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The FTC just prosecuted a fake paid Amazon review for the first time — here's what that means for users

Amazon boxes are seen stacked for delivery in New York City.
Mike Segar | Reuters

Thanks to fake reviews on sites like Amazon and Yelp, it can be hard to trust what you read. Now however, the US government has begun cracking down on fake user reviews posted on Amazon.

On Wednesday, the Federal Trade Commission announced its first-ever charges against a company that paid to have fake reviews posted online. The company in question, New York-based Cure Encapsulations, paid the third-party website amazonverifiedreviews.com to write and post positive reviews that appeared to come from consumers for a weight-loss supplement product on Amazon.com, according to the FTC.

"Please make my product … stay a five star," Cure Encapsulations owner Naftula Jacobowitz told amazonverifiedreviews.com, according to the FTC. Jacobowitz's company paid for reviews falsely describing its product, the supplement garcinia cambogia, as a "powerful appetite suppressant" that "literally blocks fat from forming," the FTC says.

Will it make reviews more trustworthy?

The FTC "does not comment about what future actions it may or may not take," a spokesperson told CNBC Make It. But the fact that the FTC brought the case has already sparked speculation that the case sets the precedent that the federal government is now willing to bring charges against companies that pay for fake reviews making misleading claims.

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Fake online reviews are a common problem on e-commerce sites like Amazon and have also shown up on online review platforms like Yelp. Still, roughly 86 percent of consumers still regularly read online reviews, and a majority of people say that positive reviews make them more likely to use a local business, according to a BrightLocal survey.

Cases like the FTC's settlement with Cure Encapsulations should make it easier for consumers to trust online reviews on sites like Amazon, according to Paul Alan Levy, an attorney who works for the consumer-advocacy group Public Citizen.

"I think it gives consumers more reason to place trust in what they see on these review sites, certainly," Levy tells CNBC Make It.

"The administrative agencies, like the FTC and state attorneys general, are in an excellent position to do investigations and figure out when there are false positive [reviews] out there, and it's good that the FTC is doing that, because it creates a sort of pressure on avoiding false positive reviews," he tells CNBC Make It.

Squashing fake reviews

Levy notes that, in the past, e-commerce companies and review sites have sometimes taken matters into their own hands when looking to squash fake reviews. Amazon itself has filed numerous lawsuits in recent years against sellers who post false reviews, as well as third-party companies that sell the service of posting fake reviews. Amazon estimated last year that "less than 1 percent of reviews are inauthentic" on the site.

"We welcome the FTC's work in this area," an Amazon spokesperson told The Verge. "Amazon invests significant resources to protect the integrity of reviews," but "even one inauthentic review is one too many." (The company also announced a new program, called Project Zero, targeting counterfeit goods on the site on Thursday.)

Yelp also has its own Consumer Alerts program that tries to catch businesses that post fake reviews.

Of course, Levy also points out that consumers should still take online reviews with a grain of salt.

"The wisdom of the crowd on review sites has value for consumers," he says, "[but] you should never take a single review as gospel, whether it be a five-star review or a one-star review." Instead, he says, look for a pattern of reviews.

The FTC case

The FTC filed its complaint against Cure Encapsulations last week, after finding that the company had paid for the fabricated reviews, which purported to be written by actual customers and which made "false and unsubstantiated claims" about its products. While the extract garcinia cambogia is often claimed to be effective for weight-loss, the National Institutes of Health has noted that there is "no convincing evidence" that it can help you lose weight.

Cure Encapsulations has already reached a settlement with the FTC in which the company has agreed to never again make "weight-loss, appetite-suppression, fat-blocking, or disease-treatment claims" for any product without substantiating those claims with "competent and reliable scientific evidence," the FTC says. The settlement also prohibits the company from misrepresenting endorsements, including reviews that falsely claim to come from an actual customer.

"People rely on reviews when they're shopping online," Andrew Smith, Director of the FTC's Bureau of Consumer Protection, said in a statement. "When a company buys fake reviews to inflate its Amazon ratings, it hurts both shoppers and companies that play by the rules."

Correction: This article was revised to correct Cure Encapsulation's location. The company is headquartered in New York.

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