A.G. Schneiderman Announces Settlement with Machinima and Three Other Companies for False Endorsement
Machinima Agrees To Pay $50,000 For Failure To Require Disclosure Of Payments To Gaming Experts Endorsing Microsoft’s Xbox On Youtube
Three Other Companies To Also Pay A Penalty And Agree To Stop Posting Fake Reviews In Separate Investigations
NEW YORK – Attorney General Eric T. Schneiderman today announced settlements with Machinima, Inc. and three other companies in separate investigations, regarding each company’s role in posting fraudulent content on the Internet. Each settlement requires the company to be honest and transparent in its online reviews and endorsements, and pay penalties ranging from $20,000 to $50,000.
“Consumers rely on reviews and other endorsements on the Internet to inform themselves in making daily purchasing decisions,” said Attorney General Schneiderman. “This investigation continues my office’s historical work into ‘astroturfing’ over the Internet and signals to companies that consumers deserve honesty and transparency in their reviews, endorsements and related content.”
Machinima, Inc. is a California-based online entertainment network that distributes video content relating to video games and gaming culture via a multi-channel network on www.youtube.com(“YouTube”). The videos that Machinima distribute feature original and scripted content from members of the gaming community. Machinima’s YouTube network generates more than 2 billion views each month, reaching over 407 million subscribers.
An investigation by the Attorney General’s office revealed that in the fall of 2013, Machinima paid gaming experts known as “influencers” to post YouTube videos endorsing Microsoft’s Xbox One system and several games. In the first phase of the marketing campaign, a small group of influencers were given access to pre-release versions of Microsoft’s Xbox One console and video games in order to produce and upload two endorsement videos each. Machinima paid two of these endorsers $15,000 and $30,000 respectively, for producing You Tube videos which garnered 250,000 and 730,000 views, respectively. In a separate phase of the marketing program, Machinima promised to pay a larger group of influencers $1 for every 1,000 video views, up to a total of $25,000.
Collectively, Machinima’s influencers produced and uploaded to YouTube over 300 videos between November 22 and December 31, 2013, that generated more than 35 million views. Influencers spoke favorably of Microsoft, Xbox One, and the new game titles, and the influencers gave the impression that their videos were independently produced and that their comments reflected the influencers' personal views. Nowhere in the videos or in the videos' descriptions did the influencers disclose that Machinima had offered compensation in exchange for creating and uploading the videos.
New York’s Executive Law§ 63(12) and General Business Law §§ 349 and 350 prohibit misrepresentation and deceptive acts or practices in the conduct of any business. Similarly, the FTC Guide Concerning the Use of Endorsements and Testimonials in Advertising, 16 CFR Part 255, provides that it is a deceptive practice to provide an endorsement for a product or service that fails to disclose material connections between the endorser and the sponsoring advertiser.
The settlement with Machinima prohibits it from misrepresenting in any influencer campaign that the endorser is an independent user of the product or service being promoted. It also requires the company to prominently disclose any material financial or other connection between the endorser and the advertiser, and prohibits Machinima from compensating any influencer who has not made the required disclosures. It further requires the company to follow up within 90 days of the start of a campaign to ensure the disclosures are still being made.
Pursuant to the settlement, Machinima must also pay a $50,000 penalty. The FTC settled similar allegations with Machinima in September, 2015.
Premier Retail Group
Premier Retail Group, Inc. is a chain of cosmetic and beauty supply stores that offer services for skin treatment under the “Infinite Beauty” brand. Premier Retail Group has multiple locations throughout the country, including 1031 3rd Ave., New York, New York 10065; 125 Westchester Ave, White Plains, New York 10601; and 630 Old Country Rd., Garden City, New York 11530. The Attorney General’s investigation revealed that Premier Retail Group solicited reviewers through advertisements posted on Craigslist.org to write positive reviews in exchange for free samples, free vouchers or other compensation. There was no requirement that the reviewer visit a Premier Retail Group location or that the reviewers disclose that they were compensated for the review.
For example, one advertisement from Premier on Craigslist stated “Have a Strong Yelp account? Want to make money writing reviews?” When an undercover investigator from AG Schneiderman’s office responded and offered to write fictitious reviews, a Premier agent wrote “If you are interested I will send you a link to our store to post a review. Once a review is posted you will reply to me with a link and I will send you $25 via Paypal. If the review is not filtered within the next 2 weeks I will send an additional $50.” She then described how to write the review, explaining that “[p]roducts are less important, you can mention Shahar and talk about the Multi Line aspect. We carry Forever Flawless, Vine Vera, and Dor 24k.”
In total, Premier Marketing Group paid for over 30 fraudulent reviews of stores located in New York with some reviewers receiving as much as $250.
Pursuant to the settlement, Premier Retail Group paid a penalty of $50,000, $30,000 of which is suspended assuming compliance with the settlement agreement. The financial condition of the company was considered in the penalty assessment.
Here2Four, Incorporated, d/b/a ESIOH Internet Marketing, is a California internet marketing company that provides a variety of internet services to clients including social media marketing, search engine optimization, and website monitoring. The Attorney General’s investigation revealed that the company solicited over 50 freelance writers on websites such as Craigslist.org and Fiverr.com to write over 200 fake reviews of its small-business clients for $10 to $15 per review. The reviews were fictitious and the reviewers never experienced the good or service they reviewed. Additionally, ESIOH did not require the reviewers disclose they were being paid for the reviews. ESIOH directed reviewers to post only positive reviews and provided details on what it wanted in the review. For example, ESIOH directed a potential reviewer to “write 50-100 word positive five star review about each business and then post that review on the company's Google Places and Yelp page.” Some of these reviews were identified as suspicious by Yelp's filter and either removed or filtered by Yelp. Customers and potential customers of ESIOH's clients would reasonably believe that the opinions espoused in these reviews were the opinions of genuine customers.
Pursuant to the settlement, ESIOH agreed to stop posting fake reviews and related deceptive trade practices and pay a $15,000 penalty. The financial condition of the company was considered in the penalty assessment.
Rani Spa, with a primary place of business at 587 10th Avenue, New York, New York 10036, provides spa and related services under the name “Rani Spa” at several locations throughout New York and Long Island. These services include skin care treatments, hair treatments, massages, and ayurvedic products, which were developed by part-owner Tripta Thukral. Canadian businessman James McNulty contacted agents of Rani Spa and offered to boost Rani Spa's online reputation by posting fictitious positive reviews on Yelp.com. McNulty explained in an email how he only posts one review per day so as not to “make it look suspicious” and get past Yelp’s spam review filter:
Getting reviews to stick right now is very difficult. Yelp has crazy software that detects reviews they think are fakes and sends them to a different page where they will never be seen. I have to pay for other software that can fool it hopefully now. I can only post 1 review per day so as not to look suspicious. Around 1 out of 3 reviews posted will stick which is 45 days and 45 reviews I have to make. So I will know in one week if they will stick with the new software I bought. And I will be charging you $300 per month. Not $300 to get 4.5 stars because of the difficulty.
McNulty also solicited “trusted Yelp users” to also post positive reviews of Rani Spa. Payments totaling $600 were sent to McNulty from Rani Spa via Rani Spa's Pay Pal accounts. To enhance the realism of the reviews, Rani Spa provided McNulty with a brochure which highlighted several features of Rani Spas, such as: “2 blocks from time square ... decor is all white with a touch of green ... [t]wo floors with 3 treatment rooms on the second floor” as well as the names of several of the masseuses and aestheticians.
Pursuant to the settlement, Rani Spa agreed to stop posting fake reviews and related deceptive trade practices and pay a penalty of $50,000, $48,000 of which is suspended assuming compliance with the settlement agreement.The financial condition of the company was considered in the penalty assessment.
Online Reputation Can Make Or Break a Business
Ensuring honesty on the Internet is of paramount importance to consumers because of the effect that online reviews can have in influencing consumers’ purchasing decisions. According to one survey, 90% of consumers say that online reviews influence their buying decisions. Multiple studies have concluded that online reviews can make or break companies. A 2015 Nielsen Study reveals that 66% of the global consumers trust consumer opinions posted online, making it the third-most-trusted source of information about businesses after word-of-mouth and recommendations from friends and family. A highly-cited Harvard Business School study from 2011 estimated that a one-star rating increase on Yelp translated to an increase of 5% to 9% in revenues for a restaurant. Cornell researchers have found that a one-star swing in a hotel's online ratings at sites like Travelocity and TripAdvisor is tied to an 11% sway in room rates, on average.
The settlements announced today are a continuation of the Attorney General’s commitment to ensuring accurate and reliable consumer reviews. In September, 2013, AG Schneiderman announced “Operation Clean Turf,” the largest investigation into astroturfing by a law enforcement agency, resulting in settlements with 19 companies that paid over $350,000 in penalties. After an extensive undercover investigation into the reputation management industry, AG Schneiderman’s office found that companies had flooded the Internet with fake consumer reviews on websites such as Yelp, Google Local, and CitySearch; used techniques to hide their identities, such as creating fake online profiles on consumer review websites; and paid freelance writers from as far away as the Philippines, Bangladesh and Eastern Europe $1 to $10 per review.
These cases were handled by Internet Deputy Bureau Chief Clark Russell, Internet Bureau Chief Kathleen McGee and Executive Deputy Attorney General for Economic Justice Karla G. Sanchez.