Facebook Inc (FB) Faces Continued Scrutiny

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February 17, 2014 1:15pm NASDAQ:QQQC NASDAQ:SOCL

in focus spotlightFacebook Inc (NASDAQ:FB) has had more than its share of controversy, including some involving lawsuits.

It probably came as no surprise to social media watchers, then, when according to the New York Times, the Washington DC-based non-profit consumer rights advocacy organization Public Citizen, announced that it would file a brief with the Ninth Circuit Court of Appeals in San Francisco, on February 13, 2014.

The brief, which seeks to have the $20 million settlement that a judge approved in August of 2013 overturned, is only one of seven similar petitions that have either been filed or will soon be filed.

The settlement was supposed to resolve a class action lawsuit originally filed by five plaintiffs in 2011.

The grounds of the lawsuit alleged that Facebook basically made the “likes,” comments and other personal information of participants in its “Sponsored Stories” program, including advertisers participants liked, without getting users’ permission first.

It seems likely, however, that the practice of using that information is far more widespread. (Related: Facebook Inc (FB): The Death Of Social Media?)

Now, consumer advocacy, privacy rights and children’s rights organizations realize that the stipulations of the settlement don’t go far enough to protect children between the ages of 13 and 18, and to keep their personal information, comments, likes, pictures and other posts, private.

On Thursday, February 13, 2014, Public Citizen issued a press release to announce the brief filing and stated “Consumer, children’s safety, digital privacy groups and parents are urging a federal appeals court to toss out a settlement agreement that permits Facebook to use kids’ pictures in ads without the consent of their parents – which is illegal in seven states.”

A day earlier, the Campaign for a Commercial Free Childhood, a Boston-based child advocacy group, filed an Amicus Brief (Friend of the Court,) asking the court to reject the Fraley Settlement Agreement.

The group contends that the settlement absolves Facebook of any liability without forcing the social media giant to make changes to prevent advertisers and others from accessing private information of underage Facebook users.

Conditions of the settlement would require Facebook to divide $4.8 million among different non-profit groups, including the Campaign for a Commercial Free Childhood (due to receive $290,000 – an amount almost equal to the group’s yearly budget,) and University of California at Berkeley, Harvard and Stanford law schools.

None of the money has been awarded yet because seven separate groups have, or are now, in the process of filing appeals.

The status of the settlement won’t be finalized until all appeals go through the court system in regional jurisdictions.

The biggest concern about the settlement is that by not creating a default setting for users (or for underage users,) that would prevent advertisers from using information and others from seeing ads or commercial pages that users “like,” Facebook is putting the responsibility for keeping kids safe, on parents when the site has a moral obligation to build safety features into its platform.

Even if parents were able to figure out how to “opt out,” it seems unfair, unprofessional and unbusinesslike for Facebook to expect parents to have to oversee their childrens Facebook settings simply because the social media giant is unwilling to build safety protocols into its User Interface. (Related: Facebook Inc (FB): Zuckerberg Aims To Revolutionize Tech Industry)

Another reason for concern is the frequency with which Facebook changes things, never telling users about it, or not making announcements until the site is plastered with complaints that people can’t find things or figure out how to do something. Expecting parents to keep up with the constant changes on Facebook, just so they can reset privacy settings that the site routinely changes, is presumptuous and unreasonable.

Although it is too early to predict the impact that the brief, or future court proceedings will have on Facebook’s stock value, with a couple of hours left of trading on Friday, February 14th, Boomberg’s ticker symbols showed that the (NASDAQ:FB) stock already dropped 0.36 or -53% to 66.97 from yesterday, when the closing price of FB stock was $67.33.

The Global X Social Media Index or (NASDAQ:SOCL) isn’t seeing the same result. In fact, it is showing an increase of ↑0.06 or +0.28%. (Related: Facebook Inc (FB): The Death Of Social Media?)

The Global X NASDAQ China Technology ETF or (NASDAQ:QQQC) is also reporting a decline of 0.09 or -0.039%.

By Diana Primavera, ETF Daily News

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