Yelp lied about review policies to inflate stock price, lawsuit claims

12 Comments

Credit: Flickr / roboppy

Yelp(s yelp), a site that lets consumers post reviews of local businesses, allowed fake negative reviews to remain on its website in order to extract advertising money from local businesses, according to a class action complaint filed Wednesday in San Francisco.

The lawsuit was filed on behalf of Yelp shareholders by Joseph Curry, who claims that the company’s executives misled investors about its business practices in order to inflate Yelp’s stock price.

Specifically, Curry claims that Yelp used press releases and financial statements to tout its quality “first hand reviews” as well as its algorithms that screened out unreliable postings; however, Curry claims that in reality:

Algorithms purportedly designed to screen unreliable reviews did not comprehensively do so, and instead, the Company allowed such unreliable reviews to remain prominent while the Company tried to sell services designed to suppress negative reviews or make them go away; and

A Yelp spokesperson said the company has not seen the complaint, but that it believes the allegations are false and without merit.

Yelp has faced allegations about its sales tactics in the past from small businesses upset about negative reviews. The complaint, however, does not cite any specific smoking guns, but instead relies primarily on news accounts, and points to a series of complaints lodged with the Federal Trade Commission. As such, Curry’s allegations remain unproven.

The complaint alleges Yelp violated securities law by committing “fraud on the market,” and claims that executive sold stock when the price was near a high of almost $90 in February; the price fell sharply shortly after this in light of the negative publicity surrounding the FTC complaints.

More details about Yelp’s advertising practices — including whether or not it manipulates reviews — will likely come out in the litigation process, provided the class action complaint gets traction.

Here’s a copy of the complaint with some relevant parts underlined:

Curry v Yelp

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12 Comments

Bilingual DJ & MC

YELP is similar to the Better Business Bureau (BBB.org), which will not allow you a A rating or higher, if you are not BBB accredited, which means you haven’t paid their yearly dues. YELP has blocked more than half of my positive reviews, since I haven’t paid them as well.

It’s unfortunate, but YELP could be a great tool, if it were honest about it’s review process, same as the BBB which many people think of as a government agency (actually a private business) which has no enforcement capabilities, if ever needed.

TC

I have had the opposite problem. I wrote an honest negative review on Yelp about the builder who built my house and Yelp deleted most likely after taking advertising money from the builder.

There are several people who have had issues with the same builder and have written reviews on yelp. All got deleted. Seems odd.

Lenny Kubricky

Yelp is is OK ?, but if you look for some “higher end ” restaurant it’s no sense.
Caps in SF get a very similar bad reviews , but the place is great!! More over
when you go to more similar venues with similar bad reviews you will see the pattern.
It is mafia advertising. get rid off the sh..t head. MAFIA!!!!!!!!!!!!!

lisa

Now that YELP is a public company, Yelp needs to allow companies to ‘opt out’ of their money making scheme. Yelp is using my business to generate profits without my consent.

I, as an owner of a small business, I would opt out in a second. The value of Yelp is equivalent to garbage, in my book. My business, as do most small businesses, rely heavily on the more genuine means of advertising – word of mouth. I can’t believe the SEC allowed yelp to go public given their suspect ‘filtering’ software. It only gives naysayers an opportunity to vent -customers that are happy seldom take the time (who has extra time for reviewing every vendor they do business with these days).

David

Fight back Lisa! It sucks that you have to but you should. We put in a private feedback program at our restaurant and told the Yelp ad guys to never call us again. It took a while but now every time a customer has a complaint, they come to us directly. It’s the reality now and it’s up to us as business owners to fight this.

aNDY

Just to let you know….Word of Mouth is NOT advertising. Yelp is fine the way it is, if you are mad at filtering….be mad at Google for the search algorithm for not putting you higher up as well…

Paul Cofrancesco

Nice work! As an early adopter of Yelp (and Amazon.com and many other “review sites) I can say the service is fraught with problems:

In the beginning (2007):
when I mentioned Yelp no one heard of it including the business I was reviewing, so no one cared what you wrote but once the service got popular and businesses saw that customers were using it the fake reviews came on – fast and furious.

1. FAKE reviews!! both positive and negative. You get 5 stars or 1 star! Yelp is packed with them and so is amazon and other sites. This year I complained about fake negative reviews concerning a local junkyard that I go to and I flagged several for removal and Yelp removed 3 out 4.

2. Intimidation and coercion and bribery:
I wrote a review about and experience I had with an $18 salad (with no meat or fish – I’m vegetarian) and the owner contacted me and pleaded that it would hurt his business and the economy was down etc. I said I would soften the review and essentially render it neutral – not positive not negative. After I updated the review sent me a nasty email that was much angrier then the first so I reverted to the original review. He then tried to bribe or ply me with free food which I would not accept.

Yelp’s trustworthiness is fading fast:
I found it odd when I logged on and saw a message that negative reviews can’t be removed. I know that is not true because one of my early reviews “disappeared” and yelp could not explain why.

A small business told me that 50% of there customers were coming from Yelp.

What about fake positive reviews. I read a review on Yelp where all the reviews were 5 stars and a customer was fooled (because she was clearly not aware of fake positive reviews).

Yelp will fail once they run out of money so it is critical to to unload the stock as quickly as possible. 5 Billion dollar current valuation – with no plan to generate income?

Personally, I hardly write reviews on Yelp anymore because it is a waste of time – it just gets buried in an ever growing pile of reviews.

Ric

Waste of time = enough said and I wait for someone to get this right before I bother again.

David

John from above is right. Lawsuits will not help. Yelp will beat them. What Yelp really should worry about is people like Paul who stop writing reviews. Already 25% of reviews are filtered because Yelp thinks they are suspicious. At some point, more consumers will lose trust like Paul.
Maybe someone else will come along that users will trust and owners will hate. Google has reviews and so does Facebook but you hear less complaints about them because they don’t use the same aggressive sales practices. But really how do we know how many of those reviews are real?

DL Kimzey

Extortion / Libel / Unfair Business Practice
Two lawsuits now in the 9th Circuit Court San Francisco
Levitt v. Yelp Inc. – Class Action – 11 – 17676
Kimzey v. Yelp Inc. – Individual – 14 – 35487

John Jay

This has already been tried within the bounds of the FTC and failed to prove anything during litigation. So there’s no new evidence or findings this case…why is this time different again?

As far as the stock sales, those are on a predetermined schedule so unless the executive(s) had a crystal ball at IPO it’s near impossible to plan a sale before an event like a lawsuit being filed.

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