In a first-of-its-kind ruling, the Federal Trade Commission (FTC) told data brokerage firm Spokeo it has until tomorrow to hand over $800,000 to the Treasurer of the United States.
The ruling came in a case addressing the sale of personal Internet information for the purpose of job applicant screening. The FTC charged that Spokeo marketed data profiles to companies in the human resources, background screening and recruiting industries without first taking the necessary precautions to protect consumers under the Fair Credit Reporting Act (FCRA).
Specifically, the FTC alleged that Spokeo acted as a consumer reporting agency but failed to ensure that the information they sold was accurate and would be used for legally permissible purposes.The FTC claimed that Spokeo deceived consumers by passing off endorsements of their services on various websites and blogs as independent, when in reality they were being created by Spokeo employees. In addition, the FTC charged that Spokeo had failed to inform users of their consumer reports about certain obligations set forth by the FCRA, including one that required that Spokeo notify consumers if a user took action against a consumer based on information within the report.
The company was given seven days from the date of the FTC’s decision (June 7, 2012) to remove any and all of fake product reviews and endorsements it is alleged have created.
In a statement, Spokeo did not admit to violating any laws, but ended up agreeing to the settlement with the FTC. “It has never been our intention to act as a consumer reporting agency,” wrote Spokeo Founder and President Harrison Tang. “We have made changes to our site and our internal business practices in order to ensure we don’t infringe upon the FCRA’s important consumer protections, and to ensure an honest and transparent service that will continue to be easy for our customers to use.”
In a phone interview, Spokeo’s chief strategy officer, Emanuel Pleitez said the company never intended to create consumer reports, but that the FTC allegations targeted Spokeo’s former business model. Spokeo did not address the fake product endorsements charge in their official statement, but Pleitez told Threatpost that the reviews had been written at the direction of a former employee, without the knowledge or consent of the company’s management. That individual is no longer employed by Spokeo. Pleitez said that Spokeo reached out to Web sites hosting these fake reviews and had them removed before the FTC guided them to do so.
A small start-up searching for a place in the market, Spokeo thought it found a path to profitability selling data to recruiters and HR departments. However, the company realized quickly that consumer reports was not their niche. Now that Spokeo reached an agreement with commission, it is moving on.
“Now,” Pleitez claimed, “Spokeo is strictly in the business of people search.”