The Federal Trade Commission can move forward with a lawsuit alleging that apartment-finding service Roomster and its officers used fake reviews to bilk consumers, a federal judge has ruled.
“The FTC has clearly shown that it has reason to believe defendants are violating the FTC Act through ongoing conduct, or at the very least, that they are about to violate the law,” U.S. District Court Judge Colleen McMahon in the Southern District of New York said in a decision quietly issued last week.
The ruling comes in a lawsuit brought last year by the FTC and six state attorneys general, who alleged that Roomster displayed phony reviews in order to lure customers into paying for access to apartment listings.
The complaint alleged that since at least 2016, Roomster, assisted by the company AppWinn, “inundated the internet with tens of thousands of fake positive reviews to bolster their false claims that properties listed on their Roomster platform are real, available, and verified.”
The FTC alleged that Roomster engaged in deceptive advertising, and sought an injunction prohibiting the company from engaging in deceptive or unfair conduct.
AppWinn founder Jonathan Martinez agreed to settle the allegations by paying $100,000 to the six states that sued -- California, Colorado, Florida, Illinois, Massachusetts and New York. Martinez also agreed to other conditions, including that he cooperate with the FTC, and that he inform Apple and Google app stores about the fake reviews.
Roomster John Shriber stated at the time that the FTC was “overreaching,” and that Martinez was “the sole individual responsible for the fake reviews.”
Shriber added that Roomster “helped millions of subscribers find simple and safe rooming solutions and will continue to do so in a legal and ethical manner.”
The company urged McMahon to dismiss the complaint for numerous reasons. Among other arguments, Roomster said the FTC wasn't entitled to proceed with a request for an injunction because the charges dealt with conduct that allegedly occurred in the past.
“Virtually all the FTC’s allegations are untethered to the present or near future,” Roomster argues. “Where the complaint does tie allegations to a specific point in time, the allegations -- on their face -- indicate that the conduct has ceased.”
McMahon rejected Roomster's argument, noting that the FTC's complaint was written “in the present and present perfect tenses.”
The judge also pointed to the FTC's allegations of ongoing violations.
“While defendants claim that certain false verification statements have been removed and use of Martinez's fake review services ceased prior to the suit's filing, these statements -- which may or may not be true -- do not establish that no violations of law were occurring at the time of filing,” the judge wrote.
“It is also worth noting that, even if defendants have ceased the alleged conduct -- which is still an issue in dispute -- the FTC can still seek a permanent injunction if it plausible alleges that it has reason to believe that the defendants are about to commit another violation.”
The ruling also allows the state attorneys general to proceed with their allegations against the company.