"Friendly fraud": Documents show Facebook used games to make money off kids

Anna Jefferson
January 28, 2019

An internal memo circulated in 2011 stated: "Friendly Fraud - what it is, why it's challenging, and why you shouldn't try to block it".

A class-action lawsuit has revealed allegations that Facebook engaged in "friendly fraud", duping children and their parents with in-game purchases on a number of mobile games.

In relation to the hugely successful Facebook game 'Angry Birds, ' a memo included in the documents obtained by CIR written by Facebook employee Danny Stein noted how, "in almost all cases the parents knew their children was playing Angry Birds, but didn't think the child would be allowed to buy anything without their password or authorisation first".

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"Facebook employees referred to these children as "whales" - a term borrowed from the casino industry to describe profligate spender", the report states. Facebook said it released documents after being instructed by the court, having already voluntarily unsealed documents following a request from the Center for Investigative Reporting.

The suit was filed by Glynnis Bohannan, whose 12-year-old son racked up nearly $1,000 playing Ninja Saga.

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In one document, an employee at Facebook discussed how the company could use the "data to choose apps that would be good recipients for an automatic underage inflow ... apps that come to mind: PetVille, Happy Aquarium, Wild Ones, Barn Buddy and any Ninja game".

Internal documents from 2010-2014 show children playing mobile games with microtransactions were treated like gamblers, and measures to stop the behavior were halted for fear of impacting revenue. The US non-profit Merchant Risk Council considers a 1% chargeback rate as high, while the US government's Federal Trade Commission deems a 2% charge back rate is a red flag for a business being "deceptive".

Developers were encouraged to offer free virtual items to parents who complained, which were thought to be better than refunds because they "bear no cost".

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The lawsuit that led to the release of the documents was eventually settled in 2016, when Facebook agreed "to dedicate an internal queue to refund requests for in-app purchases made by U.S. minors". Bohannan filed a lawsuit after she could not reach Facebook for a refund. It agreed to update its terms "and provide dedicated resources for refund requests related to purchases made by minors on Facebook".

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