Facebook orchestrated a multi-year effort that duped children and their parents out of money, in some cases hundreds or even thousands of dollars, and then often refused to give the money back, according to court documents unsealed tonight in response to a Reveal legal action.
The records are part of a class action lawsuit focused on how Facebook targeted children in an effort to expand revenue for online games, such as Angry Birds, PetVille and Ninja Saga.
The more than 135 pages of unsealed documents, which include internal Facebook memos, secret strategies and employee emails, paint a troubling picture of how the social media giant conducted business.
Facebook encouraged game developers to let children spend money without their parents’ permission – something the social media giant called “friendly fraud” – in an effort to maximize revenues, according to a document detailing the company’s game strategy.
Sometimes the children did not even know they were spending money, according to another internal Facebook report. Facebook employees knew this. Their own reports showed underage users did not realize their parent’s credit cards were connected to their Facebook accounts and they were spending real money in the games, according to the unsealed documents.
For years, the company ignored warnings from its own employees that it was bamboozling children.
A team of Facebook employees even developed a method that would have reduced the problem of children being hoodwinked into spending money, but the company did not implement it, and instead told game developers that the social media giant was focused on maximizing revenues.
When parents found out how much their children had spent – one 15-year-old racked up $6,500 in charges in about two weeks playing games on Facebook – the company denied requests for refunds. Facebook employees referred to these children as “whales” – a term borrowed from the casino industry to describe profligate spenders. A child could spend hundreds of dollars a day on in-game features such as arming their character with a flaming sword or a new magic spell to defeat an enemy – even if they didn’t realize it until the credit card bill arrived.
Outraged parents were forced to turn to the Better Business Bureau, their credit card companies or even the courts to get their money back.
The revenue Facebook earned off children had such large chargeback rates – a process in which the credit card company is forced to step in and claw back money on behalf of parents – that it far exceeded what the Federal Trade Commission has said is a red flag for deceptive business practices.
Despite the many warning signs, which continued for years, Facebook made a clear decision. It pursued a goal of increasing its revenues at the expense of children and their parents.
U.S. District Court Judge Beth Freeman ordered the documents unsealed on Jan. 14 after Reveal from The Center for Investigative Reporting intervened last year arguing the public had a right to know how Facebook targeted children. The judge gave Facebook until January 24 to unseal the documents, although she allowed the companay to keep a few of the records sealed or partially redacted. The documents span a time period of 2010 to 2014.
Facebook, once a darling of Silicon Valley, has faced heavy scrutiny over the last year as users and lawmakers take aim at its questionable handling of user data and the spread of fake news. These new documents raise even more questions for the company and its CEO, Mark Zuckerberg, about the methods employees used to make it one of the wealthiest tech companies in the world.
The company continues to deal with the consequences of their push for revenue growth.
Facebook officials declined to answer specific questions for this story. In a statement, the company said: “we routinely examine our own practices, and in 2016 agreed to update our terms and provide dedicated resources for refund requests related to purchased made by minors on Facebook.”
Facebook found a solution. But it ignored it
Early in the afternoon of July 8, 2011, Tara Stewart sent out a message to her colleagues at Facebook. It was full of internal jargon.