Last week the Federal Trade Commission and six states sued rental listing platform Roomster, Corp. along with its owners for allegedly charging consumers for access to phony listings bolstered by fake reviews it had purchased. The agency also announced a separate settlement with the operator of AppWinn, which is an online review vendor that churned and posted thousands of 4- and 5-star fake reviews about Roomster's platform.
Roomster, which is based in New York, operates a website and mobile app where users pay a fee to access housing, rental, and other living arrangements, such as sublet and roommate requests. According to the complaint, rather than the millions of "authentic" and "verified" listings it purported to offer, Roomster allegedly failed to verify listings or ensure their authenticity, and also used fake reviews to lure users to its platform to pay for access to listings that often turned out to be bogus. The FTC alleges Roomster and its owners made tens of millions of dollars off the backs of mostly low-income and student renters seeking reliable and affordable housing.
The complaint further alleges that Roomster bought over 20,000 reviews from AppWinn that were generated through more than 2,500 fake iTunes and Gmail accounts. Dubbed "testi-phony-als" by the FTC, these bogus reviews were part of "drip campaigns" that involved a "steady flow of reviews" that were used to draw potential users to the Roomster platform.
The complaint recounts several eye-opening exchanges between the owners of Roomster and AppWinn to drive Roomster to the number one search result for people searching for roommates. The sheer volume of bogus reviews also served to dilute unfavorable reviews by real users.
While the case against Roomster is pending in New York federal court, the operator of AppWinn separately entered into a proposed order in which he agreed to pay $100,000, to identify fake reviews on the Apple and Google app stores, and to be permanently banned from selling consumer reviews and endorsements.
This case is the latest chapter in the FTC's campaign against phony endorsements. In October of last year, the agency targeted fake online reviews and other deceptive endorsements when it sent a Notice of Penalty Offenses to more than 700 companies, ranging from retailers and product companies to ad agencies.
The Notice warned companies that they could face significant civil penalties of up to $43,792 per violation (the current amount is $46,517) if they utilize fake reviews and deceptive endorsements to mislead consumers. Though the practices at the center of the Roomster case, if true, are particularly egregious, advertisers should keep in mind that federal and state regulators can and will scrutinize legitimate reviews, particularly where incentivization is improperly disclosed or the review is presented in a misleading way.
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