Lawsuit alleges Yelp is extorting businesses with negative reviews


Business review/guide Yelp is being accused of behaving very, very badly. A class action lawsuit has been prepared by the company's shareholders alleging that Yelp has been requiring businesses to pay to get rid of negative "first-hand" reviews posted on Companies that refused to buy ads on the website have complained about subsequently finding that their positive reviews on the site had mysteriously vanished. The lawsuit puts it into more specific terms:

Algorithms purportedly designed to screen unreliable reviews did not comprehensively do so, and instead, the Company allowed such unreliable reviews to remain prominent while the Company tried to sell services designed to suppress negative reviews or make them go away...

According to Valleywag, the lawsuit claims that Yelp's execs made over $81.5 million from extortion. If true, then those same executives conspired to keep their profits a secret, a kind of insider trading that the suit accuses Yelp of, going so far as to call it "a scheme to deceive the market."

This isn't the first time Yelp has been accused of dirty business dealings, thanks to complaints going back five years or more. But none of those accusations stuck, with courts dismissing them for lack of evidence. This time, the Federal Trade Commission got involved after learning of thousands of complaints from customers. Those complaints, made public by the FTC, prompted Yelp's shareholders to prepare the current lawsuit. Their efforts are being spearheaded by an investor named Joseph Curry.

Yelp posted a strong financial report in February 2014, after which several executives sold off portions of their stock. Among them was Yelp CEO Jeremy Stoppelman, who reportedly earned almost $8.5 million from the sale. The class action lawsuit points to this as an illegal means of "artificially inflating" Yelp's stock price for personal gain. When the FTC revealed the customer complaints in early April, Yelp's stock plummeted and shareholders were left in the lurch. The lawsuit includes mention of many shareholders who suffered economic loss and business damages from the stock price downturn.

Yelp has denied the allegations, noting that its executives haven't yet been served with the lawsuit, but that it will fight them "vigorously" when and if they receive it.

Photo: Michael Dorausch (Cropped)

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