Yelp is being sued by its shareholders. The suit claims that Yelp inflated stock prices by lying about their policy of “hiding” bad reviews…for a price. Here’s what you need to know about this lawsuit, and about the claims that Yelp makes restaurants pay to remove bad reviews from prominent positions on its site.
1. Shareholders Are Accusing Yelp of Inflating Its Stock Price
You can read the lawsuit in the document above, portions of which have been highlighted in red by Gigaom’s Jeff John Roberts.
A group of Yelp investors, lead by investor Joseph Curry, are suing Yelp. The suit alleges Yelp would have businesses “pay to suppress negative reviews,” which inflated Yelp’s profits. The suit goes on to argue that Yelp made millions of dollars while engaging in this practice, but did not admit that they were forcing businesses to pay for “hiding” these bad reviews. Because the company was not transparent about these secretive policies, the plaintiffs are arguing that Yelp was artificially increasing their stock price.
2. Yelp CEO May Have Benefited From Inflated Stock Price
Valley Wag writes that Yelp CEO Jeremy Stoppelman made $8,493,479 from sales of company stock earlier this year. Valley Wag that the FTC made an announcement in April that they had received thousands of complaints against Yelp. When those complaints became public knowledge, shareholders were stuck with a stock that had begun to fall.
3. Accustations Against Yelp Began in 2009
The Washington Post report above investigates Yelp’s algorithm for displaying (or hiding) reviews.
Over the years, many business owners have accused Yelp of forcing them to pay out big money in order to remove or hide negative reviews from the site. Some of the earliest examples of these allegations date back to 2009. One restaurant owner shared his experiences with Yelp’s “pay-to-remove” policies:
“The phone calls came almost daily. It started to get creepy.
‘Hi, this is Mike from Yelp,’ the voice would say. ‘You’ve had three hundred visitors to your site this month. You’ve had a really good response. But you have a few bad ones at the top. I could do something about those.’
This wasn’t your average sales pitch. At least, not the kind that John, an East Bay restaurateur, was used to…John’s restaurant has more than one hundred reviews, and averages a healthy 3.5-star rating. But when John asked Mike what he could do about his bad reviews, he recalls the sales rep responding: ‘We can move them. Well, for $299 a month.'”
4. Yelp Says the ‘Allegations Are False & Without Merit’
— Kristen Sze TV News (@abc7kristensze) August 8, 2014
According to Gigaom, a Yelp spokesman has stated that these “allegations are false and without merit.”
Gigaom adds that the Yelp lawsuit might have some issues gaining traction, since it has never been proven that Yelp uses predatory tactics to force business owners into masking bad reviews:
“The complaint, however, does not cite any specific smoking guns, but instead relies primarily on news accounts, and points to a series of complaints lodged with the Federal Trade Commission. As such, Curry’s allegations remain unproven.”
5. Yelp Just Celebrated Its 10-Year Anniversary
Yelp has been in business for just over ten years. According to the San Jose Mercury News, Yelp now hosts 61 million reviews of merchants in 27 countries. A total of 1,214 of those reviews were personally written by Yelp’s CEO. Nearly 140 million people visit Yelp every month.