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Was Yelp Misleading About Its Reviews?

    August 7, 2014
    Chris Crum
    Comments are off for this post.

Yelp is no stranger to legal battles, nor is it a stranger to complaints about how it handles reviews. Now, the company faces a new class action suit from shareholders, accusing it of selling over $81 million in stock, while misleading shareholders about the legitimacy of reviews.

Do you believe Yelp would mislead investors about its reviews, or do you think the suit is baseless? Share your thoughts in the comments.

Named defendants include CEO Jeremy Stoppelman, CFO Robert Krolik, and COO Geoffrey Donaker.

Joseph Curry, who filed the suit, alleges that Yelp “made false and misleading statements concerning the company’s true business and financial condition, including but not limited to the true nature of the so-called “firsthand” experiences and reviews appearing on the company’s website, the robustness of its processes and algorithms purportedly designed to screen unreliable reviews, and the company’s forecasted financial growth prospects and the extent to which they were reliant upon undisclosed business practices, including but not limited to requiring business customers to pay to suppress negative reviews.”

The complaint adds, “The class period misrepresentations made by defendants concerning the company’s current financial and business condition, including its forecasted financial and business condition alleged herein, were each materially false and misleading when made and caused the company’s stock to trade at artificially inflated prices of over $98.00 per share on March 4, 2014, because defendants knew, or recklessly disregarded, the following facts:

(a) Reviews, including anonymous reviews, appearing on the company’s website were not all authentic “firsthand” reviews, but instead included fraudulent reviews by reviewers who did not have first-hand experience with the business being reviewed;

(b) 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

(c) In light of the above facts, the representations concerning the company’s current and future financial condition and prospects, and the extent to which they were reliant upon undisclosed business practices, did not have a reasonable basis.”

It goes on to allege that the defendants sold over a million shares of Yelp stock at prices as high as $98.99 per share for “insider trading proceeds” of over $81.5 million. As a point of reference, shares are $67.78 as of the time of this writing.

Here’s the actual complaint (via GigaOm):

Curry v Yelp by jeff_roberts881

Yelp has suggested that the claims made in the complaint are without merit, as you would expect.

The company was in the news earlier this week as a hotel called Union Street Guest House was charging people for posting negative reviews. As a result, people who hadn’t actually stayed there flocked to the hotel’s Yelp page to leave bad reviews. Yelp said this was against its policy, and said “reviews that are contributed as a result of media attention and do not reflect first-hand experiences run counter to Yelp’s Terms of Service and will be removed from the site.”

Still, seemingly illegitimate reviews (including one from Hitler) have continued to appear on the page. Sometimes fictional businesses and reviews appear on the site as well.

In April, the FTC disclosed that it had seen over 2,000 complaints about Yelp’s business practices between 2008 and March of this year. The company, which is celebrating its ten-year anniversary, released its quarterly earnings report last week, as it became profitable for the first time since going public in 2012.

Do you think Yelp can actually do a good job of keeping reviews legitimate? Let us know in the comments.

Image via Yelp (Flickr)

  • Disgruntled with Yelp

    Yelp only posts reviews from ‘Yelpers’.

    If someone has visited and used my business and writes a glowing review from an experience over several months – from visiting the showroom, interacting with us over the internet, planning a purchase, designing a space, ordering furniture, updates on production, readiness for delivery, delivery scheduling and then installation of the order, including payments and confirmations of customer satisfaction and THEN posts a review of us – Yelp always and that is ‘always’ lists the review as unreliable or unverified – no matter what the reviewer says.

    But if someone who is searching for the best Taco Bell notes that our prices are expensive – that is posted in first rank and lowers our Yelp rating.

    This is the worst format for rating a business I have ever experienced. It ought to be illegal!

    We have posts from people who have never visited our showroom saying how wonderful we are and posts from people that have done business with us on 8 different occasions that are buried in the unverified reviews.

    We have posts from people who want ‘knock-offs’ of our furniture and whine they can’t find them because we sell such a high quality and carefully engineered products.

    Any response to a complaint is buried no matter how irrational the complaint or how rational and documented the response.

    From my perspective as a business owner, who will do absolutely anything possible to satisfy a customer and does so every day without hesitation and no matter how unreasonable the demand is – a post from someone who has never done business with us and trashes my business, should not be legal or allowed or considered moral or ethical.

    • justinef

      Who actually uses Yelp in the first? Does anyone authentically use this ridiculous service/concept/bus.model/dumb-#ss idea anyway?

      Seriously. If you want to know quick info about a place,(A) you go to a friend’s Facebook, or maybe give your trusty friends/family members a call.

      If you want info about a service, you could follow the above, and/or join Angie’s List.

      And, if you need info on a vacuum cleaner, you could do as in (A), and/or go on Amazon where you may be somewhat exasperated by so many doctoral theses written about the product, -but you’ll also know it’s for REAL.

  • Joons

    With the amount of smoke billowing from Yelp – there has to be a fire burning.
    I have no idea why this outfit exists or who reads the bogus “reviews” it puts out.
    If I’m looking for help on making my mind up I do what justinef below writes – why go to Yelp – a site that is know for deceit.

  • DavieLand

    The Yelp “algorithm” is flawed as it evaluates the legitimacy of a review based on age of an account, number of friends, use of an image and location from which the review is made. If an elated customer signs up for Yelp and reviews the business using the WIFI at the business location, it is even possible Yelp will accuse the business of reviewing itself.

    The most valid proof of the flaw in the Yelp system is the reviews of Yelp itself.

    http://www.yelp.com/biz/yelp-san-francisco

    There are more than 12,000 reviews of Yelp and 6,333 have been removed. Is Yelp saying 6,333 people did not have first hand experience or are not legitimate? These reviews prove that the Yelp system doesn’t work. If as Yelp claims that millions of people a day use Yelp and are happy with it, then why does Yelp have a 2.5 star/out of 5 rating? It is because as a total system Yelp is an outlet for negativity. In addition, because reviews are indexed locally, a user in any other place than San Francisco would not see how poorly Yelp has performed.

    This brings up another valid point. The Yelp system provides a positive bias for fraudulent online business with
    no location because they can’t be reviewed on Yelp. A business in a physical location can lose thousands of dollars in business because of a poor review, but a scam can get away with ripping people off because Yelp will not list them by physical location or if they do, they do not appear in local Yelp listings.

    These are problems with Yelp.

    1). A business does not have a choice in listing with Yelp. You can not have your directory listing removed and while a business is listed, if the business does not advertise, Yelp runs competitor ads on their pages. So if a customer is looking for a business based on reputation, they seek them out by name, but Yelp will try to steer them to businesses that advertise with Yelp, so Yelp makes money on the good reputation of people who do not advertise.

    2). A business can not challenge a posted review and have it removed. First of all Yelp does not have the resources to resolve these issues and secondly because reviewers identities are hidden, it is difficult to know who posted it legitimately or not. A basic right in the United States is the right to face one’s accusers. Yelp robs a business owner of this right. When a bad review is posted, the business owner suffers humiliation, judgement and conviction in he eyes of the public by someone that possibly never did business with them. This can be best summed up by Brian S. of West Chicago, IL who wrote a review on the Yelp business page: “(sic) The far as my business goes, yelp is a nightmare wrapped in a hellish
    demon hole. I have spent countless hours and thousands of dollars on
    lawyers to defend my reputation, which yelp could care less about. Any
    one can write anything, whether or is true or not.”

    3). Yelp spends millions of dollars paying reviewers indirectly. Elite members receive benefits, they get parties, discounts and posting privileges. It is not uncommon in an Elite gathering for discussing to include supporting or negatively reviewing a business. Elite members who talk about Yelp subversive activities have lost their Elite status. In some cases, I would question the authenticity of an Elite reviewer over others. When the media reports about a business complaining about Yelp, often thousands of Yelpers descend upon it to post negative reviews, even though they never went to the business. Yelp’s filtering process does not remove these reviews as they have to be removed manually. Plus, it is not clear if Yelpers were penalized for posting reviews in violation of its own terms of service.

    4). Yelp has turned slamming local businesses into a billion dollar business. What used to be the voice of the people is now an excuse to attack businesses for profit. Yelp says it has the most trustworthy user reviews. This is not about freedom of speech, it is about making money selling an accurate review product. If Yelp can not prove it delivered on its promise, there could be ramifications. Trip Adviser lost an accurate review claim in England. That brings up another concern. As Yelp expands internationally, its ability to hide under liability law and freedom of speech is almost non-existent. Yelp has expanded into countries where people are put in prison or worse for life for expressing their opinions. There will be no protection for Yelp if it enters a foreign courtroom and representatives of Yelp can expect to be humiliated, judged and convicted in the same way businesses in the US are by Yelp reviewers.

  • Yelp the abomination

    The unfortunate thing is that the ones I still hear always talking about Yelp are the small business owner. Just last week I heard one owner asking people to go give them Yelp review. There is a giant group of businesses that Yelp has put over a barrel. Anyone in web design and SEO is stuck trying to field the questions that come from what Yelp does.

  • dan

    Yelp is nothing more than a bunch of money grubbing thugs with no business ethics..

  • http://jonwrightindustries.com Jon Wright

    Yelp is an extortion racket. When the speaker acknowledged me at an international gathering of Master Elite roofers earlier this year and I stated my experiences with Yelp as such, the loudest applause of the week came from the attendees. If you don’t pay Yelp will make your comment section look bad. My firm has an “A” rating on all social site, the BBB and has won the Super Service award at Angie’s List all four years we’ve been listed and will again, most likely, this year again. Then there is Yelp.

  • http://jacksononthemoon.com sharonjackson

    I have posted here about Yelp before this. A Meat Market in my town has been in the same family since 1920. Their products are consistently high quality, the service is great. Two years ago, it came to my attention that someone had written a horrible review of them, saying she had shopped there three times, and on all three occasions, the meat was rotten, she spent the night throwing up etc. etc.

    All the other reviews were glowing and complimentary. I brought this review to the attention of Yelp, giving them my good review as well, and questioning the reliability of someone who would eat rotten meat three times in a row and yet say nothing to the manager.

    Yelp replied that they were going to let it stand because obviously, she was sharing her feelings. I have not relied upon or trusted Yelp since. It is worthless.

  • Tim

    Omg. I soooo love Yelp. Me and all my besties go to restaurants and demand free food or we say we are going to “yelp” them. It always works. Haha. Those small mom and pops are soooo scared of us yelpers!!! Power to the people!

    Source- Typical idiot, hipster yelper

  • dcr20854

    Yelp is in a difficult position. They try to determine whether reviews are genuine; but they are posted by competitors who want to tear a business down, by trolls who just like to be negative, and by reviewers who are paid to good and bad reviews. Given all these sources of reviews, how in the world do you find the real ones? A company that actually sells what’s being reviewed–like Amazon–can indicate whether the review has actually bought the thing being reviewed, and bring an element of genuine-ness to the party. But be careful, there are professionals who are paid to write positive and negative reviews on Amazon!

    Further complicating the situation are aggressive Yelp salespeople who threaten companies who don’t advertise that their positive reviews won’t be shown prominently unless they advertise. Are these rogues who can’t control reviews at all? I’d think the company would not want to risk this sort of fraud, and the salespeople are just lying about what they can do. But just a few of these poison the company’s reputation.

    Now, given all this, is the company doing a really good job of sorting out the genuine from the others? From the outside, it’s hard to tell. They have an almost impossible job.

    As long as the Internet provides anonymity, we won’t have really genuine reviews. When we have real identities on the Internet, then we’ll be able to have genuine reviews, control spam email, and lots of other good things.

    Dave Roberts

  • UrgentCARE Oceanside

    I was somewhat apprehensive when a Yelp representative contacted me approx a year ago by a smooth talker from Yelp on how Yelp will increase our business.

    Reluctantly I agreed to pay $300 monthly for a great service they promised and how it will boost our revenue with happy clients.

    After ONE (1) month of having dealing with Yelp, we soon realized what the Yelp organization was all about!!! Yelp IS NOT there to help us, or a matter of fact any business or organization by any means, But to line there own pockets by falsely letting anyone post negative comments about you or your business.

    Not only does Yelp let unscrupulous characters post negative comments, but when many happy customers write legitimate letters or positive comments, Yelp will remove them and ONLY keep the negative remarks on….

    AFTER Reading other posted comments here, I totally agree with Davieland;

    4). Yelp has turned slamming local businesses into a billion dollar business. What used to be the voice of the people is now an excuse to attack businesses for profit. Yelp says it has the most trustworthy user reviews. This is not about freedom of speech, it is about making money selling an accurate review product. If Yelp can not prove it delivered on its promise, there could be ramifications.

  • http://www.licenders.com Norman Horowitz

    Yelp is &%$+&**!
    Like many business owners, I bought into the Yelp hype. I was promised a “team” of experts to manage my account. When a disgruntled “client” published harmful and untrue information about my company, there was no one to talk to at Yelp. I provided all the documentation showing that this “client” was fraudulent and they refuse to remove the post. I’ve been in businesss since 1996, they have an agenda, and they hurt my business. There is no one to talk to. I am very sorry I ever signed up with them.