PALM BEACH, FL – The Federal Trade Commission (FTC) has settled two lawsuits against two separate marketing firms, Devumi, LLC and Sunday Riley, both of which were accused of deceptive online marketing tactics designed to dupe consumers into making false assumptions based on user generated content and activity.
In the first case, Devumi, LLC agreed to settle the FTC’s complaint challenging the sale of fake indicators of social media influence. In the second case, cosmetics firm Sunday Riley Modern Skincare, LLC agreed to settle for posting fake reviews of the company’s products.
Dishonesty in the online marketplace harms shoppers, as well as firms that play fair and square,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection. “Posting fake reviews on shopping websites or buying and selling fake followers is illegal. It undermines the marketplace, and the FTC will not tolerate it.”
The press release notes that this is the first case the FTP ever prosecuted regarding marketing firms selling fake followers, subscribers, views, and likes to users of social media platforms. That case will net the FTC both an agreement from the firm to cease those practices and monetary damages in the amount of $2.5 million.
In the second case, the FTC is proposing settlement simply preventing the company from engaging in such action in the future. In a letter regarding the weak proposal two commissioners joined in the following statement:
Today’s proposed settlement includes no redress, no disgorgement of ill-gotten gains, no notice to consumers, and no admission of wrongdoing. Sunday Riley and its CEO have clearly broken the law, and the Commission has ordered that they not break the law again. Unfortunately, the proposed settlement is unlikely to deter other would-be wrongdoers. Consider the cost-benefit analysis that a firm might undertake in considering whether to engage in review fraud. The potential benefits are substantial: higher ratings, more buzz, better positioning relative to competitors, and higher sales. The direct costs of generating reviews are minimal, certainly far less expensive than traditional advertising. The biggest potential cost is if the wrongdoer is caught, but it is likely that the vast majority of fake review fraud goes undetected. Even fake reviews that are detected may simply be removed with no sanction against the creator.
The proposed resolution of this matter suggests that even the narrow subset of wrongdoers who are caught and attract law enforcement scrutiny will face minimal sanctions. Sunday Riley is an unusual case. Because of a whistleblower, the fraud was exposed, and the FTC’s investigation uncovered additional “smoking gun” evidence implicating other executives. It is difficult to imagine more egregious facts, yet all the Commission is imposing is an order that the company and its CEO not repeat their lawbreaking. This settlement sends the wrong message to the marketplace. Dishonest firms may come to conclude that posting fake reviews is a viable strategy, given the proposed outcome here. Honest firms, who are the biggest victims of this fraud, may be wondering if they are losing out by following the law. Consumers may come to lack confidence that reviews are truthful.
The second proposal is open to public comment which can be submitted at Regulations.gov, which will be available to accept comments starting Friday, October 25, 2019. According to the press release prior to publication in the Federal Register, the public may email comments to email@example.com.
About The Author: John Colascione is Chief Executive Officer of Internet Marketing Services Inc. He specializes in Website Monetization, is a Google AdWords Certified Professional, authored a ‘how to’ book called ”Mastering Your Website‘, and is a key player in several Internet related businesses through his search engine strategy brand Searchen Networks®