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New York City sues tech giants for allegedly fueling youth mental health crisis

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New York City has filed a sweeping federal lawsuit against Meta, Google, Snap, TikTok, and ByteDance, accusing them of addicting children to social media and worsening a mental health crisis among young users. The 327-page complaint, lodged in Manhattan federal court, seeks damages for gross negligence and public nuisance, alleging that platforms like Instagram, YouTube, Snapchat, and TikTok were deliberately engineered to exploit the psychology of youth for profit.

The lawsuit claims the companies’ products have contributed to rising rates of depression, sleep deprivation, and chronic absenteeism among minors. According to the city’s data, more than 77% of New York City high school students spend over three hours daily on screens, and 82% of girls report similar habits.

New York’s health commissioner declared social media a public health hazard earlier this year, citing growing taxpayer burdens to combat mental health challenges in schools. The city also linked compulsive platform use to dangerous behaviors such as “subway surfing,” which has caused at least 16 deaths since 2023.

The case joins over 2,000 similar lawsuits filed nationwide, now consolidated in federal court in Oakland, California. A spokesperson for Google rejected the allegations, saying YouTube is a streaming platform rather than a social network. Other defendants have not yet commented.

The city argues that the companies must be held accountable for the harm caused by their algorithms, which it says have created a costly and deadly youth mental health epidemic.

FTC Probes AI Chatbots from Alphabet, Meta, OpenAI and Others

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The U.S. Federal Trade Commission (FTC) announced on Thursday that it has launched an inquiry into major providers of AI-powered consumer chatbots, including Alphabet (Google), Meta Platforms, OpenAI, Character.AI, Snap, and xAI.

Focus of the Inquiry

The FTC is demanding details on:

  • How chatbots are tested, measured, and monitored for potential negative impacts.

  • Monetization strategies, including how companies profit from user engagement.

  • Processing of user inputs and the generation of responses.

  • Use of conversation data, and whether it is exploited for advertising, training, or other commercial purposes.

Rising Scrutiny

Generative AI tools have recently drawn criticism following safety scandals:

  • Reuters revealed internal Meta policies that allowed chatbots to engage in romantic conversations with children.

  • OpenAI is facing a lawsuit alleging ChatGPT contributed to a teenager’s suicide.

  • Character.AI is under a separate lawsuit tied to another teen death.

Company Responses

  • Character.AI: said it will cooperate, highlighting new safety features rolled out over the past year.

  • Snap: welcomed the FTC’s focus, saying it supports policies that balance innovation with community protection.

  • Meta: declined to comment.

  • Alphabet, OpenAI, xAI: did not immediately respond.

Bigger Picture

The inquiry reflects Washington’s growing concern over AI risks, especially for children and vulnerable users. Regulators are looking to balance innovation with consumer protection, while lawsuits and scandals raise urgency for stricter oversight.

Snap Shares Plunge as Ad Glitch and Competition Stall Growth

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Snap’s (SNAP.N) shares fell nearly 21.5% in early trading on Wednesday following a weak quarterly performance and intensifying competition, highlighting its ongoing challenge to keep pace with AI-driven rivals.

The company’s slowest revenue growth in over a year was driven by advertisers cutting marketing budgets amid economic uncertainty and favoring larger platforms like TikTok and Meta’s Facebook and Instagram. A glitch in Snap’s ad-buying platform, which caused ads to be delivered at discounted rates, also contributed to the slowdown. Although Snap’s revenue met estimates, it was a significant drop from the double-digit growth seen over the past five quarters. Snap’s market value could fall by approximately $3.24 billion if losses persist.

Analysts at MoffettNathanson noted advertisers prefer platforms with direct access to purchase-ready users, diverse marketing tools, and clear ROI metrics — areas where Snap currently lags.

Snap’s performance contrasts with competitors Meta and Reddit, which reported strong second-quarter results, driving their shares up by 30.3% and 21.8% respectively this year, compared to Snap’s 12% decline. Following the results, at least 14 brokerages cut Snap’s price target, bringing the median to $9.

Snap is betting on its Sponsored Snaps video ad format, rolled out more broadly in June across the U.S. and other markets, which has driven increased user engagement and actions.

Morgan Stanley analysts said, “For Snap to capitalize on improvements in engagement, it must better demonstrate ad efficacy to advertisers and reduce barriers to adopting its products.”