Throughout its ten year history, Yelp has been sued a number of times for allegedly manipulating reviews to generate ad revenue from merchants. This remains a widely held perception though the allegations have never been successfully proven.
The plaintiffs in those cases have always been business owners. Now, however, comes an investor class action lawsuit that claims Yelp manipulated reviews to inflate its stock price. The action and its allegations, nearly identical to those presented in the various merchant lawsuits, are very curious for a shareholder suit.
Relying on federal securities laws, plaintiff and alleged shareholder Joseph Curry — the case is a would-be class action brought in California federal court — essentially argues:
Yelp’s claims about the quality and integrity of its reviews boosted or contributed to stock gains
Yelp’s claims about its algorithm’s ability to screen fake or unreliable reviews are false
Yelp generates revenue by manipulating reviews in exchange for advertising dollars
Regarding damages, the complaint alleges that the false public statements about reviews misrepresented the company’s business prospects. This deceived investors causing the stock to rise. When articles and negative publicity alleging review manipulation came out it sent Yelp’s stock price down generating shareholder losses.
The complaint cites statements in Yelp press releases to support the idea that it made false claims to the market. It also cites other lawsuits, articles in the press and complaints about Yelp reviews to the FTC in support of its factual allegations.
A very similar suit, recently brought by an individual merchant in California state court, seeks to bar Yelp from saying publicly that its reviews are “trustworthy” based on similar claims of review manipulation and the purported inaccuracy or manipulation of Yelp’s review filter.
The connection between public/press release claims about Yelp’s reviews and the fluctuation of Yelp’s stock price is tentative and probably cannot be shown to be causal. But the key factual issue is whether plaintiffs can establish any evidence of review fraud or manipulation by Yelp.
It’s important to reiterate that the claims that Yelp “extorts” money from local businesses or that reviews are manipulated have been repeatedly alleged over the years but never proven. If numerous individuals and lawsuits in the past have not been able to establish this it’s very unlikely that the Curry lawsuit will succeed where numerous others have not.
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