TikTok’s office in March came after the U.S. House of Representatives overwhelmingly passed a bill that would give TikTok’s Chinese owner ByteDance about six months to divest the short video app’s U.S. assets or face ban.
Mike Black | Reuters
Among the many charges brought against TikTok by a group of attorneys general, one that stands out is that the company abused its virtual currency.
District of Columbia Attorney General Brian Schwalb claimed on Tuesday that TikTok financially exploits children by operating an unlicensed digital currency similar to casino poker chips.
A bipartisan group of 13 state attorneys general and Schwalb filed a lawsuit against TikTok on Tuesday, saying the company misled users that the app had harmful effects on the mental health and well-being of children and young adults.
Schwalb’s lawsuit alleges that TikTok violated the region’s money transmission laws by failing to obtain the licenses needed to conduct financial transactions using virtual currencies on its platform through the company’s live-streaming tool. The lawsuit claims the currency “severely harms children” and the live streaming feature “economically exploits them.”
The lawsuit alleges that through TikTok’s system, children can use real money to purchase virtual tokens called TikTok Coins, and the company gets 50% of the revenue from the purchases. The lawsuit adds that children are able to conduct financial transactions because they can easily bypass the company’s weak age verification tools, something TikTok was aware of but failed to address
TikTok coins can then be used to purchase digital “gifts” that users can send to others live-streaming on the social media app. These streamers can then redeem the gifts they receive for real money.
The lawsuit alleges that TikTok “extracted” commissions of up to 50% from these exchanges without obtaining the necessary licenses.
TikTok did not respond to a request for comment, but told CNBC in an earlier statement that it disagreed with “these claims, many of which we believe are inaccurate and misleading.”
Gabriel Robins, a professor of computer science at the University of Virginia, said that social media companies like TikTok have been taking lessons from the video game industry and cultivating large online markets that include digital currencies.
Federal and state laws are designed to protect children from financial harm because they are “too inexperienced to know better,” Robbins said.
“If you make it look pretty, happy, innocent… it’s easier to manipulate kids,” Robbins said. “They don’t understand that their money has been cheated, and they don’t understand that their parents’ money has been cheated.”
Brooke Erin Duffy said the DC TikTok lawsuit “could force others to Platform companies rethink how to define and regulate economic transactions”. said in an email.
watch: TikTok is the “digital nicotine” for young people, making money through addiction.
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