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FTC and Six States Sue Roomster for Fake Listings and Reviews

The Federal Trade Commission (“FTC”), along with six states, filed a lawsuit against housing rental listing platform, Roomster Corp. (“Roomster”), its co-founders, John Shriber and Roman Zaks, and the principal of a related app that provided allegedly fake reviews, Jonathan Martinez. The lawsuit, filed in the Southern District of New York, alleges that the defendants used fake reviews to entice consumers to join and pay for access to its platform. The lawsuit is a reminder that federal and state regulators are increasingly focused on the legitimacy of consumer reviews, particularly given their impact on purchasing decisions.  

Roomster operates an “internet-based room and roommate finder platform.” The services are available through a website and apps through payment of subscription fees. The defendants claim that the Roomster platform provides access to “authentic” listings, and that the defendants “mak[e] sure the Roomster profiles and the listings on the site are complete, accurate, updated and yes…authentic.” However, according to the complaint, the defendants did not verify listings to ensure that they are real or authentic, and instead they post listings to the Roomster platform “immediately upon request, as long as the street address associated with the listing is recognized by the platform.”

Aside from the failure to vet listings, the FTC and states have alleged that the defendants bought over 20,000 reviews from Mr. Martinez, including many fake reviews. For example, the complaint quotes correspondence from Mr. Shriber to Mr. Martinez requesting that the purchased reviews be spread out to be “constant and random.” Further, the complaint alleges that even after receiving notice of the FTC’s investigation, the defendants emailed Mr. Martinez regarding the reviews, stating “[j]ust as a reminder, please make sure it’s always a random number of reviews, so it looks more natural.” The complaint quotes from 12 examples of allegedly “fake” reviews.

In addition to posting fake reviews, the regulators allege that the defendants bait consumers with fake listings in online advertising. According to the complaint, consumers are enticed to the Roomster platform through these fake listings, and then after being directed to the platform and encouraged to pay a fee to sign up and access the listing information, they soon learn that the advertised listings do not exist. Thereafter, the complaint alleges consumers are “bombarded by fraudsters with more fake listings and are asked to pay hundreds or thousands of dollars to secure a rental, sight unseen, often under the guise that COVID-19 prevents the lister from showing the property.”

The case against Roomster and its co-founders is ongoing, although the principal of the related app, Mr. Martinez, has reached a settlement. As part of the settlement, Mr. Martinez has agreed to notify the Apple and Google app stores that Roomster paid him for posting reviews and to identify those reviews. Further, Mr. Martinez has agreed to pay a total of $100,000 to the six states that brought the case as co-plaintiffs with the FTC, and has been banned from selling consumer reviews or endorsements.

Takeaways:  This enforcement action highlights two key developments. First, given the increased reliance of consumers on consumer reviews to make purchasing decisions, regulators are increasingly focused on the bona fides of consumer reviews. Second, the FTC in the wake of the Supreme Court’s limitation of the FTC’s ability to obtain monetary relief, the agency is increasingly bringing joint enforcement actions with states who can obtain monetary relief.

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