Several internal documents surfaced recently alleged that the massive social media site Facebook is aware of the fact that it has been defrauding its customers, especially children and their families, through its online games since 2011. The company’s employees even have a name for this practice: “friendly fraud,” or “FF” for short. What’s even more damning is, other related documents point out that Facebook already found a solution to prevent these frauds from happening, but did not take any action as it prioritized revenue instead.

Facebook Popularity
Facebook is one of the most popular social media sites right now

These records are part of a class-action lawsuit filed in April 2012 that focused on how Facebook set its eyes on children to maximize revenue for its online games. They include over 135 pages of documents of various types, from the company’s internal memos, to employee emails and secret strategies.  They give a troubling insight into how one of the leading social media sites in the world right now conducts its business.

It is alleged that underage users were bamboozled into spending hundreds or even thousands of dollars on games such as Ninja Saga, PetVille, and Angry Birds. One 15-year-old reportedly spent $6,500 (Rs 462,800) in just about two weeks on Facebook games. The company refers to these vulnerable children as “whales”, a term often used in the casino industry to describe profligate customers. When the guardians of these minors found out about this and demanded refunds, they were met with many “unintelligible” barriers set by Facebook.

Mark Zuckerberg
Mark Zuckerberg, CEO and Founder of Facebook

One particular document that is especially damaging to the company’s reputation is an internal memo titled “Exhibit K”, which encourages game developers to let children spend cash without consent from their parents. While the detailed content of this memo is unavailable, it talks about why developers should not try to prevent friendly fraud.

In practice, friendly fraud is the bane of all parents around the world who have Facebook-using children. When kids use their parents’ credit cards to make even a single transaction on a Facebook game, the system keeps all the information. Then, as they tap around in the game, maybe to buy a flaming sword or a cool new spell to defeat their virtual enemies, they obliviously spend tons of money from the credit cards without even realizing it. To make matters worse, oftentimes the parents are not privy of this for weeks or even months, only learning about it when they receive emails detailing the bills.

Condoning this “friendly fraud” practice inevitably led to chargebacks. As Facebook refuse to provide a refund, parents are forced to turn to credit card companies to undo transactions that their kids had made. Internal documents of Facebook show that the chargeback rate for many games, including the massive hit Angry Birds, was a lot higher than average. Many employees tried to find ways to reduce the rate of chargebacks, such as requiring that a series of number on the credit card be re-entered before further purchases can be made. However, according to court documents, these solutions were not implemented on a large scale because the company feared that it would reduce overall revenue.

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Here is a part of an email sent in 2011 an individual named Danny Stein - who, from their LinkedIn profile, worked on the payment and risk team of Facebook at the time:

Quote Facebook Fraud D69a_wm

The case is still ongoing as of now. If the court deems Facebook’s action to be against the law, it could be forced to compensate millions of dollars to customers who were affected by friendly fraud over the past 8 years.