The Office of Fair Trading has launched an investigation into Groupon after the online deal website broke UK advertising regulations 48 times in the past year.
Groupon, which provides discounts on anything from wedding receptions to family meals, was referred to the regulatory body by the Advertising Standards Authority. It is the first time the advertising watchdog has taken such a move against a big advertiser since its conflict with Ryanair in 2008.
The three-year-old website broke the advertising code, according to the ASA, by exaggerating potential savings from its deals, making offers which were not actually available and failing to make clear important terms and conditions.
The most recent of the infringements came when Groupon offered £5,000 worth of “breast augmentation” surgery for £1,999 if the offer was taken up within the day. The ASA said this was encouraging consumers to rush into plastic surgery.
The advertising watchdog made 11 formal rulings of code breaches against Groupon and announced a further 37 informal breaches.
“Given Groupon’s track record, we have serious concerns about its ability to adhere to the advertising code,” said the ASA.
“It is in the public interest that we refer the matter to the OFT, the OFT being better placed to address any underlying issues concerning Groupon’s trading practices generally.”
The announcement by the ASA prompted the OFT to reveal that it was already concerned about Groupon and had been conducting a secret investigation into the company since July.
Groupon made headlines last month after raising $700m (£449m) in its initial public offering which valued the company at $12.6bn. Following a bullish first day, the stock has slumped 23.6 per cent to $19.96, slightly below its IPO price.
In the past client companies have complained about the business model that allows Groupon as much as half of the sale price of the already heavily discounted service or product.
Last month, a Berkshire cake maker said that it almost went bust after it offered a 75 per cent cupcake discount and was overwhelmed when thousands more people than expected redeemed the vouchers.
The OFT said the investigation was likely to take at least six months, and possibly much longer if the case goes to a criminal court.
Groupon said it “constantly strives for business practices that are in the best interest of consumers”, adding: “We are constantly evolving business process to ensure customers receive the best possible experience at the highest standards. We are co-operating fully with the OFT to ensure that the rights of consumers are protected.”
Groupon also stressed they moved quickly to address the ASA ruling on their plastic surgery offer, and that they now have a three-day expiry rule for such products.