Memos: Facebook was no foe to ‘friendly fraud’
SAN FRANCISCO — Facebook allowed children to rack up huge bills on digital games while the company rejected recommendations for addressing what it dubbed “friendly fraud,” according to newly released court documents.
The internal Facebook memos and other records were unsealed late Thursday to comply with a judge’s order in a federal court case settled in 2016.
The lawsuit, filed in San Jose, Calif., centered on allegations that Facebook knowingly milked teenagers by permitting them to spend hundreds of dollars buying additional features on games such as “Angry Birds” and “Barn Buddy” without parental consent.
The documents show Facebook considered measures to reduce the chances of kids running up charges on parents’ credit cards without their knowledge. But the company didn’t adopt them for fear of undercutting the revenue growth that helps boost the company’s stock price — and its employees’ compensation. The internal debate about how to address the recurring problem of kids spending big bucks behind their parents’ backs occurred from 2010 and 2014 — a period that included Facebook’s stock market debut in 2012. After going public at $38 per share, Facebook’s stock plummeted by 50 percent, intensifying the pressure on CEO Mark Zuckerberg and his management team to bring in more revenue.
None of the unsealed records, however, directly tie Facebook’s tolerance of “friendly fraud” to concerns about its slumping stock price during parts of 2012 and 2013.
A Facebook statement didn’t address its rejection of the recommendations. Instead, it said the company has offered refunds and changed its practices.
Facebook isn’t the only prominent technology company that has been skewered for profiting from children who don’t always understand how much of their parents’ money they are spending while playing games in apps or websites.
Apple agreed to issue $32.5 million in refunds for allowing kids to make inapp purchases without parental consent as part of a 2014 settlement with the Federal Trade Commission. That same year, Google settled a similar case for $19 million with the same agency. In 2017, Amazon resolved another case involving up to $70 million in potential refunds owed for kids’ unauthorized spending on games.
But, the documents are coming out at a time Facebook is trying to repair the damage done to its reputation from a scandal involving the data-mining firm Cambridge Analytica and other debacles.
And some of the information unsealed in the court case painted a picture of a predatory company.
In a 2013 discussion between two employees, a 15-year-old Facebook user who had spent about $6,500 playing games is described as a “whale” — a term gambling casinos use to describe people who make them a lot of money. The company refused a refund request from the teenager’s parents.