Facebook has seen $37bn (£26bn) wiped off its value amid concerns over the harvesting of user data by a UK political consultancy.
The stock fell by 7% on Monday amid claims about Cambridge Analytica, which are being investigated by the UK’s Information Commissioner as well as European authorities.
Investors in the social media giant are worried about a new threat to its reputation and the possibility of legislation that could damage its advertising business.
The Information Commissioner, Elizabeth Denham, is seeking a warrant to access Cambridge Analytica’s servers amid an investigation into its involvement in worldwide elections.
She is pursuing evidence as part of her look at the company’s use of data analytics for political purposes and is to apply to a court for a warrant on Tuesday, after Cambridge Analytica failed to respond to a deadline for access to its records.
The Prime Minister has called on the company to “co-operate fully” with the Information Commissioner, with Downing Street describing allegations that Cambridge Analytica harvested more than 50 million Facebook profiles in a data breach as “very concerning”.
The claims have prompted calls for either Facebook founder Mark Zuckerberg or another senior executive to give evidence to MPs.
Facebook has also called off its own search of Cambridge Analytica premises at the Information Commissioner’s request, amid fears it could potentially compromise a regulatory investigation.
Shawn Cruz, senior trading specialist at TD Ameritrade in Chicago, said tech companies were “going to get a lot more scrutiny over that they are collecting and how they are using it”.
Cambridge Analytica, which operates in the UK and is registered in America, describes itself as one that “uses data to change audience behaviour” and worked with Donald Trump’s successful US presidential election campaign.
The latest development came as the company denied engaging in “entrapment, bribes or so-called ‘honeytraps'” in the course of its work.
In an undercover investigation, Channel 4 News secretly filmed Cambridge Analytica’s chief executive Alexander Nix speaking to a reporter posing as a potential client from Sri Lanka.
Raising the possibility of “somebody posing as a wealthy developer” in an explanation of the company’s election services, Mr Nix said: “They will offer a large amount of money to the candidate, to finance his campaign in exchange for land.
“For instance we’ll have the whole thing recorded on cameras, we’ll blank out the face of our guy and then post it on the internet.”
Mr Nix also spoke of sending “very beautiful” Ukrainian girls to a candidate’s house, while he also added: “It sounds a dreadful thing to say but these are things that don’t necessarily need to be true as long as they’re believed.”
However, Cambridge Analytica claimed the Channel 4 News report was “edited and scripted to grossly misrepresent the nature of those conversations and how the company conducts its business”.
The company said: “Assessing the legality and reputational risks associated with new projects is critical for us, and we routinely undertake conversations with prospective clients to try to tease out any unethical or illegal intentions.
“The two Cambridge Analytica executives at the meeting humoured these questions and actively encouraged the prospective client to disclose his intentions.
“They left with grave concerns and did not meet with him again.”
Accompanying the statement on Cambridge Analytica’s website, Mr Nix added: “In playing along with this line of conversation, and partly to spare our ‘client’ from embarrassment, we entertained a series of ludicrous hypothetical scenarios.
“I am aware how this looks, but it is simply not the case. I must emphatically state that Cambridge Analytica does not condone or engage in entrapment, bribes or so-called ‘honeytraps’, and nor does it use untrue material for any purpose.
“I deeply regret my role in the meeting and I have already apologised to staff. I should have recognised where the prospective client was taking our conversations and ended the relationship sooner.”