The Federal Trade Commission (the “FTC” or “Commission”) and six states sued Roomster Corp. and its owners for allegedly deceiving consumers with fake reviews and bogus listings. Roomster is an Internet-based room and roommate finder platform, purporting to help consumers find affordable housing via its website and mobile apps. Users must pay a fee to access what is characterized as “authentic” and “verified” content, including rental properties, sublets, room rentals, and roommate requests. According to the complaint, the defendant allegedly “used fake reviews and other misrepresentations to lure consumers to its platform and pay for access to listings that often turned out to be fake.” Concurrently with this fake review violations lawsuit, the FTC and participating states filed a separate action against Jonathan Martinez, doing business as AppWinn, claiming that he sold Roomster tens of thousands of fake positive website reviews. As readers of our blog know, the FTC has prioritized the enforcement of the Federal Trade Commission Act (“Act”) and pursues businesses that deceive consumers, often the vulnerable, by the use of false and misleading testimonials and reviews.
Roomster’s Fake Review Violations in Detail
Use of fake endorsements and testimonials violates Section 5 of the FTC Act, which may result in severe penalties and fines. Here, the complaint detailed the specific alleged illegal marketing tactics used by defendants:
- Posting fake positive reviews,
- Claiming to offer verified and authentic listings, and
- Using phony listings to attract paid users.
Under a proposed stipulated final judgment, Martinez (AppWinn) is required to cooperate in the case against the Roomster defendants by: (1) alerting certain app stores that Roomster paid him to post fake reviews, as well as identifying those reviews (including the amount of times that they were posted on the platforms), (2) ceasing to sell such reviews, and (3) paying $100,000 to the six state jurisdictions involved in the action.
Lessons Learned from Roomsters Fake Review Violations
As demonstrated by this action, companies may not post fake reviews and testimonials without risking significant regulatory repercussions. The FTC simply will not have it. In fact, as recently as this past May, the Commission unanimously approved a notice of proposed amendments to its “Guides Concerning the Use of Endorsements and Testimonials in Advertising” (the “Endorsement Guides”). The proposed amendments to the Endorsement Guides target, among other things, the fraudulent practice of posting fake positive reviews and suppressing bad reviews in online and social media platform content. Marketing companies would do well to take heed of these guidelines to ensure that their product and service marketing practices comply with state and federal laws. Failure to do so will almost certainly result in regulatory and legal action.
Hiring Seasoned Marketing Attorneys is Essential to Avoiding Fake Review Violation Liability
Given the significant risk, it is best to obtain guidance from experienced marketing attorneys before launching any social media marketing and/or Internet advertising campaigns. If you are interested in learning more about this topic or need to review your advertising practices and procedures, please email us at email@example.com, or call us at (212) 246-0900.
The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.
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