The drama surrounding Facebook’s upcoming debut on the stock market has encompassed more than just critiques of the CEO Mark Zuckerberg’s fashion sensibilities.
Facebook’s $1 billion deal to purchase the popular mobile photo sharing app Instagram, announced in April, two months after Facebook filed documents for an initial public offering of stock, is reportedly the target of an investigation by the U.S. Federal Trade Commission, according to a Financial Times article published online Thursday.
The investigation itself won’t necessarily have any bearing on the date of Facebook’s public offering of stock, which hasn’t been officially announced yet, as an FTC spokesperson explained in general to TechCrunch, but it could delay Facebook’s stated expectation to finalize its purchase of Instagram and clear it with regulators by “in the second quarter of 2012,” or by July 1.
In fact, if it so chooses, the FTC could flag the transaction as anticompetitive and file in U.S. district court to halt the transaction, or turn the case over the Justice Department, which would have much the same effect. In that case, Facebook has promised Instagram $200 million for its trouble.
That, in turn, could add to some investor worries about the overall risk of buying Facebook, which despite reporting revenue of $3.7 billion in 2011 and $1 billion for the first three months of 2012, still hasn’t answered tough questions about how it will continue to monetize its user base in the long run.
Another tough question that Facebook isn’t necessarily required to answer soon: Whether or not it is under an FTC investigation. Neither the company or the FTC have confirmed the probe to TPM or any other press outlet at the time of this report.
And despite companies having to report a wealth of information about potential risks to investors, the Securities and Exchange Commission, which oversees asset trading in the U.S., does not as a rule require Facebook, or any other company for that matter, to disclose ongoing investigations to potential investors, sources close to the agency told TPM.
Meanwhile, a spokesperson for the SEC itself, who also declined to comment about a potential Facebook investigation, was able to explain to TPM that “the overarching principle when a company makes a disclosure is that it can’t be materially misleading.”
That principle, according to the SEC, generally means “no omissions or misstatements” about a company’s current status with regulators.
“The question is, ‘would this information change what the average investor thinks of this security and their decision to buy or sell it?’” an SEC spokesperson told TPM.
Still, Facebook has been up front with investors about its previous brushes with the FTC and the Irish Data Protection Commissioner agency, both of which investigated Facebook over user privacy concerns in 2011. Neither of those agencies concluded that Facebook violated any laws, but Facebook did enter into a settlement with the FTC to undergo privacy audits and agreed to change its privacy and data use policies according to the Irish DPC. In fact, Facebook just announced new global data usage policies on Friday.
An FTC spokesperson was able to tell TPM that the provision that would trigger such an investigation, if one were launched, would be the Hart-Scott-Rodino Antitrust Improvement Act of 1976, which states that a company must file documents explaining why its merger would not reduce competition. If the FTC disagrees, it can either file court action to block the merger or reach a settlement with the companies.