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Image: Sunday Riley

Consumers are urging the Federal Trade Commission (“FTC”) to re-think its proposed settlement with Sunday Riley after the beauty brand was accused of enlisting its employees to obscure their real identities and “write fake reviews [about its products] on Sephora.com” for the sole purpose of enticing consumers to purchase its skincare goods. In connection with the 30-day public comment period that comes with the parties’ not-yet-finalized settlement, consumers are calling the FTC’s terms “disgusting,” “deeply disappointing,” and lacking in “actual consequences.”

At the heart of the settlement, which was announced last month, is a requirement that Houston, Texas-based Sunday Riley refrain from “misrepresenting the status of any endorser or person reviewing [its] products” and from “making any representation about any consumer or other product endorser without clearly and conspicuously disclosing any unexpected material connection between the endorser and any respondent or entity affiliated with the product.”

The ban on posting fake or misleading reviews makes sense given that the buzzy skincare startup Sunday Riley came under fire and attracted federal scrutiny after a former employee revealed last year – by way of a detailed email from Sunday Riley’s eponymous founder – that the company’s managers, as directed by its founder, required employees to post fake reviews endorsing the brand’s products.

In the July 2016 email that Ms. Riley allegedly wrote to her staff, she provided “step-by-step instructions for setting up new personas,” including how to “use a VPN to hide [an individual’s] identity,” and directed them to “create three accounts on Sephora.com, registered as different identities.” The email “directed employees to focus on certain products,” to “[a]lways leave 5 stars” when reviewing Sunday Riley Skincare products, and to “dislike” negative reviews. “If you see a negative review – DISLIKE it,” Ms. Riley wrote, “After enough dislikes, it is removed. This directly translates into sales!!”

According to the FTC, which initiated a formal investigation into the company last year after the email was leaked, such actions by the company’s founder and employees give rise to two violations of the FTC Act, according to the government agency, including: 1) making false or misleading claims that the fake reviews reflected the opinions of ordinary users of the products; and 2) deceptively failing to disclose that the reviews were written by Ms. Riley or her employees.

Following the FTC’s investigation, the government agency and the beauty company reached a proposed consent order on October 21, with three of the Commissioners voting in favor, while two dissented. The latter two Commissioners found the settlement in its current form simply is not strong enough, largely because it “includes no redress, no disgorgement of ill-gotten gains, no notice to consumers, and no admission of wrongdoing.”

In other words, dissenting Commissioners Rohit Chopra and Kelly Slaughter argue that “Sunday Riley and its CEO have clearly broken the law, and the Commission has [only] ordered that they not break the law again,” since the proposed settlement fails to impose any monetary penalties on the company to deter such “blatant fraud and dishonesty” in the future. While “monetary relief can be difficult to calculate,” the Commissioners assert, that “should not deter the FTC from seeking it.”

The proposed settlement order can only be finalized after a 30-day comment period after which the Commission will decide whether to make the proposed settlement final or not. In connection with the window for public comments, consumers – most of whom are anonymous – have chided the FTC for its “slap on the wrist” settlement.

“The FTC is doing an inadequate job of enforcing the provisions of the Federal Trade Commission Act, which prohibits ‘unfair or deceptive acts or practices in commerce,’” wrote one commenter, while another – which urged the FTC to levy an “appropriate but considerable fine to stop the company, and entire skincare industry, from deceiving consumers” – stated that “companies won’t change unless it affects their bottom line.”

From a practical standpoint, many comments made mention of the fact that “average customers’ purchases are guided by the reviews,” and that “honest and unbiased online product reviews are crucial to helping consumer wade through the 1000s of [product] options,” which – if left remedied – “takes advantage” of consumers.

One commenter suggested that the FTC require “a public admission of guilt” from Sunday Riley, which, to date, has neither “admitted or denied wrongdoing,” in addition to implement a monetary penalty and ensuring that Sunday Riley engages in “an ongoing remediation plan via hire of a compliance officer/auditor.”

Ultimately, all of the comments share the same general sentiment: the proposed settlement as it stands simply is not enough. The FTC is expected to formalize the outcome this week.