“Accountability is coming:" Did Mark Zuckerberg Violate Insider Trading Laws?

He probably did. So did Sheryl Sandberg and a bunch of other Facebook insiders. Handcuffs. It's time for them.

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It’s been a bad few weeks for Facebook.

First, the media has shown a lot of the firm’s very dirty laundry. The Wall Street Journal reported last week that the social media giant had internal research showing that Instagram makes teenage girls want to kill themselves. This follows a story showing that the firm has a special elite set of users exempt from normal rules, as well as one showing how the firm encourages angry behavior to sell more ads. Then the New York Times has revealed that Zuckerberg taken to tweaking the algorithm of its news feed used by 2 billion people to show users positive stories about his own image and that of his firm.

In Congress, Facebook didn’t fare much better. “Accountability is coming.” That’s what Senator Josh Hawley told Facebook lobbyist Steve Satterfield after Satterfield lied, dissembled, and did everything but take a crap in front of the Senate Antitrust Subcommittee yesterday.

I’m only exaggerating slightly. It’s evident the firm has decided to stonewall and go on the attack; Zuckerberg is done with insincere apologies, and done modifying business practices to get better PR. He believes that he will be pilloried no matter what, and that no one will stop him from doing what he wants to do anyway.

The results of this strategy weren’t pretty. Senator Richard Blumenthal quoted Hawley at the hearing, and both Democrat Amy Klobuchar and Republican Mike Lee let Satterfield have it as well, getting visibly angry at his stonewalling. “That’s not an answer to my question,” Klobuchar told the Facebook lobbyist at one point. And Klobuchar is not just nice in public, but Minnesota nice. She tries to avoid overt conflict. This time, she didn’t. She was mad.

But the worst thing to befall senior leaders and ex-leaders at Facebook was, as Jason Kint noted on Twitter, this lawsuit filed in Rhode Island by a bunch of union pension funds.

The plaintiffs accuse a whole host of insiders at the firm of malfeasance, not just Zuckerberg and Sandberg, but Netflix CEO Reed Hastings and Biden Covid czar and former Facebook board member Jeff Zients.

It’s a very long complaint, but the gist is pretty simple. The first part is that Zuckerberg knew he was violating the law, and in particular the Federal Trade Commission order barring Facebook from deceiving users. And he did it anyway, with the tacit acquiescence of board members like Zients and auditing firms like PwC, which assessed the firm’s compliance with the various FTC consent decrees. The second part, and this is where it gets interesting, is that when he realized his lawbreaking would be exposed via reporting on Cambridge Analytica, he sold huge blocs of stock.

And the timing is very suspicious. While Zuckerberg had pledged to only sell $1 billion of stock a year in 2015, after he “learned of Cambridge Analytica’s massive extraction of Facebook user data, he and the entities controlled by him significantly accelerated his sales of Facebook shares,” selling roughly $10 billion of stock while he had material non-public information about the firm. Sandberg did the same thing, as did WhatsApp founder Jan Koum, and a host of others. (One irony here is that this was a losing trade, because Facebook’s stock is higher today than it was then, and no doubt this will be part of their defense. It’s also an irrelevant fact, since trading on non-public information is the offense.)

There’s a lot more in the complaint, but I’m focused on this particular nugget because insider trading is a criminal offense. Crime shouldn’t pay, but it’s clear that Zuckerberg simply does not believe anything will happen to him until something does. And while there is a crisis of credibility in our government, the two regulators that I would not want to mess with are FTC Chair Lina Khan and SEC Chair Gary Gensler. Zuckerberg might have put himself in the cross-hairs of both of them.

There are many reasons that Mark Zuckerberg and Sheryl Sandberg might be indictable for criminal activities. Throw this one on the pile.