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.

About a year ago, the SEC issued a warning to celebrities and social influencers who promoted Initial Coin Offerings (ICOs) on social media, noting that such promoters are subject to federal securities laws. Apparently, at least two celebrities weren’t paying attention because they recently settled the SEC’s first cases regarding promoting ICOs without proper disclosures.

Khaled Khaled, better known as music producer DJ Khaled, and professional boxer Floyd Mayweather Jr. both allegedly promoted investments in ICOs for Centra Tech Inc. in 2017 without disclosing the compensation they received in exchange for their endorsements ($50,000 for Khaled and $100,000 for Mayweather). This triggered a violation of the anti-touting provision of the federal securities laws.

A few examples of these endorsements include Khaled referring to Centra’s ICO as a “Game changer” on various social media accounts, and Mayweather tweeting that Centra’s ICO “starts in a few hours. Get yours before they sell out, I got mine…”

Mayweather also allegedly failed to disclose his relationship with two other ICOs that paid him $200,000 for posts such as, “You can call me Floyd Crypto Mayweather from now on.”

In settling the charges, Khaled agreed to pay $152,725 in disgorgement, penalty, and prejudgment interest, while Mayweather agreed to pay $614,775 for the same. Mayweather and Khaled also agreed not to promote any securities, digital or otherwise, for three and two years, respectively.

Although proper disclosures in social media endorsements have been an area of concern for the FTC for years, this settlement indicates that the SEC is just as interested in making sure consumers understand when they’re seeing sponsored content in the marketing of financial products.

For more information on this topic, check out our earlier post on SEC activity and our webinar, “Advertising Under the Influence.”

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.

Although we normally try to stay away from celebrity gossip, we can’t ignore the latest controversy over Kanye West’s tweet. No, not that one – the other one.

In 2016, Kanye announced that he would release his album, The Life of Pablo, exclusively on Tidal. He tweeted: “My album will never never never be on Apple. And it will never be for sale… You can only get it on Tidal.” (That’s four “nevers” in 107 characters, if you’re counting.) Fans took that seriously, and rushed to sign up. In just over a month, Tidal’s subscriber base tripled, potentially saving the service from collapse.

Kanye Tweet

Six weeks after Kanye promised the album would never (x4) be available anywhere else, he released it on other services, including Apple Music. Many fans became angry that they’d signed up for Tidal based on Kanye’s promise, and one of them filed a lawsuit. The complaint alleged that the representations of exclusivity in the tweet constituted false advertising and asked the court to grant damages, disgorgement of profits, and restitution.

Last week, a New York court ruled on a motion to dismiss filed by Kanye’s legal team. Although the court dismissed some of the claims, it kept the allegations about the tweet alive. “Regardless of whether or not Mr. West’s argument will persuade a jury at a later stage in the case, the court has little difficulty concluding that the complaint plausibly pleads that Mr. West’s statement that his album would never never never be available on Apple Music or for sale was false.”

It’s too early to tell how this case will turn out, but the case raises at least two important points. The first is that claims made in social media are still subject to advertising laws. Even something as seemingly innocent as a short tweet can lead to liability, if what you say isn’t accurate. The second is that you should be careful about far-reaching promises. Many companies want to advertise that things will always be a certain way. Think carefully about making these promises because some consumers will take you at your word. If the market changes and you want to go back on your promises, those consumers may not be forgiving.

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.

Most Popular Ad Law Access Posts of 2017

As reported in our Ad Law News and Views newsletter, Kelley Drye’s Advertising Law practice posted 106 updates on consumer protection trends, issues, and developments to this blog in 2017. Here are some of the most popular:

Ad Law News and Views is produced every two weeks to help you stay current on advertising law and privacy matters. You can subscribe to it and other Kelley Drye Publications here and the Ad Law Access blog by email or RSS feed.

2018 Advertising and Privacy Law Webinar Series 

Please join Kelley Drye in 2018 as we continue our well attended Advertising and Privacy Law Webinar Series. Like our in-person events, this series gives key updates and provides practical tips to address issues faced by counsel as well as CLE credit. This webinar series will start again in February 2018. Please revisit the 2017 webinars here.