Markets Wired

The Federal Trade Commission has halted the deceptive online marketing tactics of two companies and their principals, the first of which allegedly sold fake indicators of social media influence, and the second of which allegedly used fake product reviews posted by its employees on a well-known retail website.

Posting deceptive or inaccurate information online pollutes the e-commerce marketplace and prevents consumers from making informed purchasing decisions. With these two actions, the FTC makes it clear that it will take enforcement action against this type of illegal behavior.

In the first case, Devumi, LLC (Devumi) and its owner and CEO, German Calas, Jr., have agreed to settle the FTC’s first-ever complaint challenging the sale of fake indicators of social media influence, which are important metrics that businesses and individuals use in making hiring, investing, purchasing, licensing, and viewing decisions.

In the second case, cosmetics firm Sunday Riley Modern Skincare, LLC (Sunday Riley Skincare) and its CEO, Sunday Riley, have agreed to settle an FTC complaint charging them with misleading consumers by posting fake reviews of the company’s products on a major retailer’s website, at the CEO’s direction, and by failing to disclose that the reviewers were company employees.

“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.”

Devumi, LLC

According to the FTC’s complaint, now-defunct Devumi, and its owner and CEO, German Calas, Jr., used their websites Devumi.com, TwitterBoost.co, Buyview.co, and Buyplans.co to sell fake indicators of social media influence, including fake followers, subscribers, views, and likes to users of social media platforms, including LinkedIn, Twitter, YouTube, Pinterest, Vine, and SoundCloud.

The FTC alleges the defendants sold fake Twitter followers to actors, athletes, musicians, writers, and others who wanted to increase their appeal as online influencers. The FTC alleges that Devumi also sold fake Twitter followers to motivational speakers, law firm partners, investment professionals, and others who wanted to boost their credibility to potential clients. According to the FTC, Devumi filled more than 58,000 orders for fake Twitter followers, enabling the buyers to deceive potential clients about their social media influence.

Devumi also allegedly had more than 4,000 sales of fake YouTube subscribers and over 32,000 sales of fake YouTube views to its clients, including musicians who wanted to increase the apparent popularity of their songs. The FTC contends that the defendants thereby enabled their customers to deceive both potential viewers and potential music purchasers.

In addition, according to the complaint, the Devumi defendants sold more than 800 fake LinkedIn followers to marketing, advertising, and public relations firms; companies offering computer software solutions; banking, investment, and other financial services firms; human resources firms; and others. These fake followers, the complaint alleges, enabled the buyers to deceive potential clients, investors, partners, and employees.

By selling and distributing fake indicators of social media influence to users of various social media platforms, the FTC alleges the defendants provided their customers with the means and instrumentalities to commit deceptive acts or practices, which is itself a deceptive act or practice in violation of the FTC Act.

The proposed court order settling the FTC’s charges contains both conduct and monetary provisions. First, it bans the Devumi defendants from selling or assisting others in selling social media influence to users of third-party social media platforms. The order also prohibits the defendants from making misrepresentations, or assisting others in doing so, about the social media influence of any person or entity or in any review or endorsement of any person, entity, product, or service.

Finally, the order imposes a monetary judgment against German Calas, Jr. of $2.5 million, the amount that the FTC alleges he was paid by Devumi or its parent company. The order specifies that upon payment of $250,000, the remainder of the judgment will be suspended. If Mr. Calas is later found to have misrepresented his financial condition to the FTC, the entire judgment immediately will become due.

The Commission vote approving the proposed stipulated final order in the Devumi matter was 5-0. The FTC filed the proposed order in the U.S. District Court for the Southern District of Florida.

NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Stipulated final orders have the force of law when approved and signed by the District Court judge.

Sunday Riley

As detailed in the FTC’s complaint, Texas-based Sunday Riley Skincare sells a variety of cosmetic products, including Luna Sleeping Night Oil, Good Genes All-In-One Lactic Acid Treatment, Blue Moon Tranquility Cleansing Balm, Start Over Active Eye Gel Cream, Bionic Anti-Aging Cream, and C.E.O. Rapid Flash Brightening Serum. The company sells its cosmetics at Sephora, a multinational chain of personal care and beauty stores, and on the Sephora.com website. The products sell for between $22 and $158 each.

Sephora allows consumers to leave customer reviews of products sold on its website, providing a forum for sharing authentic feedback about the products it sells. In its complaint, the FTC alleges that between November 2015 and August 2017, Sunday Riley Skincare managers, including Ms. Riley herself, posted reviews of their branded products on the Sephora site using fake accounts created to hide their identity, and requested that other Sunday Riley Skincare employees do the same thing.

The FTC alleges that after Sephora removed fake employee-written reviews, Sunday Riley Skincare employees suspected this was because Sephora recognized the reviews as coming from their IP addresses. Sunday Riley Skincare then allegedly obtained, according to one of the company’s managers, “an Express VPN account [to] . . . allow us to hide our IP address and location when we write reviews.” A VPN (virtual private network) lets users access the internet privately, by using separate servers to hide their online activity.

The FTC complaint also quotes from a July 2016 email that Ms. Riley wrote to her staff directing each of them to “create three accounts on Sephora.com, registered as . . . different identities.” The email included step-by-step instructions for setting up new personas and using a VPN to hide their identities, and directed employees to focus on certain products, to “[a]lways leave 5 stars” when reviewing Sunday Riley Skincare products, and to “dislike” negative reviews. “If you see a negative review – DISLIKE it,” Ms. Riley wrote, “After enough dislikes, it is removed. This directly translates into sales!!”

The FTC’s complaint charges Sunday Riley Skincare and Ms. Riley with two violations of the FTC Act: 1) making false or misleading claims that the fake reviews reflected the opinions of ordinary users of the products; and 2) deceptively failing to disclose that the reviews were written by Ms. Riley or her employees.

The proposed administrative order settling the FTC’s allegations against Sunday Riley Skincare and Ms. Riley is intended to ensure the respondents do not engage in similar allegedly illegal conduct in the future. First, the order prohibits the respondents, in connection with the sale of any product, from misrepresenting the status of any endorser or person reviewing the product. This includes misrepresentations that the endorser or reviewer is an independent or ordinary user of the product.

Next, the order prohibits the respondents from making any representation about any consumer or other product endorser without clearly and conspicuously disclosing any unexpected material connection between the endorser and any respondent or entity affiliated with the product. Such disclosures must be made in close proximity to the product review or endorsement.

In addition, the order requires the respondents to instruct their employees and agents about their responsibilities to clearly and conspicuously disclose their connections to the respondents’ products in any endorsements.

The Commission vote approving the administrative complaint and proposed consent order in the Sunday Riley matter was 3-2, with Commissioners Rohit Chopra and Rebecca Kelly Slaughter voting no. Commissioner Chopra issued a separate statement, in which he was joined by Commissioner Slaughter. The public may submit comments on the proposed consent order through Regulations.gov, which will be available to accept comments starting Thursday, October 24, 2019. Prior to publication in the Federal Register, the public may email comments to secretary@ftc.gov.

Comments will be accepted for 30 days from publication in the Federal Register, after which the Commission will decide whether to make the proposed consent order final. Comments received will be posted on Regulations.gov.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $42,530.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357). Like the FTC on Facebook, follow us on Twitter, read our blogs, and subscribe to press releases for the latest FTC news and resources.