Ep 42: Snapchat Battles the FTC

May 16, 2014

The guys discuss Snapchat’s seemingly minor punishment for misrepresentations about its privacy policy and answer, “How do I decide what salary to pay myself?”

Full Podcast Transcript

NASIR: Welcome to Legally Sound Smart Business.
This is Nasir Pasha.

MATT: This is Matt Staub.

NASIR: Like the NBA – Matthew Staub.
Welcome to our podcast. This is where we cover business in the news and also answer some of your business legal questions that you, the listener, can submit to ask@legallysoundsmartbusiness.com. Episode #42.

MATT: It is #42, yeah, the Jackie Robinson episode.

NASIR: I didn’t see that movie yet.

MATT: I relate all numbers to the players that wore the number for sports so we’re getting up to the numbers now. We’re running out of basketball so it’s maybe a little bit of baseball then we’ll cut into some football. Then, once we hit triple digits, it’s pretty much over.

NASIR: Yeah, there’s no sports that go up that high that I can think of. Maybe golf? Actually, marathons – they have three-digit numbers a lot of times.

MATT: Well, if anyone knows any marathon numbers…

NASIR: Send them in.

MATT: Yeah, send them to us and we’ll start using them but I don’t know any marathon runners. Well, there’s one guy from San Diego who just won the Boston marathon.

NASIR: I doubt if he got the same number every time.

MATT: You don’t.

NASIR: Yeah. If I ever run a marathon – which hopefully I won’t someday – I’m going to request my number and be really dramatic about it. “No, I’m this number every time! I have to have this!”

MATT: Lucky number, yeah.

NASIR: Lucky number 101.

MATT: Let’s get to the story we have for today. I can’t remember, have we talked about Snapchat before?

NASIR: We may have but I think most people have heard about it at least. If you’re in the age of 13 to 15, you definitely have.

MATT: I actually use Snapchat.

NASIR: You’re like 16, right? you just came out of that phase.

MATT: I’d have heard about it for a while and then a couple of my friends talked me into doing it. I still kind of find it pretty pointless.

NASIR: Me, too.

MATT: I’ll get into the reasoning why but, for those of you who haven’t heard the most recent story, let me step back a second and explain what Snapchat is if you haven’t heard of it. This is the way I see it. You take a picture – or I guess video now as well – and you send it to one of your friends and it’s basically just a picture text message but there’s a time limit on it – one to ten seconds – and then it disappears. Same with video. But the problem is I guess that these photos and these videos weren’t disappearing as they said – the whole point of Snapchat – and this wasn’t happening. And so, they were also doing something with using customer information too which is a whole other issue. They basically said they were doing one thing. Their main premise, they weren’t living up to it and the FTC came in, they got a pretty light ban here – twenty-year internal audit. That was what was handed down.

NASIR: And no fines! I’m so surprised that they didn’t have any fines which the FTC, they have the power to do so. I don’t know why they went so light on this because I would be upset, right? I mean, you have the whole idea of Snapchat is that it’s private. Usually, if you’re sending – this is my assumption – if you’re sending an image or information that is only supposed to last a certain amount of time, I assume it’s not something you’d want to be shared but I don’t know. What else is the purpose? I’d be upset, for sure.

MATT: That what I was getting to. It’s defeating the purpose of the app to begin with.

NASIR: Exactly, yeah.

MATT: I’m pretty surprised there’s no fine. I think the twenty-year independent privacy audit – I think I said internal audit, I meant independent audit – that’s a little bit funny because, what are the odds that Snapchat’s going to be around in twenty years? Pretty slim, right?

NASIR: Yeah, I would agree with that, and I assume also that – well, I would hope – that Snapchat has to pay for those audits and we’re not paying for that. That would be silly. And those audits can be costly, especially when it’s coming from the government. They’re pretty thorough when they come in but I wonder, you’re right, in twenty years, are we going to be Snapchatting each other? I doubt that very much so.

MATT: Yeah, it’s probably going to be something we can’t even think of right now. But one of the reasons I don’t like Snapchat is the whole point is you send a picture and it disappears and you can screenshot the picture. That defeats the purpose to begin with. I just don’t understand what the usage is for then. if someone really wants to, they can just screenshot it and they have the picture saved.

NASIR: Yeah.

MATT: I’m interested, too, Mark Cuban, he’s involved in this new company called Cyber Dust and it’s Snapchat but for text messages.

NASIR: I see.

MATT: They kind of play up and it’s kind of weird how they go about it. They play up, oh, all the texts that you sent out the night before that you didn’t want to send out, they just all disappears. It’s like you never sent them.

NASIR: That’s silly.

MATT: I don’t really understand this whole piece of the market.

NASIR: Especially text. It’s like I sent somebody, “Hey, meet me at 5:00 p.m. tonight,” and then you look at it like, “Wait. What was it again? What was the address?” I don’t see the purpose.

MATT: Hopefully they wouldn’t send it like that.
But Snapchat was one of the companies, I think, when WhatsApp got bought out, I think that they were considering, Snapchat was one of the other competitor companies they were considering. I think they were kind of hopeful for a big buyout that hasn’t happened yet. I don’t know how they’re making money because the app was free and there’s been no advertising on it that I’ve seen.

NASIR: I assume it’s on its way down if it hasn’t already passed that point.
But lesson to be learnt is the FTC I think is a very scary organization in the sense that, if the FTC is getting involved in your business, you’re doing something wrong because it takes a lot to get their attention in the sense that a mere small violation, even that, I have very seldom seen the FTC really go after in that respect but, once you get their attention, then there’s trouble there.
It’s very simple. Snapchat didn’t necessarily do anything wrong if they didn’t put in their policies that, yeah, we’re not going to be saving your information, we’re not going to be tracking you and basically putting all these privacy considerations and then violating them. If they would have said, “Okay, we’re going to spy on you, we’re going to save all your contacts from your iPhone,” like it says it is and that’s what it does, then the FTC wouldn’t have a care in the world because you did exactly what you said you would do. The problem is once they have that policy and they violate it.

MATT: Right, that’s the lesson that any business owner can take away from this story. You say you’re going to do something and you put it in your privacy policy, you have to do it. We shouldn’t have to tell people that.

NASIR: Yeah, you shouldn’t, but obviously…

MATT: Yeah.

NASIR: And it makes you think because, when you install these apps on your phones, unless you really pay attention to exactly what the privacy policies say, it could easily just read your emails if they want. I think so; maybe I’m wrong. I know they can read your contacts – who is in your phone. What stops them from using those email addresses and then sending them spam from you?

MATT: The spam from them wouldn’t be bad because it would only show up for ten seconds and then it would disappear.

NASIR: Ah, that’s great. I love that. Non-intrusive spam. Just in your face for ten seconds.

MATT: Let’s get into the question of the day here.

NASIR: Question of the day!
We should some kind of intro like that. I’m not going to do it.

MATT: We’ll work on it.

NASIR: Oh, my god.

MATT: Yeah.
“How do I decide what salary to pay myself?”
From a real estate firm in Dallas, Texas.

NASIR: I would say a billion dollars a week. That’s what I would do.

MATT: That’s not bad.

NASIR: That’s what I pay myself.

MATT: All right. Well, that’s the episode.

NASIR: That’s the answer.
Well, it’s a good question, to be serious for once. I know this is a Friday episode so we’re kind of light. But you have to pay yourself a salary. What do you think? Do you assume that this person’s maybe going through an S Corp or something like that. It seems like that’s what it’s implying, right?

MATT: Right. They’re going to most likely be an entity that’s going to be one that they have to pay their self a salary.

NASIR: So, unlike an LLC where it doesn’t matter, it’s all passed through anyway, how would you break this down as far as whether or not let’s say that he’s an agent and he’s bringing in a profit of $300,000 a year. How does he decide how much to pay himself?

MATT: Well, the standard is you have to pay yourself a reasonable compensation or a reasonable salary, whatever you call it. I would look at it in terms of what other people have been paid and not necessarily what they’ve gotten away with, you know, what’s been held acceptable in other comparables in the industry.

NASIR: Yeah.

MATT: Your salary, you’re going to be paying more tax than something that might just be a distribution. You want to keep your salary as low as possible if you’re going to also get these other distributions from the company because it’s two different ways that money is coming into you. I guess we’re assuming this person is also one of the shareholders of the company. If not, then it’s a different story, then just get paid as much as you want.

NASIR: Yeah, exactly.
It always bugged me – that word “reasonable” – and even when my accountants ask me, “So, how are we going to do this?” when it comes to salary. It’s like, well, what’s reasonable? Then, it’s not an easy question to answer, for sure.
This is how I personally look at it – to avoid IRS scrutiny, the more you pay yourself, the better because obviously the incentives – I know you mentioned this – to make your salary as low as possible so that you get a lower tax rate for the equitable distribution. I would start with a billion dollars a week and then work your way down.

MATT: I don’t think they’d have a problem with that. If you’re making a billion dollars a week, then it wouldn’t be the worst thing in the world, I suppose.

NASIR: It’s a lot of taxes, though.

MATT: I don’t know. I mean, how else can we answer this question? It’s so subjective. It’s really difficult to answer it. We can’t just say 40 percent.

NASIR: But Matt was right in the beginning. You have to look at a number of things. You have to decide whether the IRS is going to decide that it’s unreasonable. You have to look at how many years of experience you have, your industry, your profession, your area – you said real estate but assuming you’re a real estate agent, a real estate agent in Dallas, not a real estate agent in Southern California. Those are some things to consider.
Your tax professional is going to also have some guidance on this but they’re going to be reluctant to name a number as well just because, just as we are, because there’s no hard, fast rule for it.

MATT: That’s it right there. I think that’s the best we can really say without any more specifics in the eight-word question that we got.

NASIR: I think they just sent an eight-word question because they feel bad that you have to read the questions.

MATT: That’s fine. I’m all aboard with that.

NASIR: No, I personally like long questions. I’ll give it a prize to whoever gives the longest question and the prize will be that we answer it.

MATT: I’ll give a prize to whoever can send the shortest question that’s still answerable.

NASIR: “Is this legal?” I don’t know what it would be. That’s a hard one.
That’s actually a good challenge, too – the shortest question that is still answerable – a business legal question.

MATT: It’s just one word – legal?

NASIR: Right now we’re at ten. It has to be less than ten.
Okay, guys, I think that’s our Friday episode. Thanks for joining us this week. Definitely keep tuning in and review our podcast.

MATT: Yeah, keep leaving those iTunes reviews. We have some good ones out there.

NASIR: Cool.

MATT: We appreciate that.

NASIR: Yeah, that helps us out quite a bit, actually. So, keep on doing that. Thank you so much!

MATT: Yeah, and, as always, keep it sound and keep it smart.

Legally Sound | Smart Business


The Podcast Where Nasir Pasha and Matt Staub cover business in the news with their legal twist and answer business legal questions that you the listener can send it to info@legallysoundsmartbusiness.com.

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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