Classmates.com Settles Lawsuit Over Phony Friends

Hugh Pickens writes "Techflash reports that Classmates.com has agreed to pay up to $9.5 million to its users to settle a lawsuit that accused the social network of sending deceptive emails that made people believe their old friends from high school were reaching out to connect — only to discover, after paying for a membership, that their long-lost buddies were nowhere to be found. Lawyers for the plaintiffs asserted that Classmates had 'profited tremendously from their false or deceptive e-mail subject lines and related marketing tactics.' Under terms of the proposed settlement, Classmates.com members who upgraded to premium memberships after receiving one of the 'guestbook' emails will be able to choose either a $3 cash payout or a $2 credit toward the future purchase or renewal of a Classmates.com membership. Classmates.com is also among companies that have come under scrutiny for their use of 'post-transaction marketing' tactics — in which customers are given additional offers as part of the online payment process, sometimes in such a way that they aren't aware they're also signing up to pay more. A November 2009 US Senate Committee report said Classmates made more than $70 million through its relationship with post-transaction marketing firms. The Classmates Media unit posted $58.8 million in operating profit for 2009, up more than 24 percent from the previous year, making Classmates 'the most profitable social network in the world,' according to CEO Mark Goldston."

Comments

Who would take the $2 ?

[sackvillian]

Classmates.com members who upgraded to premium memberships after receiving one of the 'guestbook' emails will be able to choose either a $3 cash payout or a $2 credit toward the future purchase or renewal of a Classmates.com membership.

Huh? They're offering a cash payout or 33% less money that you can only spend on the site that scammed you?

Better get working now on a decision-making chart if this applies to you.

Re:Who would take the $2 ?

[mister_playboy]

Indeed. People have a strong psychological bias against doing something for a token reward such as this. Tests have shown that people would rather do a task for free than for a small amount of money. Working for free can be rationalized as being nice and doing a favor, but how can you rationalize doing something for $2? It just makes a person feel cheap and undervalued.

Re:Who would take the $2 ?

[Like2Byte]

Well, for a little over $3, you can get a cheap fast-food meal. That's lunch!

CM.COM: "OK, so we tried to fraudulently obtain money from you by lieing our asses off about your buddy trying to contact you. Here's lunch. Better now?"
Me: Shove that lunch up your ass!

Why is it that Company X defrauds someone and they only have to pay back 33% of what they collected to the victim; but, if Joe Schmo does it he gets ~1yr jail time or some such judicial or civil penalty?

The Real Scam?

[Anonymous Coward]

The legal system! What kind of justice is this? Classmates.com made $70million for being deceptive ($60million less this judgment) while getting a slap on the wrist, the lawyers get the bulk of the $10million, and what has changed? Nothing! Companies can continue to make profits, abuse customers and the public, and know that in the end all they will lose is just a tiny bit of the profit they made even if they break the law!

Re:The Real Scam?

[fuzzyfuzzyfungus]

The efficient operations of free markets require good information to be available. The further you get from good information, symmetrically available, the further your results will get from any of the ideal free market outcomes. This (in addition to the fact that people generally dislike getting scammed) is why things like false advertising and lying on your SEC filings are illegal.

Neither the economic theory of free markets, nor any of the historical examples of approximately free-market structures, support the notion that free markets will actually adequately control fraudulent actors. If you make some sufficiently optimistic assumptions about the speed with which "word of mouth" works vs. the speed of advertising, astroturf, sneaky rebranding of tarnished firms, etc. you can probably make the models say that it will work; but those assumptions are nonsense).

Even in situations where selection does occur at the firm/brand level(if, for instance, Classmates.com were to falter due to their reputation for false advertising and general worthlessness) that helps you very much less than you might expect. Remember, the "rational actors" are not the firms themselves; but the people behind them. If I can extract enough money from my scam before its inevitable implosion, my scam's implosion will not dissuade me in the slightest from further scamming. Since these ownership relations tend to be quite obscure by the time you get to the consumer level(even the ones that aren't actively secretive can get very complex very fast, and virtually nobody has the cognitive resources to keep up with ownership structures for more than a tiny fraction of the firms they deal with in a day), it is eminently possible for bad actors to move from scam to scam for years, reaping substantial rewards.

Re:Why would anyone take the $2 credit?

[sopssa]

And they're both so small amounts that in the end no one will care about it and classmates.com probably needs to spend 0.5% of the amount they were asked to pay up.