FTC announced the settlement on its website last week. The agency cited a supplement marketer named Cure Encapsulations, Inc. and its owner Naftula Jacobowitz, for making allegations that they made false and unsubstantiated claims for their garcinia cambogia weight-loss supplement and that they paid a third-party website to write and post fake reviews on amazon.com.
Scheme to inflate reviews
FTC alleged that under the scheme, the third party, doing business at the now defunct website amazonverifiedreviews.com, was paid to post false and misleading reviews of the product “Quality Encapsulations Garcinia Cambogia Extract with HCA.”
FTC alleges that Jacobowitz told the third party that his product had at least an average rating of 4.3 out of 5 stars to generate adequate sales. “Please make my product … stay a five star,” FTC alleges that Jacobowitz told the third party.
“People rely on reviews when they’re shopping online,” said Andrew Smith, director of the FTC’s Bureau of Consumer Protection. “When a company buys fake reviews to inflate its Amazon ratings, it hurts both shoppers and companies that play by the rules.”
Unsubstantiated health claims
The FTC’s complaint also alleges that the defendants made false and unsubstantiated claims on their Amazon product page, including through the purchased reviews, that their garcinia cambogia product is a “powerful appetite suppressant,” “Literally BLOCKS FAT From Forming,” causes significant weight loss, including as much as twenty pounds, and causes rapid and substantial weight loss, including as much as two or more pounds per week.
Under the proposed agreement, the defendants are blocked from making any weight-loss, appetite-suppression, fat-blocking, or disease-treatment claims for any dietary supplement, food, or drug unless they have competent and reliable scientific evidence in the form of human clinical testing supporting the claims.
In addition, it prohibits them from making misrepresentations regarding endorsements, including that an endorsement is truthful or by an actual user.
The order next requires the defendants to email notices to consumers who bought Quality Encapsulations Garcinia Cambogia capsules detailing the FTC’s allegations regarding their efficacy claims. In addition, the order requires the defendants to notify Amazon, Inc. that they purchased Amazon reviews of their Quality Encapsulations Garcinia Cambogia capsules and to identify to Amazon the purchased reviews.
The defendants were required to pay an upfront, $50,000 fee to settle the case. A nominal $12.8 million fine has been imposed that will only come due if the defendants violate the agreement.
Social media policy
Attorney Ivan Wasserman, a partner in the firm Amin Talati Upadhye, said while the case breaks new ground, it points out something that has been true for a while, that being that having a robust social media policy is part of playing in the modern retail landscape.
“This is the first time that FTC has gone after a company posting fake reviews about their products. I don’t think it is any secret that that happens,” Wasserman told NutraIngredients-USA.
“Amazon is so incredibly important and for a lot of supplement companies it’s their only sales channel. But it’s patently deceptive to post fake reviews,” he said.
“It’s very important for companies to have a social media policy in place and show that employees have read and acknowledged the social media policy,” he said.
Such a policy could protect a company even if some of its employees, an over ambitions sales leader for example, might take matters into their own hands on the review front.
“The only way FTC got their hands on what the defendants said to the third party would have been through discovery. To hold a company responsible for fake reviews on Amazon or any other website there would have to be some evidence that either the company knew of or encouraged the activity,” he said.
“It would be a great defense for the company be able to show that the employee did that in direct contravention to a policy they signed,” Wasserman concluded.
Company attributes action to rogue employee
The attorney who represents the company, August Horvath, of the law firm Foley Hoag, sent this statement on the FTC action:
"Cure Encapsulations was alleged to have bought a small number of fake reviews between Oct of 2014 and June of 2015 to counter against fake negative reviews posted by competitors. The reviews in question were minimal in number, were quickly removed from amazon.com, and we believe that not more than 5 of those reviews were left. We regret that one of our employees engaged in such acts since it opposes our ethical standards. Many companies’ online storefronts up to this date are filled with fake reviews, we can attest that we received more than 12,000 real reviews from real people, and we adhere to a strict code of conduct. "