Facebook under pressure as U.S., EU urge probes of data practices

By Dustin Volz and Munsif Vengattil
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Mark Turnbull, Managing Director of SCL Elections/Cambridge Analytica arrives at the offices of Cambridge Analytica in central London

Mark Turnbull, Managing Director of SCL Elections/Cambridge Analytica arrives at the offices of Cambridge Analytica in central London, Britain, March 20, 2018. REUTERS/Henry Nicholls

By Dustin Volz and Munsif Vengattil

(Reuters) - British privacy regulators are seeking a warrant to search the offices of the U.K.-based political consultancy Cambridge Analytica late Monday following reports that the company may have improperly gained access to data on 50 million Facebook users, according to a Channel 4 television report.

The move came as a host of U.S. and European lawmakers to demanded an explanation of how the consulting firm, which worked on President Donald Trump's election campaign, gained access to the data. In the U.S., members of Congress called on Facebook CEO Mark Zuckerberg to testify about Facebook's actions. (http://reut.rs/2pn8btD)

Facebook said on Monday it had hired forensic auditors from the firm Stroz Friedberg to investigate and determine whether Cambridge Analytical still had the data.

"Auditors from Strop Fried berg were on site at Cambridge Analytic's London office this evening," the company said in a statement late Monday. "At the request of the UK Information Commissioner’s Office, which has announced it is pursuing a warrant to conduct its own on-site investigation, the Strop Fried berg auditors stood down."

Facebook shares closed down nearly 7.0 percent on Monday, wiping nearly $40 billion (£28.5 billion) off its market value as investors worried that new legislation could damage the company's advertising business.

"The lid is being opened on the black box of Facebook data practices, and the picture is not pretty," said Frank Passable, a University of Maryland law professor who has written about Silicon Valley's use of data.

Also on Monday, a source said that Facebook head of security, Alex Stamps, plans to leave the company over disagreements about the company's policies on misinformation. He had been a strong advocate for an aggressive approach to alleged Russian activity on the platform aimed at manipulating elections. His departure was first reported by the New York Times. Facebook declined immediate comment.

In a tweet, Stamps did not deny he was leaving but said: "Despite the rumours, I'm still fully engaged with my work at Facebook. It's true that my role did change."

The criticism of Cambridge Analytical presents a new threat to Facebook reputation, which is already under attack over Russia's alleged use of Facebook tools to sway U.S. voters with divisive and false news posts before and after the 2016 election.

London-based Cambridge Analytical said it strongly denied the media claims, and that it deleted all Facebook data it obtained from a third-party application in 2014 after learning the information did not adhere to data protection rules.

However, further allegations about the firm's tactics were reported late Monday by British broadcaster Channel 4 which said it secretly taped interviews with senior Cambridge Analytical executives in which they boasted of their ability to sway elections in countries around the world with digital manipulation and traditional political trickery.

Cambridge Analytical rejected the allegations, saying in a statement that the Channel 4 report "is edited and scripted to grossly misrepresent the nature of those conversations and how the company conducts its business."

Facebook was already facing calls on Saturday for regulation from the U.S. Congress after the reports in the New York Times and London's Observer over the weekend.

Republican Senator John Kennedy called on Zuckerberg to testify before Congress, and Democratic Senator Ron Widen sent a letter to Zuckerberg asking about company policies for sharing user data with third parties.

Facebook usually sends lawyers to testify to Congress, or allows trade organizations to represent it and other technology companies in front of lawmakers.

Facebook and other social media companies including Twitter Inc and Alphabet Inc's YouTube have taken voluntary steps to restrict possible foreign interference and combat false news, but they have not been forced by law or regulation to make changes and legislation on the issue has stalled.

Late on Monday, the Connecticut Attorney General said the office will initiate an inquiry into Facebook data policies.

The Senate was expected to move forward on Monday with a bill that would chip away at the internet industry’s legal shield, a decades-old law known as Section 230 of the Communications Decency Act, with a bill intended to address online sex trafficking. The measure has already passed the House and is expected to soon become law.

Facebook said on Friday it had learned in 2015 that a Cambridge University psychology professor lied to the company and violated its policies by passing data to Cambridge Analytical from a psychology testing application he had built.

Facebook said it suspended the firms and researchers involved and said the data had been misused but not stolen, because users gave permission.

Facebook shares fell 6.8 percent to $172.56, dragging the U.S. S&P 500 technology sector index down 2.1 percent and broadly weighing on U.S. equities. Fears of increased regulation also weighed on shares of Twitter, Google parent Alphabet and Snap chat parent Snap Inc <Snap. n>.

"(Tech companies) are going to get a lot more scrutiny over what data they are collecting and how they are using it," said Shawn Cruz, senior trading specialist at TAD Ameritrade in Chicago.


'VERY CONCERNING'

European officials, who have been more willing to regulate Silicon Valley companies than their U.S. counterparts, were strident in criticism of Facebook.

The revelations about Cambridge Analytical were "horrifying, if confirmed," said EU Justice Commissioner Vera Jourova. "We don't want this in the EU and will take all possible legal measures" including stricter rules under the bloc's General Data Protection Regulation that takes effect in May, she said.

A spokesman for British Prime Minister Theresa May said the allegations were "clearly very concerning."

The head of the European Parliament said EU lawmakers will investigate possible data misuse, calling the allegations an unacceptable violation of citizens' privacy rights.


(Reporting by Dustin Volz and Munsif Vengattil; Additional reporting by Chuck Mikolajczak, Sruthi Shankar, David Ingram and Julia Fioretti; Editing by Nick Zieminski)