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Why Facebook, Inc. Stock Plummeted Monday

By Daniel Sparks – Mar 19, 2018 at 1:31PM

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Misuse of Facebook data raises concerns. Here's what investors should know.

What happened

Facebook (META -1.19%) stock fell as much as 8.1% on Monday after the company's weekend revelation that Strategic Communications Laboratories (SCL) and data analytics firm Cambridge Analytica had been suspended pending an investigation in whether they violated commitments about user data. The stock is down 7.7% at about 12:20 p.m. EDT.

In 2015, Facebook learned that an app by psychology professor Aleksandr Kogan at the University of Cambridge that collected data with users' permission violated its platform policies by passing the data on to SCL and Cambridge Analytica. Though the app has been removed and Kogan and other parties with access to the data had attested to destroying it, Facebook has learned that not all of it may have been deleted.

A chalkboard sketch of a stock chart with an arrow pointing down

Image source: Getty Images.

So what

After news about this violation of Facebook's policies spread, many media organizations began referring to this incident as a data breach. Facebook, however, called it "completely false" in an update released on Saturday.

Aleksandr Kogan requested and gained access to information from users who chose to sign up to his app, and everyone involved gave their consent. People knowingly provided their information, no systems were infiltrated, and no passwords or sensitive pieces of information were stolen or hacked.

But even if this doesn't technically qualify as a data breach, it still raises concerns about Facebook's use of personal data.

Now what

The fact that a developer was able to misuse Facebook user data is bringing its management of personal data into the spotlight. Though the social network reassured investors Friday that it has made "significant improvements" in how it attempts to detect and prevent violations since this incident and that it is "constantly working to improve the safety and experience" for its users, questions remain.

Sen. John Kennedy (R-LA) and Sen. Amy Klobuchar (D-MN) are calling for Facebook CEO Mark Zuckerberg to testify before Congress about the company's use of personal data. 

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.

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