TikTok sued over teen addiction, virtual currency

October 8

A bipartisan group of more than a dozen state attorneys general is filing lawsuits on Tuesday against social media giant TikTok, with one complaint accusing the company of deceiving users by claiming that its app is safe for children, despite its addictive features, and for allegedly operating an unlicensed money transmission business.

The states filing suit include New York and California, as well as the District of Columbia.

“Our lawsuit is seeking to hold TikTok accountable for harming D.C. children” said Attorney General Brian Schwalb of the District of Columbia, in an interview with CNBC.

Schwalb’s suit alleges a slew of “profound” mental health risks are posed to teens and children by compulsive TikTok use, including depression, anxiety, sleep loss and body dysmorphia.

Schwalb called the app — which allows users to create, share and view short-form videos — “digital nicotine,” and said that TikTok is “intentionally trying to addict young people to its platform.”

He said the app “inflicts immense damage on an entire generation of young people.”

“In addition to prioritizing its profits over the health of children, TikTok’s unregulated and illegal virtual economy allows the darkest, most depraved corners of society to prey upon vulnerable victims,” Schwalb said. “The company knows what is happening and has chosen to ignore it. This lawsuit seeks to put an end to its illegal, deceptive, and predatory behavior.”

CNBC has requested comment from TikTok on the lawsuits.

More than half of young people between 13 and 17 years old in the U.S. use the app. Worldwide, TikTok has more than a billion active users.

Schwalb’s lawsuit, which alleges violations of D.C. consumer protection laws, accuses TikTok of “employing algorithms and manipulative design features” to hook young users by triggering bursts of dopamine to their impressionable brains.

“TikTok knows that its design features make its App more addictive and keep users engaged for longer,” the suit in D.C. Superior Court alleges.

“While this may be good for business, it has perilous effects on children.”

The complaint also says that in 2019, the company introduced “two new dangerous features”: a live-streaming feature called TikTok LIVE and a virtual currency system called TikTok “Coins.”

“TikTok stands out with its use of Coins — an unlicensed virtual currency,” the suit alleges. “Users buy Coins to send virtual ‘Gifts’ during LIVE sessions, which streamers can cash out for real money. TikTok incentivizes users to go LIVE by promising these monetary rewards ‘the more popular [their] content becomes.'”

The suit says that TikTok “earns substantial revenue” from its Coins, charging commissions of up to 50% on each transaction.

The app’s virtual currency cash-in and cash-out process is “a virtual money transmission system” that ignores D.C. law by failing to obtain a required money transmitter license, the suit alleges.

And, “Although LIVE, including both live streaming and Gifts, has a current minimum age requirement of 18 and older, TikTok knows its lax age verification measures incentivize U.S. minors to lie about their age to gain access,” Schwalb’s suit claims.

The complaint also alleges that LIVE’s design, including Coins and Gifts, “enables other serious harms to minors including sexual exploitation.”

“TikTok is fully aware that these features combine to create an environment where children are often sexually exploited by users but has chosen to turn a blind eye in favor of increasing its profitability,” Schwalb’s office said in a press release.

TikTok’s U.S. headquarters are in Los Angeles, but it maintains an significant lobbying presence and an office in Washington, D.C.

The company recently announced a partnership with the NHL’s Washington Capitals hockey team, to feature TikTok’s logo on its road game jerseys for the upcoming season, the suit notes.

The suit asks that TikTok be permanently enjoined from violating consumer protection laws, and ordered to pay restitution to users, along with civil penalties.

The lawsuits by Schwalb and the other state AGs, who filed separate suits in courts across the United States, come at a legally fraught moment for the company, which is owned by the China-based ByteDance.

In September, lawyers for TikTok argued in a federal appeals court that a new law, which would ban the app by Jan. 19 unless ByteDance finds a non-Chinese buyer for the company, was unconstitutional because it violates the First Amendment rights of TikTok users.

The bill cleared the House and Senate in April, after members of Congress and others argued that the app poses a national security risk to the United States.

Specifically, they claimed the type of data it collects could be weaponized by America’s adversaries in Beijing, if the two countries were ever to go to war.

The AGs lawsuits are the latest in a series of civil complaints by state attorneys general targeting social media companies for the alleged harm to children and other users of their popular apps.

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