The FTC is challenging fake Amazon reviews (AMZN)

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The US Federal Trade Commission (FTC) has announced the first case where it challenged a company using fake paid reviews on a retailer’s site. The FTC targeted Cure Encapsulations, Inc. — which sells a weight-loss supplement that’s incorrectly associated with weight loss and poses medical risks, according to The Verge — and its owner for their actions on Amazon’s marketplace.

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The company allegedly paid Amazonverifiedreviews.com to post fake reviews of its product to ensure it had a 4.3 out of a 5-star rating on Amazon. The paid 5-star reviews made “false and unsubstantiated claims” and were from fabricated consumers, drawing the ire of the FTC. The FTC’s complaint was filed on February 19 and a settlement has been reached that requires Cure Encapsulations to only make claims about products with suitable evidence.

It must also notify consumers who purchased the product about the FTC’s allegations, tell Amazon it purchased reviews, and let the e-tailer know which reviews it bought. The settlement includes a judgment of $12.8 million that will be suspended if the company makes other, smaller payments, though if Cure Encapsulations lied to the FTC about its financial situation it will be on the hook for the full judgment.

If this is the beginning of a crackdown on fake reviews, it could further boost consumer trust in online reviews. Previously, regulators haven’t gone after parties involved in fake reviews, according to The Verge. This left e-tailers like Amazon to sue them themselves, with Amazon filing multiple such suits including one against Amazonverifiedreviews.com in 2016, Engadget reports.

This new settlement, and possible future actions by the FTC, may curtail the practice of buying reviews. Online reviews are already influential on e-commerce purchases — 97% of US consumers look at reviews when making purchase decisions, with 26% doing so for every purchase and 95% reading more than one, according to a report from PowerReviews — and giving consumers more reason to trust them by eliminating fake reviews could make them more impactful.

More scrutiny on fake reviews can benefit marketplaces and sellers alike.

• Marketplaces would be able to arm consumers with more trustworthy information. Consumers could take both positive and negative reviews more seriously, potentially making it easier for them to make purchase decisions.
• It can create fairer competition for sellers that already don’t pay for fake reviews. These sellers wouldn’t need to worry about competitors inflating their own standings or paying for negative reviews for their products.