The Federal Trade Commission and six states have filed a lawsuit against rental listing platform Roomster Corp. and its owners for allegedly duping consumers seeking affordable housing by paying for fake reviews and then charging for access to phony listings.
The complaint alleges that Roomster and its owners have taken tens of millions of dollars from largely vulnerable low-income and student prospective renters. Separately, the FTC and the states filed a proposed order against an individual that allegedly sold Roomster tens of thousands of fake reviews – requiring him to pay $100,000 and cooperate in the FTC’s case against Roomster.
“Roomster polluted the online marketplace with fake reviews and phony listings, making it even harder for people to find affordable rental housing,” said FTC attorney Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Along with our state partners, we aim to hold Roomster and its top executives accountable and return money to hardworking renters.”
“There is a term for lying and deceiving your customers to grow your business: Fraud. Roomster used illegal and unacceptable practices to grow its business at the expense of low-income renters and students,” said New York Attorney General Letitia James. “Unlike Roomster’s unverified listings and fake reviews, their deceptive business practices will not go unchecked. I am proud to lead this effort with the FTC to protect low-income renters and students defrauded by Roomster.”
New York-based Roomster operates a website and mobile apps where users can pay a fee to access living arrangement listings, including rental properties, room rentals, sublets and roommate requests. The company claims to offer “authentic” and “verified” listings.
However, in a complaint filed in federal court along with the attorneys general of New York, California, Colorado, Florida, Illinois, and Massachusetts, the FTC and its state partners allege that Roomster, along with its owners, used fake reviews and other misrepresentations to lure consumers to its platform and pay for access to listings that often turned out to be fake. The complaint also alleges that the seller of the alleged bogus reviews deceptively promoted the Roomster platform by providing tens of thousands of fake four- and five-star reviews.
The complaint contains allegations concerning some candid behind-the-scenes conversations between Roomster and the seller of the alleged fake leads about what they were doing to purportedly manipulate the market.
The complaint alleges that the deceptive tactics of Roomster, its owners and the seller of the alleged bogus fake reviews violated the FTC Act and state laws. According to the plaintiffs, many consumers rely on reviews when deciding whether to purchase a product or service, and fake reviews distort the marketplace and make it difficult for consumers to make informed decisions.
The purported deceptive tactics alleged in the complaint include:
- Posting fake positive reviews: Roomster’s operators, with the help of the seller of the reviews, have purportedly saturated the internet with tens of thousands of four- and five-star fake reviews, which dilute negative reviews posted by real consumers, some of whom warn that many of Roomster’s listings are fake. The complaint alleges that Roomster’s operators told the seller of the reviews to take steps to make the reviews look real. For example, one of the owners purportedly urged the review seller to spread out the reviews so they were “constant and random.”
- Claiming to offer verified and authentic listings: Roomster misrepresents that it offers millions of “verified listings” when in fact the company does not verify listings or ensure they are legitimate and authentic. For example, the FTC’s investigation purportedly found that the company immediately accepted and published a fake listing for a fictional apartment at the same address as a U.S. Post Office commercial facility.
- Using phony listings to attract paid users: Roomster has advertised on internet sites like Craigslist purportedly using fake listings that drive consumers to Roomster’s platform. Once on the site, consumers paid fees to obtain information necessary to secure the listings, only to allegedly discover that the listings did not even exist. In addition, after signing up for Roomster’s service, consumers allegedly complain they are often bombarded by fraudsters with more fake listings.
This action is part of the FTC’s efforts to crack down on fake and deceptive reviews. Earlier this year, online retailer Fashion Nova paid $4.2 million to settle allegations that the company blocked negative reviews of its products from being posted to its website. In 2021, the FTC put hundreds of firms on notice that they could face significant financial penalties if they use fake reviews or other deceptive endorsements to promote their products or services.
According to the complaint, Roomster and its owners were assisted by the seller of the alleged fake reviews in their efforts to deceive consumers by posting fake reviews to the app stores. In addition to cooperating with the FTC in its ongoing case against Roomster, the seller of the reviews, as part of the proposed stipulated final order with the FTC and the states, is also required to:
- Notify the app stores: He must notify the Apple and Google app stores that Roomster paid him for posting reviews on each platform and must identify the fake reviews and approximate times they were posted;
- Stop selling reviews: The seller of the reviews will be permanently banned from selling or misrepresenting consumer reviews or endorsements;
- Pay $100,000: The seller of the reviews must pay a total of $100,000 to the FTC’s six state partners: New York, California, Colorado, Florida, Illinois, and Massachusetts.
The complaint and stipulated final order were filed in the U.S. District Court for the Southern District of New York.
If you or your company have received a regulatory civil investigative demand or subpoena, consult with experienced advertising defense counsel to ensure that the matter is handled properly, from the start.
Richard B. Newman is an FTC defense lawyer at Hinch Newman LLP. Follow FTC defense attorney on National Law Review.
Attorney advertising. Informational purposes only. Not legal advice.
