FTC and Six States Announce Settlement Over Fake Reviews and Claims

A year ago, the FTC and six states filed a lawsuit against Roomster and its owners, alleging that they had posted tens of thousands of fake positive reviews to bolster their false claims that properties listed on their Roomster platform are real, available, and verified.” At the same time, the regulators announced a settlement with an individual (doing business as AppWinn) who allegedly sold Roomster many of the fake reviews. Today, the FTC and states announced a settlement with Roomster and its owners that includes some notable provisions.

As we noted in our original post, Roomster advertised that its platform had millions of verified listings” in a safe community with real members worldwide.” To test how well Roomster verified the listings, the regulators listed a room for rent on the platform at an attractive price. Had Roomster attempted to verify the review, it would have learned that the address of the listing was actually a US Postal Office commercial facility. According to the complaint, though, Roomster never asked any questions.

Roomster also allegedly bolstered its false claims by flooding the internet and app stores with tens of thousands of 4- and 5-star reviews, many of which were fake. The complaint alleged that the company bought over 20,000 reviews from AppWinn alone. Emails between Roomster and AppWin showed a detailed plan addressing how and when the reviews should be posted. According to the complaint, the number of positive fake reviews diluted the real reviews, many of which warned of scams on the platform.

Yesterday, the FTC and states announced a settlement that includes some novel requirements. Among other things:

  • The defendants are permanently banned from buying or incentivizing consumer reviews and from disseminating reviews where they have a relationship with the reviewer that might affect the review’s weight or credibility. The outright ban on incentivized reviews is surprising since companies are generally allowed to incentivize reviews as long as those incentives are clearly disclosed.
  • The defendants are prohibited from misrepresenting any material fact, including that any review is truthful or represents a real user, or that any rental listing is verified, authentic, or available, when that isn’t the case. No surprises there.
  • The defendants are required to monitor affiliates to assess their compliance. Notably, the settlement provides a lot of detail about this obligation. For example, the defendants are required to take extensive steps to monitor all marketing materials” used by affiliate marketers on at least a monthly basis” and to promptly take steps to address issues that they discover during monitoring.
  • The settlement imposes a monetary judgment of $36.2 million and civil penalties totaling $10.9 million payable to the states. These amounts will be suspended after the defendants pay $1.6 million to the states, based upon their inability to pay the full amount. (If the defendants are found to have misrepresented their financial status or to have violated the terms of the order, the full amounts would immediately become due.)

This case demonstrates that the FTC and state AGs continue to focus on the integrity of reviews and that they will work together to seek monetary penalties for misleading practices. The novel provisions in the settlement agreement – such as the ban on incentivized reviews and the detailed monitoring requirements – also suggest that regulators are getting more creative and restrictive in settlement agreements, particularly when complaints involve particularly egregious conduct.