Keeping It Real: FTC Settles Cases Over Fake Social Media Indicators, Reviews

Advertising Law

In a pair of settlements, the Federal Trade Commission (FTC) reached agreements with a company that purportedly sold fake indicators of social media influence and another company that allegedly posted fake product reviews written by its employees.

The first case involved Devumi LLC and its owner and CEO, German Calas Jr., against whom the FTC had brought its first-ever complaint challenging the sale of fake likes, views, subscribers and followers to users who wanted to boost their presence on social media platforms. Purchasers included actors, athletes, musicians, writers, motivational speakers, law firm partners and investment professionals, as well as advertising, marketing, public relations, banking, software companies and others, the FTC said.

More than 58,000 orders for Twitter followers, north of 32,000 sales of YouTube views, about 800 LinkedIn followers and roughly 4,000 YouTube subscribers—all fake—were sold by Devumi, according to the FTC, allowing buyers to deceive others about their credibility and social media influence. These sales provided “customers with the means and instrumentalities to commit deceptive acts or practices…in violation of the FTC Act,” the FTC alleged.

To settle the charges, Devumi and Calas agreed to a deal that prohibits them from selling social media influence or making misrepresentations about the social media influence of a person or entity in any review or endorsement, or assisting others to do so. The settlement also includes a $2.5 million judgment against Calas, all but $250,000 of which was suspended based on Calas’ financial condition. Devumi and Calas reached a similar deal with the New York Attorney General’s Office earlier this year.

In the second case, the FTC accused Sunday Riley Skincare LLC of duping consumers with fake reviews about its cosmetics products posted by its employees. The Texas-based company sold its products—including Good Genes All-In-One Lactic Acid Treatment and Luna Sleeping Night Oil—at Sephora stores and on Sephora’s website.

Between November 2015 and August 2017, managers at Sunday Riley (including the CEO herself) posted product reviews using fake accounts to hide their identities, the FTC said, and requested that other employees do the same. When Sephora removed the fake employee-written reviews, Sunday Riley allegedly obtained a specific VPN account to hide its IP address and location and provided step-by-step directions on how to create new personas in order to disguise the identities of reviewers, according to the FTC.

The FTC charged Sunday Riley and its CEO with two violations of the FTC Act: for failing to disclose that the reviews were written by the company’s CEO or employees and for making false or misleading claims that the reviews reflected the opinions of ordinary users of the products.

Unlike the consent order against Devumi, the order against Sunday Riley does not impose a monetary judgment, but imposes the following requirements on the company and its CEO: (i) they may not misrepresent the status of any endorser or person reviewing the product, (ii) they must clearly and conspicuously disclose any material connection with any endorser in proximity to the product review or endorsement, and (iii) they must instruct their employees and agents about their responsibilities to clearly and conspicuously disclose their connection to the company’s products in any endorsements.

The FTC split 3-2 in approval of the proposed consent order. Commissioners Rohit Chopra and Rebecca Kelly Slaughter dissented, arguing that the lack of a monetary penalty would fail to deter similar bad actors. The problem of fake reviews is growing and the FTC “should attack it,” they urged.

“[B]y proposing a no-money, no-fault order for an unambiguous violation of law, this action does little to address the epidemic of fake reviews online,” Chopra and Slaughter wrote. “Going forward, the FTC should seek monetary consequences for fake review fraud, even if the exact level of ill-gotten gains is difficult to measure. The agency should also comprehensively analyze the problem of fake reviews, including whether or not e-commerce firms have the right incentives to police their platforms.”

To read the complaints, proposed orders and statement from the commissioners, click here.

Why it matters: The FTC’s actions are consistent with the guidance it provided in The FTC’s Endorsement Guides: What People Are Asking and demonstrate the importance of keeping it real for advertisers, from authentic likes and follower counts to reviews and endorsements that disclose their true authorship and any connection to the company. Some of the FTC commissioners also called out the growing problem of fake online reviews. They encouraged the agency to take a closer look and impose harsher penalties for violators, including an admission of wrongdoing and monetary consequences.