Some call this a clash of East Coast and West Coast cultures. Washington regulators going after Facebook for its 'share everything' openness, as well as its unevenly applied privacy controls.
Users can control their privacy settings, but the FTC claims Facebook wasn't honoring them or was changing them without notice.
"On numerous occasions, it violated privacy commitments to its hundreds of millions of users," said FTC Chairman Jon Leibowitz. "This settlement order insures this should never happen again."
The FTC says Facebook had promised not to share personal information with advertisers, but it did. It also gave third-party applications full, instead of limited access, to personal data. Even when users deleted their account, photos and videos were still accessible.
"We expect companies to respect privacy, and translating that respect for privacy into an operational practice is where companies sometimes can go astray," said Eric Goldman, director of the High-Tech Law Institute at Santa Clara University.
Facebook CEO Mark Zuckerberg posted on his blog that "we've made a bunch of mistakes" and "I'm committed to making Facebook the leader in transparency and control around privacy."
Facebook has 800 million users worldwide; 200 million in the United States. The settlement calls for the appointment of two chief privacy officers, a 20-year government audit of its privacy practices, and a $16,000 fine per day for each violation in the future.
Users of the social networking site are pleased.
"It's pretty important. I don't even… [I'm] very careful of what photos I put on. I try to be as careful as possible," said Facebook user Gira Desai.
Facebook now joins Google and Twitter to agree to FTC privacy settlements. However, analysts worry that these large social media companies have been hobbled.
"It's the smaller companies, the startups, that are going to have more ability to innovate in this area because they're not going to be dealing with a bunch of bureaucrats telling them what to do," said CNET.com reporter Declan McCullagh.
For that reason, critics argue that Facebook should have taken this to court, but a legal challenge could take years, and that could complicate Facebook's efforts to try to go public early next year.