Meta Faces $25 Billion Penalty in New Mexico Over Cambridge Analytica Data Scandal

A New Mexico judge has mandated Meta, formerly known as Facebook, to pay $25 billion following findings that the company misled users regarding its privacy practices. This ruling is connected to the Cambridge Analytica scandal and represents one of the most substantial legal penalties ever imposed on a major tech company, adding to Meta's recent legal setbacks.

The company admitted in 2018 that Cambridge Analytica, a political analytics firm, had improperly accessed the private data of up to 87 million Facebook users. This information was then utilized by the firm to create profiles of American voters.

New Mexico initiated a lawsuit against Facebook in 2021, alleging mishandling of state residents' personal information and deception about its data policies in relation to the Cambridge Analytica incident. In September, a jury determined that Meta had violated the state's Unfair Practices Act over 43 million times.

State District Court Judge Francis Mathew characterized the company's actions as a "coherent strategy designed to mislead the public" in his penalty decision. He further stated, "Facebook’s misrepresentations about users’ control of their data were not isolated incidents, but rather a systematic pattern of deception at the core of Facebook’s business model."

Following the penalty announcement, Meta declared its intention to appeal, asserting that New Mexico's attorney general has improperly merged privacy and speech issues. Meta Chief Legal Officer C.J. Mahoney commented in a statement, "This ruling, and the Attorney General’s approach to this enforcement, makes it all but impossible to do business in the state of New Mexico. At its core, this lawsuit seeks to impose a tax on speech to enforce new rules for what people can say online. We are confident we will prevail on appeal."

While Meta's legal challenges could impact its business, the financial penalties and settlements have so far been relatively minor compared to the company's overall earnings. Meta reported quarterly earnings for the period ending in September, which showed lower profits than anticipated by Wall Street. The company cited a charge related to an $18 billion multistate settlement in August, aimed at resolving claims of platform addiction and harm to young people, as a contributing factor. New Mexico was not part of this settlement, which also addressed the participating states' existing claims concerning Cambridge Analytica.

Meta's income from operations for the quarter was nearly $13 billion, a figure that would have been nearly $23 billion without the settlement charge. Meta CFO Susan Li indicated during an analyst call that the company is closely monitoring "active legal and regulatory matters that could significantly impact our business and financial results," including upcoming trials related to youth-related issues.

Earlier this year, Meta was ordered to pay nearly $1 billion in a separate New Mexico case concerning allegations of platform addiction and harm to young people. Additionally, Meta and YouTube faced a lawsuit in Los Angeles in March brought by a young woman with similar claims of addiction and harm, a case they also plan to appeal.

Despite these legal issues, Meta's business continues to demonstrate strong growth, largely driven by its investments in artificial intelligence. The company reported a 26 percent year-on-year increase in sales, exceeding $64 billion for the quarter. Meta's stock (META) saw a rise of over three percent in after-hours trading following the earnings report.

Meta launched its AI personal assistant app, Muse, in September, which quickly became a top-downloaded app with over 10 million users. The company also introduced its latest foundation model, Muse Wonder, last month. Meta stated that its AI investments are enhancing its core advertising business through improved engagement, better recommendations, and more effective monetization, with the average price per ad increasing by 14 percent year-over-year in the September quarter.

The tech industry is currently grappling with significant spending on AI infrastructure. Meta's capital expenditures for the quarter reached nearly $35 billion, an 80 percent increase from the previous year. The company adjusted its full-year capital expenditure guidance to between $135 billion and $145 billion. Investors appear supportive of Meta's strategy, particularly given the success of Muse, with analysts noting a market shift towards rewarding the company for its compelling product narrative rather than penalizing its spending.