Facebook earns billions from scam ads, lawsuit alleges

The picture on the left didn’t match what was delivered, on the right.

Facebook profits from advertisements it knows, or should know, are fraudulent, a federal lawsuit filed in  California alleges. The social media giant makes it easy for criminals to target consumers who are not only likely to click on certain kinds of ads, but also likely to follow through with purchases, the case claims.  The firm is “actively soliciting, encouraging, and assisting scammers,” the suit claims.

Alleged frauds include ads for products that never ship, or are substantially different from what is advertised. Fraud rates for some types of ads are as high as 30%, the suit claims.

Not only does Facebook look the other way when such ads are placed, but it has actively recruited suspicious sellers through conferences and other means, the case claims. Lawyers for the plaintiffs seek class-action status for the case, and claim there are potentially millions of victims and Facebook has earned billions of dollars.

Facebook did not immediately respond to a request for comment about the lawsuit (I’ll update the story if needed).

Tech companies have faced allegations they profit off fraud enabled by their platforms for a long time. Journalists have been writing about fake Google Maps businesses for at least seven years.  Instagram fraud had its day in the sun back in 2018. The firms make money off disinformation, too. Recently, I searched for “Can I get the vaccine from my doctor” on Google and was presented with a long list of anti-vaxx links and products for sale.

There have long been questions about how hard these services work to correct these problems. “More than a third (34%) of people that reported a scam ad to Google said it was not taken down while just over a quarter (26%) said the same had happened with Facebook, according to a study published by British consumer group Which?” BusinessInsider has reported.

The recent Facebook case, filed in August, alleges negligence, breach of contract, and breach of covenant of good faith and fair dealing. It builds on the work of several journalists who have written about Facebook ad fraud in recent years — most notably Zeke Faux’s story in 2018, which includes details from a Facebook ad conference that Bloomberg attended; and a Buzzfeed story from last year, titled Facebook Gets Rich Off Of Ads That Rip Off Its Users. 

The California lawsuit claims that “Facebook’s sales teams have also been aggressively soliciting ad sales in China and providing extensive training services and materials to China-based advertisers, despite an internal study showing that nearly thirty percent (30%) of the ads placed by China-based advertisers — estimated to account for $2.6 billion in 2020 ad sales alone — violated at least one of Facebook’s own ad policies.”

It also cites increased social media advertising fraud complaints, driven most recently by stay-at-home orders during the pandemic. “In October 2020, the Federal Trade Commission (“FTC”) reported that about 94% of the complaints it collected concerning online shopping fraud on social media identified Facebook (or its Instagram site) as the source,” the case notes.

Facebook denied to Buzzfeed that it profits off fraud. It told the news site: “Bad ads cost Facebook money and create experiences people don’t want. Some of the things raised in this piece are either misconstrued or missing important context. We have every incentive — financial and otherwise — to prevent abuse and make the ads experience on Facebook a positive one. To suggest otherwise fundamentally misunderstands our business model and mission.”

But it’s hard to deny the incentives large tech companies have to look the other way when companies are paying them millions of dollars to get finely-tuned ads in front of users.

In the lawsuit, plaintiff Christopher Calise says he spent about $50 to buy a car engine assembly kit and never received it. He reported the ad as fraud to Facebook, and the social media company took it down, but the alleged scam firm was able to re-place the ad using a slightly different name soon after.   Plaintiff Anastasia Groschen says she responded to an ad for a child’s activity board. When a simple puzzle arrived instead, she complained to the company, only to be instructed that she’d have to pay to ship the puzzle back to China.

The lawsuit seeks monetary damages for all impacted members of the class, and wants the court to force Facebook to make immediate changes to the way it patrols ads.

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About Bob Sullivan 1536 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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