The age-old debate about the authenticity of Yelp reviews may finally be put to rest with Yelp’s win against its shareholders, who sued the company for fraudulently manipulating reviews for paying advertisers.
The lawsuit, which was filed in Aug. 2014, claimed that the San Francisco-based company sold more than $81 million in stock by bamboozling its shareholders into believing in the authenticity of its consumer reviews.
“Reviews, including anonymous reviews, appearing on the company’s website were not all authentic ‘firsthand’ reviews,” the lawsuit said, “but instead included fraudulent reviews by reviewers who did not have firsthand experience with the business.”
In a decision reached on Nov. 24, U.S. District Judge Jon Tigar said Yelp’s reasonable investors will understand that not every review published on Yelp’s platform is expected to be real, especially after Yelp previously admitted that its algorithm for screening fake reviews is not infallible.
The decision also concluded that there was no proof of Yelp’s intent to inflate its prices or of its CEO Jeremy Stoppleman and other company insiders attempting to oversell its 132,000 shares for over $2.5 million, Reuters reported.
In April 2014, the company’s stock value plummeted by 18 percent after a FOIA request sent to the Federal Trade Commission revealed that there were 2,046 complaints filed against Yelp over the last five years.
However, Tigar ruled that, of the complaints received by the FTC, only 11 accused Yelp of offering to manipulate reviews for a fee — a relatively small number “especially when compared to the tens of millions of reviews hosted by Yelp,” according to Reuters. Moreover, Yelp’s appointment of community managers, scouts and ambassadors “does not indicate that Yelp’s directors and officers knew that any significant number of reviews were not authentic or firsthand, beyond what defendants represented to the public.”
While, on numerous occasions, Yelp has previously stated its does not manipulate reviews in favor of advertisers, the court’s decision seals the company’s defense, as Tigar said that the plaintiffs cannot sue again as any amendments would prove to be “futile.”