Roomster must face lawsuit by U.S. FTC, six states over fake reviews

By Jonathan Stempel

NEW YORK (Reuters) - A U.S. judge on Wednesday ordered the roommate matching service Roomster to face a lawsuit by the Federal Trade Commission and six states claiming it used fake listings and reviews to take millions of dollars from people struggling to find affordable housing.

Without ruling on the merits, U.S. District Judge Colleen McMahon in Manhattan said the lawsuit "strongly suggests" that Roomster and its co-founders knew their platform contained tens of thousands of fake positive reviews, and misled prospective renters into thinking its listings were real.

She also said the plaintiffs demonstrated "a realistic likelihood of recurrence given defendants' pattern of willful and deliberate behavior over the course of several years."

New York, California, Colorado, Florida, Illinois and Massachusetts joined the FTC case last August against Roomster and co-founders John Shriber and Roman Zaks, respectively its chief executive officer and chief technology officer.

The complaint said many victims were lower-income renters and students, with many lured into paying even more money to fraudsters who flooded New York-based Roomster's platform with fake listings.

Lawyers for the defendants did not immediately respond to requests for comment.

In seeking a dismissal, the defendants said they had ceased the alleged improper conduct in 2018, that the FTC lacked power to sue, and the user reviews were not deceptive under state laws.

They also said the federal Communication Decency Act shielded them from liability because Roomster, like Facebook and YouTube, did not need to verify the accuracy of user content.

McMahon, however, said that law "does not immunize defendants from liability for their own unlawful conduct."

The lawsuit sought civil penalties and an injunction against violations of federal and state unfair trade laws.

In October, the FTC sought public comment on whether to adopt a rule to combat deceptive or unfair endorsement practices, such as by using fake reviews, suppressing negative reviews and paying for positive reviews.

The case is FTC et al v Roomster Corp et al, U.S. District Court, Southern District of New York, No. 22-07389.

(Reporting by Jonathan Stempel in New York; Editing by Bill Berkrot)