FTC Finalizes Settlement with Sunday Riley Skincare Over Alleged Fake Reviews
Online opinions – and not just from celebrities – are big business. Consumer reviews can be highly influential in convincing other shoppers to buy a product. In fact, the founder and CEO of Sunday Riley Modern Skincare LLC (Sunday Riley Skincare) was so convinced about the power of those starred reviews on cosmetics chain Sephora’s website that she allegedly asked her employees to make up a few to boost the company’s ratings. The result? A complaint from the Federal Trade Commission (FTC) for false advertising.
The FTC’s complaint asserts that between November 2015 and August 2017, the company’s CEO, Sunday Riley, and her managers directed staff to post reviews of Sunday Riley Skincare products on Sephora’s website using false accounts. When Sephora caught on to the fake reviews and pulled them down, the company obtained a VPN IP address to mask its employees’ real identity from Sephora. The complaint goes on to assert that the CEO sent staff an email in which she told everyone to “create 3 accounts on Sephora.com, registered as different identities.” She then gave explicit instructions on how to set up the fake accounts and leave reviews, even going so far as to coach employees on how to make the reviews convincing. The FTC charged Sunday Riley Skincare and Sunday Riley individually with making false or misleading claims and with failure to disclose a material connection with endorsers, in violation of Section 5 of the FTC Act.
In a 3-2 vote, the FTC approved a final settlement with the company that bars it and the company’s CEO from misrepresenting the status of anyone reviewing the company’s products, including implying that employees of the company are ordinary customers. The company must also clearly and conspicuously disclose any unexpected material connection between endorsers and the company or CEO, and the order provides specific details on how to do so in various media.
Commissioners Rohit Chopra and Rebecca Kelly Slaughter voted no. Commissioner Chopra, joined by Commissioner Slaughter, published a statement in which he argues that Sunday Riley Skincare should be subject to monetary fines because of “egregious fake review fraud.” He also recommended that the FTC publish a Policy Statement on Equitable Monetary Remedies, restate legal precedent into rules, seek civil penalties against violators, and designate specific misconduct as penalty offenses under FTC authority.
FTC Chairman Joseph Simons and Commissioners Noah Phillips and Christine Wilson, voting yes, also issued a statement. Regarding the failure to impose monetary penalties, they note that “the expenditure of resources needed to develop an adequate evidentiary basis reasonably to approximate ill-gotten gains may substantially outweigh any benefits to consumers and the market.” Instead, they contend that the order is a sufficient deterrent against future unlawful behavior by the company and its CEO because it “holds Ms. Riley personally liable, prohibits both Ms. Riley and Sunday Riley Modern Skincare from making future misrepresentations (including through fake reviews), and requires them to instruct employees and agents about their legal responsibilities. Each violation of the order could result in a civil penalty of up to $42,530.”
Settlement agreements with the FTC – even where no monetary penalties are assessed – have real consequences for businesses. The Sunday Riley Skincare agreement is no exception, binding both the company and its CEO to adhere to specific requirements for 20 years, with the potential for fines for future violations. The company in this case was not simply careless in dealing with endorsers, but actively urged employees to post fake reviews and “dislike” negative reviews in an effort to get them removed. The Sunday Riley Skincare settlement demonstrates that fake reviews come with real legal consequences.