Following a year-long undercover investigation, 19 companies have agreed to top creating fraudulent online reviews and pay $350,000 in penalties, New York Attorney General Eric T. Schneiderman announced today.

The investgiation centered on manipulation of consumer-review websites, and the practice of "astroturfing" and found that companies had flooded the Internet with fake consumer reviews on websites such as Yelp, Google Local, and CitySearch.

In the course of the investigation, the Attorney General's office found that many of these companies used techniques to hide their identities, such as creating fake online profiles on consumer review websites and paying freelance writers from as far away as the Philippines, Bangladesh and Eastern Europe for $1 to $10 per review.

By producing fake reviews, these companies violated multiple state laws against false advertising and engaged in illegal and deceptive business practices.

"Consumers rely on reviews from their peers to make daily purchasing decisions on anything from food and clothing to recreation and sightseeing," Schneiderman said. "Companies that continue to engage in these practices should take note: 'Astroturfing' is the 21st century's version of false advertising, and prosecutors have many tools at their disposal to put an end to it."

Schneiderman's investigation covered only New York companies but he noted that it helps provide a blueprint for prosecutors in other states and localities.

"Reputation management"

In recent years, the reputation management industry has exploded as businesses have become increasingly concerned about their online reputations.  So-called search engine optimization ("SEO") companies routinely offer online reputation management as part of their services. 

While some of these services are legitimate, many are not, Schneiderman's investigators found.

Posing as the owner of a yogurt shop in Brooklyn, representatives from Schneiderman's office called the leading SEO companies in New York to request assistance in combating negative reviews on consumer-review websites.  During these calls, representatives from some of these companies offered to write fake reviews of the yogurt shop and post them on consumer-review websites such as Yelp.com, Google Local and Citysearch.com, as part of their reputation management services. 

The investigation revealed that SEO companies were using advanced IP spoofing techniques to hide their identities, as well as setting up hundreds of bogus online profiles on consumer review websites to post the reviews.  

The investigation also found that many consumer-review websites have implemented filters to detect and filter or delete fake reviews, with Yelp's being the most aggressive. 

"More than 100 million visitors come to Yelp each month, making it critical that Yelp protect the integrity of its content," said Aaron Schur, Yelp's Senior Litigation Counsel. "We take many steps to do this, including the use of automated filtering software, leveraging our vast user community for tips about suspicious content, undercover sting operations, legal action, and cooperation with law enforcement."

Make or break

Eric Schneiderman

Multiple studies conclude that online reviews can make or break companies.  According to one survey, 90% of consumers say that online reviews influence their buying decisions.  A highly-cited Harvard Business School study from 2011 estimated that a one-star rating increase on Yelp translated to an increase of 5% to 9% in revenues for a restaurant.

Cornell researchers have found that a one-star swing in a hotel's online ratings at sites like Travelocity and TripAdvisor is tied to an 11% sway in room rates, on average.  Gartner projects that by 2014, between 10% and 15% of social media reviews will be fake.  

Companies named

Schneiderman's office said 19 companies will pay penalties ranging from $2500 to just under $100,000 and have agreed to stop creating fraudulent reviews. The companies that agreed to discontinue their astroturfing practices and pay a penalty include:

• Zamdel, Inc., d/b/a eBoxed, a search engine optimization company based in New York City, which posted more than 1,500 fake reviews of clients on consumer-review websites.

• XVIO, Inc., another search engine optimization company based in New York city, which posted hundreds of fake reviews of clients on consumer-review websites.  XVIO also conducted a "secret shopper" campaign where its agents received free or discounted goods and services from XVIO's clients in exchange for a review.

• Laser Cosmetica, the now-former owner of this well-known laser hair-removal business with multiple locations in the tri-state area orchestrated an astroturfing campaign, hiring an SEO company that posted fake reviews on consumer-review websites, and instructed employees and friends to write fake reviews on consumer-review websites.  

• US Coachways, Inc. The management of this leading national bus charter company based in Staten Island, NY orchestrated an astroturfing campaign, writing bogus reviews themselves, soliciting freelance writers from oDesk.com and Fiverr.com to write bogus reviews, and urging employees to pose as customers and write positive reviews.  They also offered $50 gift certificates to customers to write positive reviews without requiring that the customers disclose the gift in the review.

• Swam Media Group, Inc. and Scores Media Group, LLC. The manager of this licensee of the Scores gentlemen's club franchise orchestrated an astroturfing campaign with the help of a freelance writer that resulted in 175 fake reviews of entertainers at the Scores adult club in New York City and an affiliated website, scoreslive.com, most of which were posted online.