Enough is Enough: The Criminal Case Against Mark Zuckerberg

The rule of law does not apply to the powerful. It should. And Facebook is a good place to start.

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Today I want to use Facebook’s recent scandals to go over the case for criminal charges against Mark Zuckerberg and other Facebook insiders. Behind this essay is a basic question. Does the rule of law apply to the powerful?

First, some house-keeping. I got incredible feedback on my piece on the hearing aid cartel, including a bunch of tidbits on just how dirty the firms are. As one expert in the industry noted, it caused a ‘shit storm’ among audiologists. I’ll be doing more reporting here, as the U.S. government might start paying for hearing treatment in Medicare or Medicaid.

Also, I’ve been looking into ports, ocean carriers, and containers, but I still don’t have a clear theory of what’s happening. Consolidation is certainly a big part of the story. What I will say is that the Ocean Shipping Reform Act of 1998 was an extremely bad piece of legislation, and lots of people in the 1990s warned about what tossing out 80 years of shipping regulation would do. I’ll write up what I’ve found.

Finally, this week, I wrote a piece for the Guardian on why Facebook’s litany of scandals is actually a function of a broader breakdown of governance.

And now…

The Metaverse, the Facebook Whistleblower, and Corporate Crime

This week, there were three important events involving Facebook. The first was a bevy of documents coming out about Facebook’s business methods from ‘Facebook whistleblower’ Frances Haugen, revealing deceit towards advertisers, investors, and the public. I’m not a fan of Haugen’s ideas, and the documents she offered, while helpful, are overstated. I mean three years ago, Louisiana Senator John Kennedy confronted Facebook officials about micro-targeting emotionally vulnerable teens. So none of what we are learning is remotely surprising. But still, details from these documents are useful.

The second happened yesterday, when Mark Zuckerberg abruptly announced that Facebook’s name would be changed to Meta. The firm, he alleges, will now focus on building a virtual reality world in which all of us will work, play, and live, a vision ripped from 1990s dystopian science fiction writing. That this is a PR ploy to distract from Facebook’s myriad scandals is obvious, but I was struck by something else. Standing in a minimalist house presenting his vision of connecting people through a Ready Player One style virtual world, Zuckerberg seemed totally unchastened and unaffected by criticism of his corporation. He just doesn’t care about public anger. He sees himself as a builder, and builders build.

The third significant event also happened yesterday, and doesn’t immediately seem to involve Facebook. Deputy Attorney General Lisa Monaco spoke to the American Bar Association’s National Institute on White Collar Crime to announce a new more aggressive take on corporate malfeasance, encouraging prosecutors to take on tough cases against corporate executives. “Accountability starts with the individuals responsible for criminal conduct,” she said. “A corporate culture that fails to hold individuals accountable, or fails to invest in compliance — or worse, that thumbs its nose at compliance — leads to bad results.”

As part of this shift, Monaco asserted that the Department of Justice would change its approach to corporate crime. Rather than only examining specific instances, prosecutors would look at “the full range of prior misconduct, not just a narrower subset of similar misconduct,” which includes “their whole criminal, civil and regulatory record.” In other words, if your company is full of scandals, then those scandals are a factor in whether the DOJ will come after you.

Well I’m going to connect the dots, because it is hard to imagine a corporation beset with more publicly exposed problems than Facebook.

Why Is Mark Zuckerberg Still Worth $100 Billion?

In fact, this scandal-ridden nature of the firm is *why* Zuckerberg doesn’t care about criticism. Getting criticized vehemently for most of us is unusual, but for Zuckerberg, it’s actually what he’s used to. From the very beginning, when Zuckerberg dismissed the privacy needs of Harvard students, through the controversies over surveillance in 2007 to the first Federal Trade Commission consent decree in 2011, to its $5 billion fine for violating that decree in 2019, all the way to this week’s revelations, Facebook has been mired in trouble, often revealed as skirting or flouting the law. Yet, over the last ten years, despite multiple antitrust suits, fines from regulators, and investigations worldwide, the only constant has been Mark Zuckerberg’s dominance, more market power for the firm, and a rising stock price.

It’s arguable that the scandals, rather than damaging the firm, are actually the reason that Facebook is the powerhouse it is today. It is Zuckerberg’s ruthlessness and willingness to grab market share through whatever means necessary that shows why he, and not the founders of Instagram or any of the hundreds of other companies Facebook bought, won the race to monopolize the social media industry, and why he is worth $100 billion and some other founder isn’t.

Such corporate dominance isn’t innate to a market system. Had social networking emerged in the 1960s, it would have turned out very differently, because much of what Zuckerberg did - such as buying competitors to monopolize an industry - would have been considered illegal. But dominance is innate to our current public policy framework, which has de facto legalized monopolization. (We don’t need to guess on counterfactuals; email, which is very similar to social networking, did emerge in the 1960s, and it is not monopolized.)

In other words, Facebook is a creature of public policy, specifically lax antitrust enforcement and a failure to regulate privacy. But Zuckerberg’s nonchalance about inducing harm is also a function of public policy. The causal factor here is our refusal to use criminal law against powerful individuals who have political and market power. The result is that Mark Zuckerberg and the various executives in his orbit may have committed multiple criminal activities, but he, and they, are unchastened and unbothered by public concern.

If we want to address this problem, then authorities must do what Monaco spoke about, and actually investigate Facebook insiders for criminal activities. This may sound aggressive, but multiple lawsuits - before Haugen testified - show enough internal discourse involving what appears to be various forms of fraud and deception for the Department of Justice to seriously investigate key actors and potentially make criminal indictments.

Do Criminal Charges Matter?

But before getting to the details, let’s talk about why criminal charges are necessary. Critics see such acts as vindictive, a kind of ‘well you just don’t like Mark Zuckerberg’ type of arrangement, or even a threat to Zuckerberg to censor on behalf of the government. There’s merit here. I’m sympathetic to the arguments that Haugen has a dangerous political agenda, and that some anti-Facebook sentiment can reflect a desire to weaponize Facebook’s monopoly power instead of eliminating it. And it is actually critical for prosecutors not to throw around criminal charges for political purposes, especially when we’re talking about how it intersects with the immense power of a social media monopoly.

But we also cannot ignore another problem we have in American society, which is that the rule of law simply does not apply to the powerful. To take a few examples, no important Wall Street banker went to jail during the financial crisis, the Sackler family has escaped criminal liability for their role in the opioid epidemic, and Boeing CEO Dennis Muilenburg, responsible for hundreds of deaths from the 737 Max debacle, was not indicted, but instead received a golden parachute of $62.5 million. It is the failure to investigate and prosecute those actions that created the incentives to do more of them.

And this dynamic bears directly on Silicon Valley. In the early 2010s, the Antitrust Division had Apple CEO Steve Jobs and Google CEO Eric Schmidt dead to rights in a straightforward criminal wage-fixing case, with emails showing a conspiracy to lower their own employees wages by preventing cross-firm hiring. That’s crime, a form of theft from employees of both their money and their ability to pursue their trade in a way they might wish. Imagine if Jobs and Schmidt had been indicted and fined, or even jailed, for their behavior. Two of the titans of industry being brought low for flouting the law would have radically changed the culture of Silicon Valley for the better. We may never have had to deal with the predatory pricing and attempts at wage suppression of Travis Kalanick at Uber, and firms would have been much more careful to grab market share through whatever means necessary, for fear of the legal consequences.

But the Antitrust Division pursued civil charges, so nothing meaningful changed, except some Silicon Valley lawyer got to buy a new boat.

Costly Litigation as “Unemployment Relief for Attorneys”

Critics might also say, well, there’s already a lot in process with regards to Facebook. There are Congressional hearings, and regulators are investigating the social media giant, and musing on changing various laws around internet governance. There is even an antitrust suit against Facebook, in which the Federal Trade Commission is seeking to break up the firm.

The problem is, it’s not changing behavior quickly enough, because it doesn’t actually pose a meaningful enough threat to decision-makers. The antitrust suit, which is the most powerful tool deployed so far, won’t even go to trial until 2023, and then appeals will likely last years. Such a timeline is ridiculous. Civil antitrust suits, or costly litigation, when a firm is this powerful, simply will not do. To understand why, it helps to look at the track record of the most important antitrust enforcer in American history, Thurman Arnold, who ran the Antitrust Division under Franklin Delano Roosevelt from 1938-1943, and set the stage for antitrust enforcement regime of the middle of the 20th century, which is during the golden era of American economic performance.

Arnold’s innovation was to use criminal indictments in the practice of antitrust. “Businessmen must realize that when they indulge in a doubtful practice they are taking the chance of something more than an injunction,” Arnold told a roomful of corporate lawyers in New York in 1938. Why? He said that executives would do virtually anything to “avoid the social stigma” that came from criminal charges, even if the result was a small individual fine. This dynamic is still true today; Facebook paid $5 billion to the FTC rather than allowing Mark Zuckerberg to even be interviewed by enforcers!

Arnold brought criminal charges against the most powerful men in American business, such as Alfred Sloan of General Motors. And doing so was part of an unusual, and immensely successful, strategy. He would offer criminal and civil charges concurrently, threatening indictments against executives for antitrust violations, and then dropping those charges in return for having them sign consent decrees to restructure their industries. By doing so, antitrust enforcers settled market power problems in months, not years. At a certain point, executives would line up outside his office, and say, ‘Show us a consent decree and we’ll sign it.’ It got to the point where just announcing an investigation cut prices by 18-33%. With this model, he overhauled the automobile, motion picture, dairy, housing, construction, tire, newsprint, steel, potash, sulfur, retail, fertilizer, tobacco, shoe, and parts of agricultural industries. And this wasn’t a due process violation; some executives fought the charges in court, as was their right.

The political dynamics in the 1940s were very different than they are today. Arnold was dealing with American firms in illegal arrangements to divide up global markets with firms from Nazi Germany, often facilitating Germany’s military gains and weakening American industrial capacity. “We had an industry dominated by cartels before the war,” he told Congress, pointing at cartels that worked with German companies involving America’s most prominent firms, like Standard Oil of New Jersey. “Indictments must go out to make that sort of thing hazardous.”

That said, Arnold didn’t see white collar criminal charges as a moral indictment of evil cartoon character executives. Instead, he saw it as businessmen going too far with practices that were often legitimate. He analogized most white collar crime to reckless driving in which a well-regarded person, going above the speed limit, accidentally kills a pedestrian. While not intentional, “no one would deny that such cases should be vigorously prosecuted.” Without the threat of jail time or social stigma, however, executives would simply hire lawyers to bog the government down in long and costly litigation, or what Arnold called “unemployment relief for attorneys.” The result of long trials, he noted, is often a complex court judgment, which are usually circumvented almost immediately. During these suits, he said, “attorneys live magnificently.” (Here’s part of the speech, if you want to read it.)

Arnold could have been discussing the current antitrust environment, where, despite increasing political interest, the people doing the best in long drawn out matters are antitrust defense attorneys, who recommend their clients engage in potentially illegal deals. As a result, executives do not seem to care if they flout the law, because their lawyers tell them that at most it will cost a parking ticket paid by someone else. That wouldn’t be the case if Zuckerberg, or his underlings, actually feared personal consequences in the form of criminal indictments.

So that’s the context for why criminal charges matter. Still, is there really a case to be investigated? The short answer is, yes.

Six Possible Charges against Facebook

While whistleblower Frances Haugen got extremely good publicity, multiple antitrust and plaintiff attorneys before her uncovered significant evidence of wrongdoing. My colleague at the American Economic Liberties Project, analyst Krista Brown, wrote a letter, reported in Bloomberg, laying out the charges. She largely drew from two lawsuits: DZ Reserve v. Facebook in the Northern District of California, and Employees’ Retirement System of Rhode Island v. Facebook. These lawsuits, brought by plaintiffs attorneys, uncovered internal debate within Facebook where officials argued about how to handle known instances of deceit and wrongdoing. (AELP also set up a petition where you can ask the DOJ to investigate).

Here are the six possible charges. Not all of them are equally strong, but all deserve a genuine investigation.

1) Wire Fraud: Inflating Video Metrics

In 2016, advertisers alleged that Facebook knowingly inflated video view numbers by claiming to calculate views that lasted three seconds or longer, when in fact they included views under three seconds, inflating viewership measures by 150 to 900 percent. These errors led to advertisers paying more than they otherwise would for advertising, because they thought their spots were being watched more than they were. Internally, Facebook officials knew of the error for a year before fixing it, which means they knowingly deceived advertisers and benefitted from that deception.

2) Wire Fraud: Inflation of Advertising Reach Metrics

The second example is also a case of fraud in advertising metrics, in which Facebook insiders knowingly misled advertisers by overestimating how many people Facebook advertisements reached. Facebook exaggerated its reach by counting duplicate or fake accounts as distinct people that advertisers could touch through Facebook, at one point telling advertisers it reached more teenagers in the United States than the census counted in the United States. Again, this caused advertisers to spend more than they otherwise would have.

Company officials frequently discussed what to do about this deception, which means they knew how deep the problem went. In one email, Chief Marketing Officer Alex Schultz said these errors were not a “a metrics bug” but instead a “deliberate product decision … since launch [in the late 2000s].” In another email, Facebook executive Ami Vora wrote, “I think there is a real chance this is a bad moment for us – ‘Facebook lies about its user #s to get record profits’ … the target on our back just gets bigger.”

There are so many internal quotes showing malfeasance it’s pointless to list them all, but here are few. Facebook Vice President for Ads Rob Goldman said that Facebook’s handling of duplicate accounts was “pretty indefensible.” Sheryl Sandberg wrote in one email, “We spoke about this a long time ago many times. I thought we knew about this but we also recognized that when the self-reporting data was so different than the census we knew we had to address it. I believe we still do.”

Once again, the deception was intentional. When one employee presented a plan to fix the problem, noting that the revenue impact is “indeed significant,” higher ups turned him down. “This is a lawsuit waiting to happen,” he wrote.

3) Securities Fraud

The inflation of advertising metrics isn’t just fraud against advertisers, but against investors as well. Public companies must reveal material information. The firm’s Chief Financial Officer David Wehner, however, didn’t divulge key data about these errors on calls with investors, to the dismay of Facebook’s Chief Revenue Officer David Fischer, who thought the firm was “hiding the ball.” While it’s hard to prove, knowingly refusing to disclose material information to investors is potentially securities fraud.

4) Violating the False Claims Act

Another charge stemming from this behavior is the False Claims Act, which is a special criminal statute targeted at people who defraud the the government. In 2005, two WPP executives were found guilty and sent to jail for overbilling the U.S. government on an advertising account. They were charged with violations of the False Claims Act. If the government bought advertisements on Facebook that were subject to inflated metrics or potential reach statistics, then we’re also talking about a possible violation of the False Claims Act.

5) Insider Trading

There’s also insider trading on material non-public information. Documents released on August 6, 2021, from Employees’ Retirement System of Rhode Island v. Facebook, provide new details on Facebook’s violation of the 2012 FTC Consent Decree during the Cambridge Analytica scandal. What I find most intriguing were the allegations of insider trading, which applied to Mark Zuckerberg and Sheryl Sandberg, among others. (Current Biden Covid czar Jeff Zients was also a defendant in the suit, but wasn’t fingered on the insider trading bit.)

As Brown noted:

In one of Facebook’s 2015 investor forms, Zuckerberg claimed he “plan[ned] to sell or gift no more than $1 billion of Facebook stock each year for the next three years.” But after he learned about the Cambridge Analytica data usage, he accelerated his trading activity, “selling 18,755,276 shares for proceeds of $2,828,482,748 between August 17, 2016, and March 16, 2018 (just before The New York Times published its exposé revealing that Cambridge Analytica had extracted Facebook user data).”

The suit highlights news coverage of the activity, in which CNBC noted, “[i]in the two weeks before Facebook’s recent struggles, Zuckerberg sold 1.14 million shares as part of regularly scheduled programs. That was the most insider selling for any public company, going back as far as three months…

I don’t know if it’s possible to make an insider trading charge stick, but there’s clearly enough to merit an investigation to see if there’s more evidence one way or the other.

6) Price-Fixing

While technically the Sherman Act is a criminal statute, enforcers don’t use the criminal aspects of the law against monopolies for engaging in illegal acts of monopolization. For that, they tend to stick to civil charges. Enforcers only really proffer criminal charges when there is price-fixing among rival firms, aka a cartel or conspiracy. Hopefully this will change, but it’s been this way since the late 1940s.

That said, according to the antitrust suit led by the Texas Attorney General against Google, it turns out that there was a price-fixing arrangement between Google and Facebook. Google offered material value to Facebook in the form of preferred placement in Google’s ad auctions, in return for Facebook agreeing not to compete with Google as a rival ad platform. This deal, code named “Jedi Blue,” was hashed out at the highest levels, and carried, as the documents revealed, “serious risks of negative media coverage if exposed externally.”

Such a deal could be considered criminal price-fixing. Frankly, I’m a bit surprised that the Texas AG hasn’t indicted anyone at Google or Facebook. It’s still possible to do so.

Crime Shouldn’t Pay

It’s difficult to bring a criminal charge against a powerful man like Mark Zuckerberg, almost unimaginable in some ways. And yet, the current situation, where endless scandals exhaust and frustrate the public as legal proceedings drag on for years, is untenable.

Today, the legal community and business executives are looking at what Zuckerberg can get away with, and what he can’t, and they are shaping their behavior accordingly. So this isn’t just about Zuckerberg and Facebook. A society that refuses to uphold the rule of law against the powerful is making a political choice that resonates far beyond anyone company or individual.

There are indications policymakers recognize the problem. As I noted, yesterday, the Biden administration announced that it would take on tough cases against white collar criminals. Monaco said that “this department’s first priority in corporate criminal matters to prosecute the individuals who commit and profit from corporate malfeasance,” even if it means “the government may lose some of those cases.”

It goes beyond the Justice Department, whose flaccid record makes me a bit skeptical of Monaco’s words. New Yorkers Alvin Bragg and Zephyr Teachout wrote an important piece in the Nation on white collar crime. Bragg is going to become the powerful Manhattan District Attorney, and Teachout, now a law professor, just formed a political committee to run for the New York Attorney General spot. And this morning, Teachout went on Morning Joe, a highly influential DC talk show, and publicly discussed the question of criminal liability for Zuckerberg.

The opportunity here is extraordinary. A criminal indictment against a man like Zuckerberg, who is worth $100 billion, would radically change Facebook’s behavior, almost instantly. But more importantly, it would send an electric shock throughout Silicon Valley and C-Suites everywhere. Such an action would say, with force, that no one is above the law.

(If you’d like to act on this, you can add your name to this petition to the DOJ asking for a criminal investigation.)

Google to Customers: Antitrust Will Destroy Maps, Gmail, Docs, and Search: Last week, Dave Dayen at the American Prospect reported on how Amazon is telling hundreds of thousands of merchants that it will have to kick them off of its marketplace if Congress passes antitrust law reform.

It turns out that Google is getting in on the game as well. Here’s an email Google’s ‘customer solutions team’ sent to customers of Google’s office tools, warning them that Congress is about to destroy the tools on which they rely. Specifically, Google is saying that addresses will have to be stripped from Google search and maps, that Google ads would be less accurate, and that Google docs, gmail, and calendar wouldn’t work together anymore.

This is the beginning of a list-building exercise, where Google is trying to find businesses who will back them. And then the search giant will get those firms to contact Congress, with the goal of blocking any sort of legal reform.

What I’m Reading

New Policy Gives FTC Greater Control Over How Companies Do M&A, Wall Street Journal

Canada Needs More Competition, speech by Matthew Boswell, Commissioner of the Competition Bureau of Canada

Southern California ports could fine carriers for tardy containers by Nov. 15, American Shipper

Lina Khan Isn’t Worried About Going Too Far, New York Magazine

Spotify Ad Business Boosted by Podcasts, Wall Street Journal

A famous type foundry’s sale to a PE-backed giant has rattled the font industry, Quartz

CMA plans probe into music streaming market, Competition and Markets Authority in the UK

Thanks for reading. Send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. And consider becoming a paying subscriber to support this work.


Matt Stoller

P.S. This is a great email from a reader.

I support the anti-monopoly movement because of how it's personally affected my life. My dad's hometown of Crossett, AR is unfortunately a textbook victim of monopolization. It's a company town centered around its paper mill, which until late 2019 was one of the largest in the US. I enjoyed spending a good chunk of my summer and the holidays there growing up. It always seemed the quintessential American small town, with a southern flavor to it of course.

The Crossett mill is owned by Georgia-Pacific, which is itself owned by Koch Industries. The US paper mill industry is highly consolidated, with 3 big companies (GP, International Paper, Kimberly Clark) responsible for much of the industry. Paper milling is a dirty business, and the Crossett mill had its share of notoriety. It was the subject of a documentary film called Company Town and a few years after that, got hit by the largest penalty in GP's history (under Donald Trump's EPA no less). 

Shortly after this, the Kochs retaliated against the town by closing down a substantial portion of the mill, laying off nearly 600 people: https://www.prwatch.org/news/2019/08/13484/koch-closes-plant-after-huge-epa-fine. In a town of 6000 people, where this is the main industry, it was like ripping the heart out of the place.

I then reached out to various people in the town, along with the politicians in the Arkansas statehouse responsible for representing the area. I wanted to see, from my small perch, how I could help. One response stuck with me. I asked why no one else had tried to come in and operate the mill, which was in the middle of prime timber country, with a very experienced workforce. I got told "there's no one else left. The industry has consolidated and there's no one left to step up."

That started me down the road of the anti-monopoly movement. I read Goliath at the beginning of the pandemic. At the same time we were experiencing a toilet paper and paper towel shortage. I couldn't help thinking it might have helped to have GP's 2nd largest paper mill open during that time. It just helped convince me of the stupidity and greed at the heart of our current economic system.

Also, what many people don’t know is that Arkansas may be a cherry red state now, but it was solid blue until 2010, both at the federal and state level.

I place the lions share of the blame directly at the feet of Obama and the Congressional Dems for that. Their corporate friendly policies have devastated towns like Crossett up and down the line. Once people saw the Dems didn’t have their back economically, they figured at least the Republicans were honest in what they’re about and didn’t come with any hypocritical moralizing on social issues most of them didn’t favor.

Dems should understand that Crossett remained loyal to them right up until 2020. When no one seemed to care about the town, they stopped caring what happened to them.

We've allowed a new aristocracy to arise in the US, and just like in other periods in our history, it's time to cut the bastards down to size.