leverage to work with.
| nomid wrote:
| Some info here:
| https://www.latimes.com/business/hiltzik/la-fi-hiltzik-
| mark-... but the gist of how he controls it is pretty
| simple:
|
| "Zuckerberg owns or controls 88.1% of Facebook's Class B
| shares, which each have 10 votes at the annual meeting --
| 3.98 billion votes overall. There are only 2.4 billion
| Class A shares, which are the only shares ordinary
| investors can buy. So any proposal Zuckerberg doesn't
| like will fail by nearly a 2-1 margin, assuming all Class
| A investors vote together, which never happens.
| (Zuckerberg owns 0.5% of the Class A shares.)"
|
| Clearly all throughout the funding rounds he made sure he
| controlled the shares that mattered.
| spoonjim wrote:
| He maintained full control by growing the value of
| Facebook so quickly and with so little capital that he
| could raise financing at astronomically low dilutions.
| marketingtech wrote:
| Facebook has two types of stock. Class A and Class B.
| Class B stock gets 10 votes per share, while Class A
| stock gets 1 vote.
|
| Zuckerberg and other very early people had Class B stock
| so they can continue to have more than 50% of the vote
| even when they own less than 50% of the stock.
|
| This was a really popular stock structure in Silicon
| Valley for a while because it cements founders in control
| - Evan Siegel at Snap has the same deal, and Adam Neumann
| at WeWork was about to do it. But now there's a lot of
| push back against it, and some indexes like the S&P 500
| refuse to list new stocks with this dual class structure.
| soperj wrote:
| why just new ones? delist the old ones.
| opinion-is-bad wrote:
| Hard to delist Facebook and Alphabet.
| ashtonkem wrote:
| They can sue him if they feel that he abused his position
| as executive or majority shareholder.
| spoonjim wrote:
| Zuckerberg is worth vastly more than $5 billion to Facebook.
| zie wrote:
| Well, we don't actually know that. Can a different CEO do a
| better job with Facebook? We haven't any idea as we have
| never had the opportunity to find out. But I agree that it's
| generally bad for shareholders if your CEO ends up in prison.
| spoonjim wrote:
| 5 companies have ever been worth more than $1 trillion,
| Facebook is one of them. Could a different CEO have made
| more money? Possibly. But the notion is a bit like thinking
| that you could have done better than Tom Brady as a
| quarterback because he lost 3 Super Bowls. I mean, yes,
| it's true, you can imagine a quarterback that didn't lose
| those 3 games. But he also won 7, which, chances are, your
| replacement QB would have not. When a person has made more
| money for shareholders than 99.999995% of people in
| history, it's an extraordinary claim that someone else
| could have made more, one that would require extraordinary
| evidence.
| paulcarroty wrote:
| This is crazy money, yeah, for us.
| klyrs wrote:
| I believe the term "fuck you money" has never been more apt.
| munk-a wrote:
| This case may have elevated it to "fuck society money"
| ctvo wrote:
| It's not the amount. It's the ratio. They overpaid by over 47
| times. A company filled with world class lawyers and business
| executives, as well as an experienced board does that? Why?
| pjc50 wrote:
| Because the boss told them to?
| Reubachi wrote:
| yes....that's what's crazy: why? Not sure the why folks
| are confused about folks being confused about this.
|
| There must be some logical reason they would pay out
| close to 50x the demanded payout, but none of us for the
| life of us can imagine why beyond shielding personal
| liability. So, why is that possible?
| Cederfjard wrote:
| It's not only personal liability - surely Zuckerberg and
| Sandberg being deposed would be a liability for Facebook
| as well.
| ClumsyPilot wrote:
| Or maybe it would be a long overdue cleanup
| intended wrote:
| Perhaps precedent. The difference between Facebook as a
| firm being liable for everything that has happened or
| will happen, vs an individual being liable?
| bbarnett wrote:
| The settlement happened _after_ the 5B was paid. The 5B
| likely included a fine they were seeking, too.
| ctvo wrote:
| The fine was 109M.
|
| Not sure why you felt the need to clarify that the
| settlement happened after the 5B was paid when the 5B was
| conditional on Zuckerberg / Sandberg not being liable in
| the settlement.
|
| The question is what did these people know / do that was
| worth 47x the fine to keep them safe.
| bbarnett wrote:
| The point is, the 5B was a fine, accepting full penalty
| for whatever "wrong thing", over that part which was
| being investigated.
|
| The 47x number is apples and oranges. They are two
| different fines / issues.
|
| What Zuck knew isn't relevant, for, the fine was likely
| "if all the bad things we think you did, happened, then
| this is the fine".
|
| So, in essence, he admitted to all the questions being
| asked.
|
| Zuck / Facebook paid, rather then shine greater light on
| things. So yeah, bad stuff surely, but I see no direct
| connection to the other fine.
|
| In fact, by relating it to the other fine, people are
| missing that it may have been an entirely other (very
| bad) matter.
|
| The bit about personal liability, etc, etc is standard
| boilerplate stuff.
| dado3212 wrote:
| The magnitude is so large as to make me doubt this in its
| entirety. There must have been some other benefits that were
| gotten from the deal, or there wasn't clarity that the number
| wouldn't swell beyond the $106 million number, right? How else
| do you possibly justify paying roughly 50x what was asked?
| Justsignedup wrote:
| unless there was a criminal potential, and these billionaires
| don't like sitting in cages for any amount of time.
| [deleted]
| tyingq wrote:
| If the liability of what would have been revealed by deposing
| Zuck is even higher than 50x.
|
| The math is "potential damage from a deposition + fine" vs
| "paying 50x the fine up front".
| dado3212 wrote:
| Isn't the question why was it 50x? I agree that there's
| definitely a value prop here where it's worth upfront money
| to avoid potential damage (moral caveats aside lol). But it
| seems unlikely that the FCC was like "100 million and we
| depose Zuck, or 5 BILLION and we let it go", which feels
| borderline blackmail-y. Why did FB propose 50x as opposed
| to some smaller number as part of the proposed deal?
| [deleted]
| TYPE_FASTER wrote:
| > If the liability of what would have been revealed by
| deposing Zuck is even higher than 50x.
|
| Was thinking about this. Would be curious to know what
| information was worth $5bil.
| intended wrote:
| Im guessing The precedent of being made personally liable
| for every ill that Facebook could be responsible for in
| the past, present and future.
| notRobot wrote:
| So do we consider this a fine or a bribe? Either way it's someone
| who did (and continues to do) something terrible getting away
| with a slap on the wrist.
| Ekaros wrote:
| You can't bribe a government, you can bribe an official. Though
| I suppose executive position after year or two doesn't count...
| alex_young wrote:
| I don't follow, why can't one bribe a government? This
| actually sounds a lot like that.
| Ekaros wrote:
| Bribe is something that government prosecutes for paying.
| So agreeing on a fine imposed by them is not a bribe. Even
| if it can get you out of lot of trouble.
| paxys wrote:
| It is a bribe if it is going into some official's pocket.
| Making a settlement with a government agency is fully
| legal.
| throwaway1777 wrote:
| Distinctions like this are why people feel the government
| is hopelessly corrupt. It really makes no difference
| whose pocket it's going into. It's paying money to game
| the system.
| notRobot wrote:
| Exactly this, I couldn't agree more.
| srcreigh wrote:
| In theory, isn't the difference that a settlement with a
| government agency can be used by the government for
| public good? Whereas a bribe to the official just makes
| the official richer?
| mdasen wrote:
| The distinction is that a penalty paid to the government is
| getting put toward the public's use and not toward the
| private enrichment of an individual (or small group of
| individuals).
|
| If a cop pulls me over and I offer to pay him a "fine"
| (wink-wink) on the spot if he doesn't write me a ticket,
| that money is going to his pocket (and maybe his
| partner's). If I get a ticket and I pay that ticket, the
| money is going into the state's general budget or state
| controlled funds (for example, speeding tickets in my state
| put money into a head injury fund).
|
| Responding to a different reply:
|
| > Distinctions like this are why people feel the government
| is hopelessly corrupt. It really makes no difference whose
| pocket it's going into. It's paying money to game the
| system.
|
| I definitely understand that sentiment. However, I think
| there's a difference between money going to a private
| individual against what we as the public have decided vs.
| going to the government in a way that we have some control
| over.
|
| For example, I've heard that in Singapore there are lots of
| fees for everything. These fees are standard, on-the-book
| government fees. The money goes into the government's hands
| and the government compensates its workforce with
| reasonably high salaries. I think most people would
| consider this completely above board. The government can
| set standard taxes and fees and the government can
| compensate its employees.
|
| This situation is a bit different because the fine that
| Facebook paid isn't a standard fine. It's a negotiated
| fine. These certainly leave a worse taste in one's mouth,
| especially if the company is paying it to avoid liability
| for an individual executive. However, the government needs
| some leeway to negotiate deals and we have some indirect
| control over this process via our elected officials. Yes,
| it can be frustratingly indirect given a two-party system
| where there are more important issues than whether someone
| appointed someone at the FTC who negotiated a settlement
| you think is wrong.
|
| At the same time, a lot of our criminal and civil law
| system works like this. Prosecutors don't want to have to
| try every single small case so plea-bargaining is a thing.
| Maybe someone agrees to a smaller punishment than you would
| like, but the prosecutor is guaranteed the win and doesn't
| have to expend resources. Companies negotiate all the time
| to avoid trial.
|
| In this case, is the settlement that the FTC came to in the
| best interests of the government and the American people?
| It can be hard to say. On the one hand, they got a lot more
| money out of Facebook and a guaranteed win. On the other
| hand, it means that Mark Zuckerberg didn't need to face any
| personal risk. Given that we're pretty terrible at
| prosecuting executives, it seems like a reasonable deal to
| negotiate.
|
| I mean, the Sackler family is getting immunity for $4.5B
| when they created an epidemic that's killed people and
| destroyed countless more lives. You can hate on
| Facebook/Zuckerberg as much as you like and I'm not trying
| to say that the Cambridge Analytica scandal was nothing,
| but compared to the Sackler deal it seems like the FTC got
| a lot. The Sacklers are going to remain one of America's
| richest families and escape any real consequences of
| something far worse and nefarious.
|
| So, do you take the easy win of getting $5B out of Facebook
| (47x more than anticipated) when, realistically, you
| weren't going to go after Zuckerberg to begin with or do
| you try to win against Facebook and then try the harder
| task of winning against Zuckerberg personally? If it went
| on for years, would the public continue to care? Would
| someone above you reassign you to something they deemed a
| more worthy use of your time?
|
| The answer might be "no." There is something satisfying and
| important about holding people accountable for their
| actions. However, I think it's hard to call that a bribe.
| The odds for any real liability against Zuckerberg were
| probably reasonably small (and this was a civil suit so
| it's not like he was going to be serving jail time) and the
| settlement seems mostly about letting Zuckerberg avoid
| being embarrassed personally than about letting him off the
| hook. He lost a lot more money with the $5B settlement than
| if the FTC got $106M out of Facebook and another $106M out
| of him personally.
|
| I think the biggest issue is that which the shareholders
| are bringing up: that he also spent their money protecting
| his. ~30% of that settlement would basically be coming out
| of his shares ($1.5B), but it's a little unfair to other
| shareholders to use their money for his protection.
| eurasiantiger wrote:
| > You can't bribe a government
|
| Well, maybe we can't, but Zucc sure can!
| vkou wrote:
| If the director of the FTC uses it to buy herself a yacht, it's
| a bribe.
|
| If not, it's 'fine'.
| ManuelKiessling wrote:
| The best democracy that money can buy.
| amelius wrote:
| Where did the money go?
|
| We, taxpayers, have the right to know.
| zestyping wrote:
| Disgusting.
| klyrs wrote:
| Impressive. Does this count as a benefit that Zuck owes taxes on?
| Or does FB write it off as a loss that reduces their tax burden
| at no cost to Zuck?
| autokad wrote:
| I don't reckon this is something that is taxed. We don't get
| taxed if an employer pays for us to go to a conference, offers
| us legal advice, etc.
| munk-a wrote:
| The conference and some sorts of legal expenses are pretty
| legitimate expenditures if you operate with the opinion that
| going to a conference makes you a more productive employee.
| Training employees definitely shouldn't be double taxed (we
| might even want to subsidize it as a society) but it's a hard
| area of activities to define.
|
| Legal expenses brought on solely due to your employment (i.e.
| the rando manager at dominion that a bunch of people sued
| last year) also shouldn't be considered individual benefits.
| Employers should never have the ability to shift liabilities
| onto employees without really good cause (i.e. gross
| negligence). That's why, if there's an accident at an
| autoshop with a lift and you're injured you're generally
| better off suing the shop rather than the employee.
| andi999 wrote:
| Actually here if the employer pays too much for going to a
| conference (for some countries more than 24EUR per day for
| food) then that amount needs to be taxed.
| lostlogin wrote:
| Wow, which countries? 3 meals for 24 euros sounds like a
| trip I wouldn't want to take. My tastes are plain.
| TheOtherHobbes wrote:
| In the UK it's called Benefit in Kind. There are special
| rules for company cars, loans, and accommodation. But
| significant private use of phones and computers and such
| can be treated as taxable income. As can non-business
| travel and entertaining.
|
| All of which are grey areas.
|
| You invite some visitors from another company out for a
| meal after a meeting. Unsurprisingly, you spend some time
| talking about business - and some not.
|
| Is that business entertaining, or not?
|
| You're self employed, you spend a lot of time on social
| media, partly because every so often you find something
| that's useful for your business, even though most of it
| is just noise, and some of it is entertainment.
|
| Business use of your computer, or not?
|
| It's all debatable, and can cause real issues if the
| Inland Revenue expects business use to mean business
| hours in an office and nothing but.
| realityking wrote:
| In Germany the tax free reimbursed for a day of domestic
| travel is capped at 28EUR for a full 24h day and 14EUR
| for partial days. If any meals are provided by the
| company (e.g. as part of a dinner with clients) that's
| reduced by 20% for breakfast and 40% for lunch and dinner
| respectively.
|
| For comparison, for San Francisco the rate is 51EUR.
| mrep wrote:
| For the corporation, it depends on the fine. Normally they
| cannot write off fines but apparently it does happen if it is
| not considered an official penalty or fine:
| https://www.pbs.org/wgbh/frontline/article/how-80-billion-in...
| CoastalCoder wrote:
| So it's a "donation" to avoid legal trouble. I'm not a
| lawyer, but that certainly stinks like bribery (or perhaps
| extortion) to me.
| munk-a wrote:
| Excuse me good Sir. In America bribery is illegal - this
| was just an inventive application of Lobbying which is
| entirely distinct and perfectly legal.
| warent wrote:
| Not to sound snide, genuinely curious how this is different from
| bribery?
| quietthrow wrote:
| Serious question : I would like a person familiar with law to
| explain how is this not a bribe essentially? (Cos clearly it's
| not treated like one. Where/what is the reasoning that
| invalidates my question )
| dschuetz wrote:
| News flash: Facebook is a corrupt company, and anyone working
| there is morally bankrupt. Duh.
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