User reviews can be an ugly reality for a small business. Some try to game the system by paying for fake reviews on sites like Yelp or Amazon. Better pay attention, because a company that supposedly did exactly that found that the price tag might have been higher than expected: $12.8 million.
The company, Cure Encapsulations, sells dietary supplements. Owner Naftula Jacobowitz allegedly made unsubstantiated claims about its products and also paid for fake five-star reviews on Amazon, according to the Federal Trade Commission.
The FTC alleges that the defendants paid a website to create and post Amazon reviews of their product. The FTC contends that Jacobowitz told the website's operator that his product needed to have an average rating of 4.3 out of 5 stars in order to have sales and to, "Please make my product ... stay a five star."
As an aside, I've never really understood the frame of mine in which entrepreneurs, so anxious for success, try to fake their way into it. Maybe it's the difference between being a real entrepreneur who wants to build a business and someone looking to make a few bucks. But fake reviews remain an irritant to companies that want to do a good job and play by the rules. As Andrew Smith, Director of the FTC's Bureau of Consumer Protection, was quoted in the FTC press release, "People rely on reviews when they're shopping online. When a company buys fake reviews to inflate its Amazon ratings, it hurts both shoppers and companies that play by the rules."
In any case, the claims the company supposedly made were pretty out there, like the supplement would keep fat from forming and cause weight lost of two or more pounds a week. The supplement was supposed to be garcinia cambogia, a plant native to Indonesia and associated with acute liver failure.
Cure Encapsulations got the five-star reviews, purportedly from people who had paid for and used the product but actually from the fake review website. And then the FTC found out about it.
The case is a first in targeting fake reviews on a consumer site, according to the FTC. And it resulted in capitulation on the part of Jacobowitz a week after the agency filed its complaint. And that's where things start to get really expensive.
According to the FTC's complaint, Jacobowitz agreed to pay $1,000 for 30 reviews posted over 10 days. He said that competitors were sabotaging his reviews, which is an underhanded tactic some companies will try.
Instead, he agreed to a judgment of $12,845,724, which makes each of those reviews $428,180.80. He does have a bit of an out if he pays $50,000 as well as owed state and federal taxes for 2017. But if he fails to make payments or goes back to his old marketing, that $12.8 million continues to hang over his head.
Sometimes doing business the right way can save a whole lot of money, time, and grief.