Facebook misled investors about its reach, whistleblower told the SEC

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Whistleblower Frances Haugen said in a complaint to the US Securities and Exchange Commission that Facebook misled investors about the size of its audience and hid a years-long decline in younger US users.

The decline in the number of younger users has continued even during the coronavirus pandemic, when social media use in general has skyrocketed. “During Covid, every group’s use of Facebook increased, except for those aged 23 or younger, which has continued to decline,” the complaint said.

Haugen, a former product manager at Facebook, noted the company’s internal projection that a decline in participation from American teens could lead to an overall decline in its daily users in the United States of up to 45 percent between 2021 and 2023.

Recent allegations that Facebook “distorted” its “reach and frequency” metrics is one of eight complaints lodged with the SEC, which were first reported by CBS News.

Haugen’s lawyers cite internal company documents dating back several years to support the whistleblower’s allegations of “material misrepresentations and omissions” of investors, including through SEC filings and testimony to the US Congress.

The data scientist, who worked at Facebook until May, will appear before US senators in Washington on Tuesday after a series of infamous 60 Minutes interviews on CBS and The Wall Street Journal plunged Facebook into its biggest crisis in years. The social network also suffered a major outage on Monday, with all of its platforms, including WhatsApp and Instagram, going offline for several hours.

In letters to the Securities and Exchange Commission written by Whistleblower Aid, a legal nonprofit organization that identified itself as representing Haugen, Facebook was also accused of failing to take action against extremism, hate speech, human trafficking and racial violence on its apps, including Instagram. .

The complaint about Facebook’s reach said that “for years, Facebook has misrepresented key metrics for investors and advertisers including the amount of content produced on its platforms and the growth of individual users,” particularly in “high-value demographics” such as American teens.

“By serving too many ads to users that advertisers didn’t want to pay for, Facebook overcharged advertisers at large,” the complaint reads.

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Haugen’s legal team cited internal Facebook records showing that more than 15 percent of new accounts created by teens are secondary or duplicates. Facebook use among 18-24-year-olds “continues to decline,” according to excerpts from internal documents in the SEC filing, while young adults “spend less time, produce less and send less messages” on the social network.

Jason Kent, president of Next Digital Content, a trade body representing online publishers, and a frequent critic of Facebook, said in a series of tweets that the allegations were “fatal” and “incredibly devastating”.

Facebook is already fighting a class action lawsuit in California over allegations that its estimates of “potential reach” for advertisers include duplicate and fake accounts. Earlier this year, court filings showed that Caroline Iverson, then one of Facebook’s top advertising executives, warned her colleagues to “prepare for the worst” about the allegations. Iverson resigned from Facebook in June.

Facebook has previously argued that potential reach estimates are a “planning tool” and do not form the basis of advertisers’ billing.

The company did not immediately respond to a request for comment on the SEC’s whistleblower complaints. Facebook Group has described Haugen’s allegations against it as “misleading.”

“Protecting our community is more important than maximizing our profits,” Lena Beach, Facebook’s director of policy communications, said in a statement Sunday after the 60 Minutes broadcast.

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