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Are We Seeing the Fall of Facebook?

Written by Monica Savaglia
Posted September 26, 2017 at 8:33PM

Facebook (NASDAQ: FB) had a rough start to the week, and it's all thanks to some recent news involving the company.

This past Friday, Facebook announced that it no longer plans to issue a new class of non-voting shares.

The plan would have protected CEO Mark Zuckerberg’s control over the company even as he sells 99% of his shares. It was approved by a special committee of the company’s board back in April 2016.

The controversial stock split would have created a third class of non-voting shares that would allow Zuckerberg to retain his control over the company while giving away his shares and wealth for philanthropic reasons.

When news of this stock split was announced, investors weren’t happy and decided to file a suit against Facebook because the new class of stock would give Mark Zuckerberg an unfair economic advantage.

A class-action trial was scheduled for this week in Delaware, but it ended up being called off after the markets closed on Friday, September 22nd, when Zuckerberg announced that the company was no longer seeking to issue a new class of non-voting shares.

Stuart Grant, a lawyer who was representing Facebook shareholders in the lawsuit, had this to say:

We’re thrilled that Facebook has dropped the reclassification... Today’s move is a total victory for shareholders.

This seems like a win for Facebook investors. This kind of restructuring had the potential to harm investors by diluting their power over the company's decisions.

Facebook Changes Its Mind

Zuckerberg was scheduled to give a testimony for the trial on September 26th, which increased the possibility of revealing information about the company to the public because he would be under oath.

Some rumored information includes texts between a Facebook board member and Zuckerberg when they were communicating to sway other board members toward approving the restructuring proposal.

The possibility of more information being revealed to the public because of Zuckerberg’s testimony was a significant catalyst to Facebook and its CEO backing off from its plan to introduce a new class of stock.

Zuckerberg said in a Facebook post:

Over the past year and half, Facebook’s business has performed well and the value of our stock has grown to the point that I can fully fund our philanthropy and retain voting control of Facebook for 20 years or more… As a result, I’ve asked our board to withdraw the proposal to reclassify our stock — and the board has agreed.

Following the settlement, Zuckerberg said he intends to sell between 35 million and 75 million shares of Facebook over the next 18 months to support his other company, the Chan Zuckerberg Initiative, which invests in technology focused on addressing social issues.

Probe into U.S. Election Advertisements

This isn’t the only recent controversy that’s been affecting Facebook stock.

The Washington Post reports that Facebook could have known about a possible operation as early as June 2016 that involved Russian influence over the 2016 U.S. presidential election.

At the time, Facebook claimed it didn’t find any solid evidence that would have led it to believe there was any kind of Russian involvement on its social media platform.

Only recently did the company say it uncovered proof of suspicious activity from a tracking firm called the Internet Research Agency, which is a well-known Russian hacking operation.

Facebook discovered over 3,000 ads centered on social and political issues that the firm posted between 2015 and 2017. In addition to finding those 3,000 ads, Facebook discovered that up to $100,000 in ads was purchased by Putin-backed Russian groups.

A company spokesman said, “We believe in the power of democracy, which is why we’re taking this work on elections integrity so seriously, and have come forward at every opportunity to share what we’ve found.”

Zuckerberg has been feeling the pressure to fully determine what exactly happened during the 2016 election and Facebook's involvement with misinformation. Last Thursday, he directed his staff to provide Congress with the 3,000 ads that are believed to be linked from Russian profiles.

Without a doubt, Facebook is a huge influencer on our society. People check their accounts at least once a day, and for some people it happens to be a source of information. Because of that, Facebook should be held responsible. The company needs to make sure that the information its users encounter every day isn’t misrepresented or propaganda.

There’s no room for Facebook to be naive about the kind of influence social media has on its users. Social media is prominent in our lives, which makes it an easy target for hackers and anyone else trying to spread misinformation.

Facebook needs to expand its efforts into sifting through what's displayed on its platform so it can prevent future incidents. Right now, ads and fake news are filtered mostly by algorithms, but Facebook does employ human content gatekeepers who are on the lookout for violent or sexually explicit materials.

The company felt the aftermath of both the lawsuit settlement announcement and the investigation into election advertisements during the 2016 U.S. presidential elections — its shares fell 4.5% on Monday, September 26th.

Facebook holds a lot of responsibility, and it needs to do its best to prevent future issues. Right now, investors are concerned with how frequently the company has been scrutinized.

Until next time,

Monica Savaglia
Wealth Daily

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