Facebook plummets following burst of bad news

Key Points
  • Facebook shares fell following a New York Times investigation that revealed previously unreported data sharing practices by the company.
  • Through a review of internal documents, the Times found Facebook shared even more data than previously thought with companies it considered "partners."
  • The data reportedly included access to users private messages.
Facebook founder and CEO Mark Zuckerberg arrives to testify following a break during a Senate Commerce, Science and Transportation Committee and Senate Judiciary Committee joint hearing about Facebook on Capitol Hill in Washington, DC.
Saul Loeb | AFP | Getty Images

Facebook tumbled 7.3 percent Wednesday following a spate of bad news, including revelations that it shared more user data than previously thought and a lawsuit from the Washington, D.C., attorney general.

The drop is the second-steepest this year for Facebook, following a 19 percent drop on July 26 after an earnings report warning of slowing sales. Before Wednesday's Federal Reserve meeting, Facebook had been the only major tech stock in the negative. By the end of the day, it suffered the worst fall among its peers as the Nasdaq Composite Index closed down 2.17 percent.

On Tuesday night, the New York Times published a story alleging Facebook shared unprecedented amounts of data with partners, based on internal documents from Facebook and interviews with more than 50 former employees. The report says Facebook even allowed some companies, like Spotify, Bing and the Royal Bank of Canada to access user's private messages. It says some companies were allowed to view certain information from users' Facebook friends without explicit consent.

Loup Venture Founder Gene Munster believes Facebook's best days are behind it
Loup Venture Founder Gene Munster believes Facebook's best days are behind it

The allegations, some of which are as recent as this year, could put Facebook in jeopardy of being found in violation of its 2011 agreement with the Federal Trade Commission. The agreement required Facebook make clearer how it shared data with third-parties and banned it from sharing friends' data without their consent. Facebook reportedly considers its "partners" to be extensions of its core business, rather than third-parties.

The FTC declined to comment on the Times investigation for an earlier story, but the commission has previously confirmed it was looking into Facebook's privacy practices following the Cambridge Analytica scandal.

In a blog post responding to the article, Facebook said, "To be clear: none of these partnerships or features gave companies access to information without people's permission, nor did they violate our 2012 settlement with the FTC."

The news was followed by an announcement Wednesday morning that the attorney general's office of Washington, D.C., would sue the company for "failing to protect its users' data".

Subscribe to CNBC on YouTube.

Watch: Social media detox - why quitting Instagram and Facebook made me happier

Why quitting Instagram and Facebook made me happier
Why quitting Instagram and Facebook made me happier