Facebook Inc. (NASDAQ:FB) does have prohibitions and a tiered screening process in order to try to filter out children under the age of 13 from setting up accounts and accessing its social-networking site. However, the company has a secret that it hasn't disclosed to investors in its SEC paperwork and refused to acknowledge due to federal law - Facebook (NASDAQ:FB) has about 5.6 million accounts in the U.S. (about 3.5 percent of its U.S. total) that belong to children who are under age 13.
A 1998 federal law called the Children's Online Privacy Protection Act (COPPA) requires Web sites to give special treatment to Internet users under the age of 13. Facebook Inc. (NASDAQ:FB), like many Web sites, prohibits younger Internet users from using their sites or building accounts. However as the 5.6 million number indicates, despite Facebook's tiered screening system, there are ways that children can work around the system and have access to Facebook and other sites. The goal of the law was to prevent online marketers from targeting children in their advertising. The Federal Trade Commission is due to finalize some new rules to further compel Web sites to restrict access to their sites by young children, though Facebook Inc. (NASDAQ:FB) claims that the new regulations wouldn't apply to it because it has explicit warnings and prhibitios of younger users.
However, Reuters tested the Facebook Inc. (NASDAQ:FB) protocol, and while a fake child's account registration was denied, an hour later that account was allowed with the same information (name, e-mail address,etc.) except for the birth year. The reason? Facebook Inc. (NASDAQ:FB) is not allowed by COPPA to save data from younger users or account registrants. A study revealed, though, that Facebook's screening process does seem to eliminate about 800,000 child accounts on an annual basis, which is apparently progress from the company.
Filtering out children from the Facebook Inc. (NASDAQ:FB) account records might reduce its user numbers by nearly 4 percent, but it's possible that investors in Facebook stock, like hedge-fund manager Chase Coleman of Tiger Global Management LLC, will appreciate the efforts that Facebook makes to cleans its Web site of the most vulnerable demographic.