TikTok sued over teen addiction and virtual currency

A bipartisan group of more than a dozen attorneys general filed lawsuits against social media giant TikTok on Tuesday, with one complaint accusing the company of misleading users by claiming the app is safe for children, despite its addictive properties, and because it allegedly a company operates without a money transfer license.

“Our lawsuit seeks to hold TikTok accountable for harming DC children,” District of Columbia Attorney General Brian Schwalb said in an interview with CNBC.

Schwalb’s lawsuit alleges that teens and children face a host of “profound” mental health risks from compulsive TikTok use, including depression, anxiety, sleep loss and body dysmorphia.

Schwalb called the app – which allows users to create, share and watch short videos – “digital nicotine” and said TikTok is “deliberately trying to get young people hooked on its platform.”

He said the app is “causing enormous harm to an entire generation of young people.”

“In addition to prioritizing profits over children’s health, TikTok’s unregulated and illegal virtual economy allows the darkest and most depraved corners of society to prey on 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 conduct.”

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

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

“TikTok knows that its design features make its app addictive and keep users engaged for longer,” the lawsuit in DC Superior Court alleges.

“While this may be good for business, it has dangerous consequences for children.”

The complaint also states that the company introduced “two new dangerous features” in 2019: a livestreaming feature called TikTok LIVE and a virtual currency system called TikTok “Coins.”

“TikTok is notable for its use of coins – an unlicensed virtual currency,” the complaint alleges. “Users purchase 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 lawsuit says TikTok “generates 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 transfer system” that ignores DC law by failing to obtain a required money transfer license, the complaint alleges.

And “While LIVE, including both live streaming and Gifts, currently has a minimum age requirement of 18 and older, TikTok knows that its lax age verification measures encourage U.S. minors to lie about their age to gain access,” Schwalb 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 together create an environment where children are often sexually exploited by users, but has chosen to turn a blind eye in favor of increasing profitability,” Schwalb’s office said in a statement press release.

TikTok’s US headquarters are in Los Angeles, but it has a significant lobbying presence and an office in Washington, D.C.

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

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

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

In September, attorneys for TikTok argued before 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 rights of TikTok users. .

The bill was approved by 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 argued that the kind of data it collects could be weaponized by America’s adversaries in Beijing if the two countries ever go to war.

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