FTC alleges Amazon hid overcharges to advertisers in lawsuit backed by 22 states

The Federal Trade Commission just dropped one of the largest advertising fraud cases in US history, accusing Amazon of quietly rigging its digital ad auctions to squeeze more than $20 billion out of advertisers. The suit, filed in US District Court for the Western District of Washington, arrives with backup: 22 state attorneys general signed on as co-plaintiffs.

At the center of the complaint is a mechanism the FTC calls “soft reserve prices,” essentially artificial bids Amazon allegedly inserted into its auction system without telling anyone. The result, according to regulators, was that advertisers thought they were participating in second-price auctions but were actually paying first-price rates.

The numbers behind the alleged scheme

The FTC claims more than 1.2 million advertisers were affected, including over 500,000 small- and medium-sized businesses. According to the complaint, by 2024, roughly 80% of Sponsored Products auctions resulted in advertisers paying their full winning bid. That’s a sharp jump from 2021, when the figure sat between 30% and 40%.

Internal documents cited in the lawsuit reportedly reference these surcharges as “hidden,” with Amazon employees allegedly acknowledging that disclosing the practice would damage advertiser trust and prompt lower bids.

Amazon’s counterargument and the broader context

Amazon has pushed back firmly, calling the allegations a misinterpretation of advertiser behavior. The company argues its advertising systems actually saved advertisers more than $8 billion between 2021 and 2025, thanks to improvements in ad relevance.

The company first publicly mentioned reserve pricing in October 2025, roughly a year before the lawsuit landed. In September 2025, the FTC reached a $2.5 billion settlement with Amazon over deceptive practices related to Amazon Prime subscriptions. The advertising investigation reportedly began in 2024.

Amazon’s ad revenue hit approximately $19.8 billion in Q2 2026, representing a 26% year-over-year increase.