In 2015, Machinima, a California-based online entertainment network, caught the eyes of federal regulators for paying so-called social media “influencers” to promote Microsoft’s Xbox One system and several games on YouTube.
In March 2016, regulators turned their attention to the retailer Lord & Taylor, which paid influencers to post photographs of themselves on Instagram sporting a paisley dress from a new fashion line. That summer, it was Warner Bros. Home Entertainment Inc., whose marketing campaign for the video game "Middle Earth: Shadow of Mordor" involved paying influencers to post positive reviews on YouTube and other social media sites.
The Federal Trade Commission in those cases faulted the influencers for failing to disclose the payments behind their seemingly organic endorsements. But the FTC only reached settlements with the companies, raising a question of when—if ever—the agency would directly go after the influencers.
This week, the FTC brought its first enforcement action against an influencer—and took the opportunity to issue new guidance for disclosing the business relationships behind promotional social media posts.
The FTC targeted Trevor “TmarTn” Martin and Thomas “Syndicate” Cassell, co-owners of the online gambling service CSGO Lotto, who allegedly endorsed the company without disclosing their joint ownership of it. According to the FTC, Martin and Cassell enjoy wide followings in the online gaming community and paid other well-known influencers thousands of dollars to promote their online gambling service on YouTube, Twitter and Facebook without requiring them to disclose the business deals behind the posts.
Cassell and Martin resolved the allegations by agreeing to clearly and conspicuously disclose such business interests in future posts.
“Consumers need to know when social media influencers are being paid or have any other material connection to the brands endorsed in their posts,” FTC Acting Chairman Maureen Ohlhausen said in a prepared statement. “This action, the FTC’s first against individual influencers, should send a message that such connections must be clearly disclosed so consumers can make informed purchasing decisions.”
In addition to announcing the settlement, the FTC updated its guidance for disclosing business relationships behind promotional social media posts. The new guidance advised that influencers using Snapchat or Instagram Stories superimpose words over the images that disclose their business relationships—whether it be a payment or a free sample of a product. The guidance also acknowledges a new built-in feature Instagram introduced to make it easier for celebrities and influencers to more clearly disclose that a post is sponsored. But the FTC said that tool is “not necessarily” an adequate disclosure.
“Just because a platform offers a feature like that is no guarantee it’s an effective way for influencers to disclose their material connection to a brand. It still depends on an evaluation of whether the tool clearly and conspicuously discloses the relevant connection,” the FTC said.
The commission also said it sent warning letters to 21 social media influencers who had previously received “educational letters” about the agency’s guidance for disclosing payments behind promotional posts. According to a sample copy of the letters, the FTC cited specific social media posts that concerned the agency’s staff.
The FTC on Friday declined to provide copies of those 21 letters or identify the influencers who received them.
A lawyer for Cassell, Squire Patton Boggs partner Alicia Batts, said her client has taken the FTC action seriously and changed his business practices. Batts said she expects the FTC to bring more cases against individual influencers while continuing to bring cases against companies over influencer marketing campaigns.
“It’s a growing issue of concern. It involves all of the things the FTC takes an interest in—protecting consumers, it’s on the internet, it involves advertising. It’s an interesting issue because it impacts young people. It involves a lot of issues the FTC has focused on recently,” she said.
Batts continued: “I would expect the FTC to have more enforcement actions against individuals and companies. And you can kind of see that by the fact that the FTC has sent out 90 letters to influencers [and companies], and then they sent an additional 21 letters recently. They’re educating influencers about the law and the public about the law.”
Martin’s attorney, Coleman Watson at Watson LLP, did not immediately respond to a request for comment.