In the world of social media, a person’s power is often measured in terms of followers. Because more followers generally means more reach, companies who engage influencers often base their compensation on this metric. But follower counts may not always be what they seem. According to a New York Times report last year, influencers can buy fake followers (who are often bots) from companies like Devumi.

Robot HandsThis week, the New York Attorney General announced a settlement with Devumi over its practices. Among other things, the company is prohibited from selling fake followers, likes, and other types of social media interactions. And to the extent Devumi works with real influencers, it must take steps to ensure they clearly disclose any connections they have to the companies they endorse. The AG said that this settlement sends “a clear message that anyone profiting off of deception and impersonation is breaking the law and will be held accountable.”

Although this may be the first case that addresses the sale of fake followers, it’s not the first case that addresses companies using shady techniques to boost their reputations online. For example, in 2013, the New York AG announced settlements with 19 companies after a year-long undercover investigation into the reputation management industry. During the investigation, the AG learned that some agencies that promised to boost companies’ presence online did to so posting fake reviews.

What you should take away from these cases depends on your place in the industry. If you help companies boost their social media presence, take a close look at these settlements and make sure you’re not engaging in the practices that were challenged. If you’re hiring a company to boost your presence, ask that company some questions about how they plan to achieve results. And if you pay influencers based on the number of followers they have, investigate whether those followers are real people. Bots can lead to all sorts of trouble.

The recent Netflix and Hulu documentaries about the Fyre Festival have thrust the failed event back into the spotlight. That was a few scandals ago, so for those of you who don’t remember it, here’s a short recap.

Billy MacFarland and Ja Rule wanted to host a luxury festival on a deserted island. They found an island that belonged to Pablo Escobar, and secured a lease on the condition that they wouldn’t mention the drug lord’s name. Not long after that, Fyre used Escobar’s name in a social media post. And not long after that, the company was forced to find a new deserted island – or find a way to make an inhabited one look deserted. (They chose option B.)

Meanwhile, a group of over 60 influencers – including Kendall Jenner and Emily Ratajkowski – got to work promoting the festival on Instagram, without disclosing that Fyre Logothey had been paid to do so. (According to some reports, the initial group of influencers were paid between $20,000 and $250,000 each.) This resulted in over 300 million impressions in 24 hours. The hype worked, and people started paying up to $12,000 for tickets.

Things on the ground were going less smoothly. When guests arrived, instead of finding the luxury accommodations, gourmet food, and big-name bands they were promised, they found FEMA tents, a food shortage, and none of those bands. If you’re wondering whether any of this is fraud, Ja Rule directly addressed that question in the Netflix documentary. During a phone call, he assured his colleagues that it’s not fraud – it’s just “false advertising.” (Note to Mr. Rule’s lawyer: maybe keep him off the witness stand.)

As MacFarland sits in jail and Ja Rule and his colleagues fight lawsuits, a federal judge gave a bankruptcy trustee permission to subpoena Kendall Jenner’s company, some of the agencies that represented other influencers, and other vendors who were paid to organize or promote the festival. It’s too early to tell what will happen next, but these developments are likely to lead to more scrutiny about how companies advertise on social media and use influencers.

We’ve posted about these issues many times before. To summarize:

  1. Social media posts are subject to advertising laws, so those posts must be truthful and not misleading;
  2. Influencers need to disclose their connections to the companies they are promoting; and
  3. Companies need to take steps to manage their influencers.

But if you don’t have time to read those posts, watch one of the documentaries, see what the Fyre organizers did, and do the opposite.

Earlier this week, Truth in Advertising (or “TINA.org”) sent a letter to the FTC urging the Commission to investigate Diageo’s use of influencers to market Ciroc vodka on Instagram. According to the letter, TINA.org collected more than 1,700 Instagram posts across 50 different influencers — including Ciroc brand manager and CMO Sean “Diddy” Combs — in which the influencers allegedly failed to disclose their connection to the company in a clear and conspicuous manner.

This is not the first time that consumer groups have pushed the FTC to investigate influencer campaigns. And if this is like any of the previous pushes, it’s likely that some of the posts don’t actually violate the law. For example, some groups have misstated the legal requirements in this area and have identified posts that didn’t violate the law. That led the FTC to send warning letters to individuals who actually had no connections to the brands mentioned in their posts. Nevertheless, there are various examples in this letter that may be Ciroc Postproblematic and potential targets for enforcement.

Apart from the endorsement issues, the letter goes on to describe other problems with the content of the posts, including “kids in Ciroc ads, Ciroc-fueled misogynistic ads, a recipe for cannabis-infused strawberry lemonade with Ciroc, and even a booze-drinking Santa who needs to spread the ‘liquid love.’” (There is also an image of a toddler holding a baby bottle of Ciroc.) To make matters worse, the influencers did not use age-gating features, so that minors were able to view the ads. As TINA.org points out, these practices are likely to violate the Distilled Spirits Council’s Code of Responsible Practices for alcohol ads.

TINA.org has asked the FTC to investigate Diageo and to take appropriate enforcement action.

It’s too early to tell what will happen here, but it will be interesting to see how the FTC reacts. Although companies that market age-restricted items should pay particular attention, this action holds lessons for any company that works with influencers. If you haven’t evaluated how your company manages influencer campaigns recently, now may be a good time to do that.

Two companies and their principals have agreed to settle FTC allegations that they misled consumers by presenting paid endorsements as independent consumer reviews and ads as independent news stories.

Creaxion, a PR agency, was tasked with creating a campaign to promote a client’s new mosquito repellent product around the time the press was reporting about the mosquito-borne Zika virus during the 2016 Summer Olympics. As part of the campaign, the agency partnered with the publisher of Inside Gymnastics magazine to secure athlete endorsers and run stories about the product.

Together, the companies paid two gold medalists to promote the product, and the athletes posted endorsements on social media, without disclosing that they had been paid. The publisher re-posted those endorsements in its magazine, again without a disclosure. Inside Gymnastics also ran paid ads for the product that, in the eyes of the FTC, were made to look like independent news stories.

As part of the settlements, the companies are prohibited from misrepresenting that influencers are independent consumers. Any connections between an influencer and the companies whose products they endorse must be clearly disclosed. To that end, the companies agreed to institute procedures designed to ensure that influencers make these disclosures, including notifying influencers of their responsibilities, monitoring compliance, and terminating influencers who fail to comply.

The companies are also prohibited from expressly or implicitly misrepresenting that paid ads reflect the opinions of an independent or objective publisher or source. Although the settlement doesn’t go into details on this point, this requirement likely means that ads that appear near new stories need to be clearly labeled as ads, as the FTC has advised in its native advertising guidance.

Dalton Blog Post

Snapchat’s public relations firm recently filed a lawsuit against an influencer who allegedly failed to comply with the terms of his agreement.

After Luka Sabbat was photographed with Kourtney Kardashian in September, PR Consulting engaged Sabbat to help promote Snap Spectacles on his LukaInstagram account. According to the agreement, Sabbat was required to make four unique posts (each subject to its own requirements), get those posts approved beforehand, send analytics to PR Consulting, and be photographed wearing the Spectacles in public at Paris and Milan Fashion Weeks. In exchange for all of this, PR Consulting agreed to pay $45,000 up front, plus another $15,000 at a later date.

According to the complaint filed in New York earlier this week, Sabbat did not comply with all of these requirements. He didn’t make all of the required posts, didn’t submit them for pre-approval, didn’t send all of the analytics, and wasn’t photographed in either city. Although Sabbat allegedly admitted default, he did not return the up-front payment. The lawsuit seeks the $45,000, plus interest, attorney’s fees, and other damages.

Payment terms are often negotiated in influencer agreements. Influencers obviously want more up-front, while companies prefer the opposite. While the parties usually end up somewhere in the middle, this case illustrates the risks companies face by paying too much before key milestones have been reached. If the influencer breaches the agreement, it can become difficult to get the money back.

The Advertising Standards Authority of Ireland – similar to the NAD in the US – recently issued a decision regarding a social media influencer that companies on this side of the Atlantic should note.

The case involves social media posts by Rosie Connolly, a fashion, beauty, and lifestyle blogger. Connolly posted pictures with flawless makeup, and mentioned RosieConnollyPostthat she was wearing Rimmel Foundation. The trouble is, Connolly’s face had been filtered and photo-shopped. A consumer complained to the ASA that people “may purchase the Rimmel Foundation thinking they would achieve the same results if they used the product,” when those results may not be likely.

Connolly said that Rimmel had approved the images and, therefore, that the complaint should be addressed to them. Rimmel, in turn, acknowledged that the image had been filtered using a built-in camera feature. The image was not intended to mislead people, but the company removed it because it did not reflect their values as a brand. Moreover, Rimmel said it had taken various steps to avoid future issues with heavily filtered images. For example, the company updated its policy to more explicitly require flagging an influencer’s use of filters/photo-shopping, and promised to monitor posts more strictly.

The ASA “considered that the use of post-production techniques which exaggerated the effects of an advertised product could mislead and they welcomed the steps the advertisers had taken in removing the posts.”

Although cases involving influencers in the US have focused mostly on whether the influencers have property disclosed their relationship to the brands whose products they touted, the FTC has made clear that both influencers and brands can be held liable for any misleading content in influencer posts. Moreover, outside of the influencer context, there are plenty of cases here regarding the use of mockups or enhancements. Accordingly, companies should take steps to ensure that influencer posts are not misleading, not only in their descriptions, but in the photos themselves.

In the world of social media, a person’s power is often measured in terms of followers. More followers means the ability to influence more people. Companies who work with influencers understand this and often base compensation on this metric. For example, according to data collected by Captiv8, an influencer with a thousand followers might earn an average of $2,000 for a promotional tweet, while an influencer with a million followers might earn ten times that.

A new article in the New York Times suggests that companies may want to think twice about blindly focusing on follower counts. The authors report that a company named Devumi has sold Twitter followers to over 200,000 customers, including celebrities and other influencers. According to the article, Devumi has a stock of about 3.5 million accounts, at least 55,000 of the which use the names, profile pictures, hometowns, and other personal details of real Twitter users.

Robot Hands

The use of real people’s information to power these bots caught the attention of the New York Attorney General. In a tweet last week, Eric Schneiderman wrote: “Impersonation and deception are illegal under New York law. We’re opening an investigation into Devumi and its apparent sale of bots using stolen identities.” The investigation is the latest in a series of federal and state inquiries into the commercial and political abuse of fake accounts on social media.

How can you protect yourself from social media bots? Beyond the obvious advice that you should not buy fake followers, we recommend that companies and influencers both exercise some due diligence when it comes to followers. For example:

  • If your company pays influencers based on the number of followers they have, investigate whether those followers are real people. It may not always be possible to know for sure, but the New York Times article suggests some signs that could indicate fraud.
  • If you’re an influencer, and you’ve hired a PR company or agent to help boost your image, take steps to ensure that they aren’t doing that fraudulently. (Some of the examples in the article involved purchases that were made by third parties.)

We’ll keep an eye on this issue, as it develops. In the meantime, if you want to learn more about the dangers of risks posed by bots, read our previous post on the subject.

In June, we posted that Instagram users would start seeing a new “Paid partnership with” tag on certain posts. The company explained that this was part of a tool designed to “help creators more clearly communicate to their followers when they are working in partnership with a business.” (It also allows users to better track the performance of their posts.) Until recently, the tool was open only to a small group of users.

Last week, Instagram announced that they were going to expand the “availability of the tool to Instagrammers with high levels of engagement.” In addition, the company noted that people with access to the tool will receive in-app notifications when Instagram’s “systems find content that falls outside of our policy. In these cases, the content’s creator will be notified through the Instagram app and will have the option to tag a business.”

Although Instagram’s tool is intended to make it easier for influencers to comply with the FTC’s Endorsement Guides, it’s not clear to what extent the tool will have the desired effect. For example, in a Twitter chat hosted by the FTC in September, the FTC staff cast some doubt on whether the tools offered by Instagram, Facebook, and YouTube are sufficient to enable influencers to comply with their legal requirements.

There hasn’t been any enforcement on this issue yet, so it’s too early to tell whether the FTC will challenge companies and influencers who rely solely on these tools to make their disclosures. But if you do plan to do that, you may want to first discuss the risks with your legal counsel.

Over the past few months, we’ve witnessed a steady stream of sexual harassment scandals in Hollywood. Many companies are taking proactive approaches and cutting ties with the men who have been accused of wrongdoing. Our colleagues at Labor Days recently discussed that issue from an employment law perspective. But it’s also worth considering how this type of issue can play out it in the context of a celebrity or influencer agreement.

Morals clauses generally give companies the right to terminate an endorsement agreement, if an endorser commits an act that falls within the scope of the clause. Given what’s at stake, the scope of that clause is often one of the most-negotiated provisions in these agreements. Endorsers naturally want the clauses to be as narrow and specific as possible. (For example, a clause might only kick in if an endorser is convicted of, or pleads guilty to, a felony.) This type of clause, though, won’t necessarily help if a celebrity is only accused of sexual misconduct. Thus, companies want more flexibility. (For example, they may push for a clause that allows termination if the endorser’s actions would subject the company to ridicule, contempt, controversy, embarrassment, or scandal.)

Keep in mind that the effectiveness of your clause depends not only on its scope, but also on how it works in conjunction with other provisions in your agreement. Consider, for example, how things work if your payments are stacked towards the front of the term. You may be able to terminate for a breach later in the term, but you may not be able to recoup the money you’ve already invested. (That said, our friends at Drye Wit wrote about a type of insurance that could help.)

There isn’t a one-size-fits-all approach here. A lot depends on the person with whom you are negotiating, the amount of money involved, and the nature and length of the campaign. However, the wave of recent scandals demonstrates that companies should give serious thought to these issues whenever they negotiate with a celebrity or influencer.

This morning, the FTC announced that it had reached a settlement in its first-ever complaint against individual social media influencers and that it had sent warning letters to other prominent influencers. In addition, the FTC announced that it had updated previous guidance on influencer campaigns.

Settlement

The settlement involves Trevor Martin and Thomas Cassell, owners of CSGO Lotto, an online multi-player game. Martin and Cassell are also social media influencers who have gaming channels on YouTube with millions of followers. Starting in 2015, both men posted videos of themselves playing the game and discussing how they had won money. They engaged in similar activities on other platforms, including Twitter and Instagram. None of the videos or posts, however, mentioned any connection to the company. Martin and Cassell also paid other influencers to promote the game on social media. Most of individuals did not disclose their connections to the company and the few who did only did so “below the fold.”

Last year, various media outlets broke the news that Martin and Cassell ran the CSGO Lotto site. Many fans who had assumed that the men’s reviews were unbiased became upset, controversy followed, and the game shut down. Now we know that the FTC got involved, as well. As part of the proposed settlement with the Commission, Martin and Cassell are prohibited from misrepresenting that any influencer is an independent user. Instead, any connection between an influencer and the product being promoted must be disclosed in a “clear and conspicuous manner.”

Warning Letters

In April, we noted that the FTC staff had sent “educational letters” to more than 90 social media influencers, reminding them of their obligation to disclose any connection they have to the companies whose products they promote. Today, the FTC announced that they had sent new “warning letters” to 21 of those influencers.

The new letters cite specific posts that concerned the FTC staff and explained why those posts might not comply with the Endorsement Guides or the FTC Act. For example, some of the letters noted that the staff believe that tagging a brand is an endorsement of the brand. “Accordingly, if you have a material connection with the marketer of a tagged brand, then your posts should disclose that connection.” Other letters stated that simply thanking a brand is not a sufficient disclosure. And others reminded influencers that disclosures must be easy to find, and that consumers shouldn’t be required to click a link in order to find them.

Updated Guidance

The FTC also released an updated document with answers to frequently asked questions. This version includes more than 20 new answers addressing specific questions that marketers and influencers may have about whether and how to disclose material connections in their posts. For example, the document covers topics such as including tags in pictures, disclosures on Instagram, disclosures on Snapchat, how to disclose free travel, and terms that can be used in disclosures.

Stay tuned for more coverage of these developments.