A better path to technological reform? Criminal charges

March 25 the CEOs of Google, Facebook and Twitter will testify again before a House of Representatives committee, this time on the spread of disinformation on their platforms.

Misinformation about Covid-19 has undermined the country’s response to the pandemic. Misinformation about the 2020 election led to the January 6 insurgency on Capitol Hill. In both cases, Internet platforms have played a role in amplifying and spreading this disinformation. If past testimony is any guide, on Thursday CEOs will go into hiding and promise to give better answers to any question they don’t want to answer on camera. Nothing will change.

Congress has a duty to investigate Internet platforms, but the timing couldn’t be worse. The top priority for the White House and Democrats in Congress is to end the pandemic and then minimize its economic damage. The passage of the American Recovery Act is a great achievement, but the pandemic has exposed structural weaknesses in the economy that require significant investment in infrastructure. Then there is the issue of restoring democracy and the right to vote before the mid-term of 2022. These priorities will leave little time for anything else, even an issue as urgent as the reform of Internet platforms, which has undermined democracy and public health to a degree unprecedented for generations, if ever.

Fortunately, there are two options for saving time, neither of which require congressional action. It is simply forcing the government to apply regulatory tools that are not used frequently, namely subjecting corporate executives to criminal prosecution.

The first option is an antitrust case against Google led by the Texas attorney general that alleges a digital advertising pricing conspiracy. The complaint points to Facebook as a co-conspirator. Pricing falls under Section 1 of the Sherman Act, which is important because it does not require proof of injury. The attempt itself is a crime. And if, as has been alleged, there is evidence of a mutual legal defense agreement, there may be a second count. Where appropriate, executives may be prosecuted for a crime, punishable by up to three years in prison. Google denies any wrongdoing.

Biden’s Justice Department has the option of joining the Texas case or pursuing their own felony case. The DOJ can add Google and Facebook executives to its antitrust criminal indictments. The situation justifies it, because the damages in question result from deliberate commercial choices. The threat of imprisonment could change the math for internet CEOs, creating for the first time an incentive to make the necessary changes to their business model to stop the damage to public health, democracy, life private and competition.

The second option would be a securities fraud investigation by the Securities and Exchange Commission. For a decade or more, journalists have reported evidence of overestimated user numbers and advertising views by Internet platforms. They claim that a significant percentage of ad clicks are made by scammers exploiting the lack of transparency in digital advertising. The opacity of all digital ad platforms to traditional media and Google’s dominance over digital ad infrastructure has prevented in-depth accounting.

Complaints from advertisers sparked settlements with Facebook and Google. The impact on investors, some of whom may have bought or sold stocks based on inaccurate numbers, is lost in discussion.

Securities law requires public companies to report exact numbers. For internet platforms, the number of users and the number of views of ads are critical to investor sentiment, which is a key revenue driver. If ad views are overvalued, then revenue should be overstated as well. If the overestimation has occurred for many years, to the knowledge of executives, the SEC has the ability to pursue a felony case, creating a legal danger for senior executives who face jail time. Such cases are not common, but the circumstances surrounding internet platforms certainly warrant a thorough investigation.

While it has not been common practice to use crime cases to reform an industry, these are extraordinary times. The aim is not to put executives in jail, but rather to create incentives for good faith negotiations with companies whose behavior poses a threat to society and the authority of the government.

The events of the past year have exposed structural flaws in the economy, the health care system, the electricity grid and US politics. Some of these issues may seem less acute than the pandemic, but all require immediate attention. This poses a huge challenge for the Biden administration, which is hampered by 40 years of deregulation and underfunding of government institutions. They must use all the tools available.

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