Wedding site The Knot hides a dark side
Behind its pretty facade, Wedding site The Knot hides a dark side
Three former employees of wedding giant The Knot expose practices that ripped off advertisers, all while creating a culture of fear to silence the employees who flagged the alleged fraud
By: Jennifer Croom Davidson, former Global Fashion Director; Rachel LaFera, former Director of Fine Jewelry; and Cindy Croom Elley, former Account Executive at The Knot. Reposted on Psst.org by permission of the authors.
In 1996, after discovering there were few online resources for wedding planning, four New York University students founded a website called The Knot. Over the next two decades, this online marketplace became one of the few original dot-com companies to survive and thrive. At its peak, The Knot claimed that nearly 75 percent of couples in America were using the platform to help plan their weddings. The company went public twice, adding The Nest and The Bump under a new corporate umbrella, XO Group. XO Group’s audience base would expand, leading media revenues to grow—well, at least that was the plan.
But as happened with many media companies in the 2010s, when Facebook and other social media platforms jumped into the online ad world, “eyeballs” on TheKnot.com began to wane. Advertising sales inventory shrank as page views on the website declined. Given The Knot’s large market share in the online wedding space, financial analysts believed that its stock was underperforming. A shake-up was in order. The founders lost control of the company and the Board of Directors began replacing them in 2013.
The new management undertook a complete overhaul of the flagship website, aiming to keep up with emerging social media and digital competitors and to position the brand as a mobile-first platform. The company told investors that its new growth strategy was to move to a more lucrative transactional-based business model, similar to marketplaces like Etsy and Open Table. This, too, would require a significant investment and technology upgrade.
But when the new website went live in the first quarter of 2015, the underlying technology was flawed and had stability issues. This inadvertently contributed to a further decline—users were now spending less time per visit and bouncing off of the platform more quickly rather than navigating around, which would have created much-needed advertising sales inventory in the form of page views.
Even worse, many of the ads at the core of The Knot’s business model were arbitrarily falling off the site or not running according to the terms of the contracts—or, in some cases, not appearing at all. Leads that The Knot would generate when a customer interacted with the ads were also affected—the decline in page views meant that quality leads were in short supply.
On earnings calls, the company touted the new website as “best in class.” But from the inside, things appeared differently. We were employees at The Knot for 21 years, 18 years, and 19 years, respectively: Jennifer Croom Davidson as Global Fashion Sales Director, Rachel LaFera as Director of Fine Jewelry Sales, and Cindy Croom Elley as Account Executive in charge of sales to a segment of local wedding professionals. We loved our jobs for much of our tenure, and had long-standing relationships with our clients. We had started our careers on the Love Boat—but now found ourselves on the Titanic.
Diamond or cubic zirconia?
At the time of the relaunch, roughly 25,000 local and national media partners were paying to have their ads show up on The Knot. These advertisers ranged from mom-and-pop local wedding professionals (cake bakers, photographers, and reception venues) to nationally known brands and retailers (Macy’s, Walmart, and Crate & Barrel). When XO Group’s annual revenues were last publicly reported in 2017, these advertisers had paid the company a combined $115 million to reach potential customers that year.
When the new website went live, these advertisers—who weren’t watching the site all day—did not know that their ads might not have been appearing as they were supposed to; some were not even appearing at all. We, on the other hand, as directors and an account executive within the two primary revenue divisions, did notice, and so did many of our colleagues. Almost immediately, we reported the contractual violations against our clients to management.
Of course, a brand-new platform was bound to have some glitches. But as we raised red flags, it quickly became clear that these issues were already known at every level within the organization. A tracking document and product-fix roadmap was being disseminated regularly to a wide array of employees, including the C-suite.
To our surprise, senior management downplayed the issues, particularly to the sales teams. If a client realized that their ad had vanished and inquired about it, the company offered a standard response: it was a fluke, down briefly, and would be live again in that night’s site refresh. If a company sales representative caught that an ad was missing or otherwise not running according to contract terms, management’s response was typically, “Does the client know?” If the answer was no, the general practice was to manually reinstate the ad without informing the client that it had ever been down. Often, no compensation was provided, no matter how long the issue had been occurring—which was sometimes many months.
In retrospect, it seems obvious why this was handled this way: the company desperately needed to keep revenue coming in. If The Knot refunded customers for the parts of their contracts that were not delivered on, revenues on the books would shrink. Readjusting the company’s sales strategy to compensate for diminished inventory/page views would mean hemorrhaging money. This scenario could have cascading consequences for the share price—and for the newly installed management team.
Why? Well, because ripping off customers is only one part of this story. XO Group was a publicly traded company at this point, so revenues and other financials had to be reported to Wall Street and federal regulators according to the company’s stated revenue recognition policies and proper accounting principles. For example, revenue was to be counted as such after the company had delivered the product or service (in this case, ads) according to the contract terms. While some of XO Group’s contracts with advertisers were not being fulfilled as per the agreements laid out, the company was still reporting the total value of those contracts on the books as if they were.
Given the scale and scope of the problems with ads on the site, we believe that a portion of reported revenue beginning in or around 2015 was achieved by cheating some of XO Group’s advertisers and breaching contracts.
It gets worse.
Shrinking traffic to the website also meant diminishing page views for the company’s other primary division, largely made up of prominent national retailers who bought ad impressions to be delivered over specific periods to specific areas of the site. But once again, due to the lack of web traffic/inventory, there was a scarcity of advertising inventory in hand.
As the national division was the company’s second-largest revenue generator, this was another huge problem. Shockingly (though maybe not surprisingly, given the above), management ordered sales teams to keep selling premium advertising that they knew did not exist, saying that they would “figure it out on the back end.” As it turned out, this meant violating the terms of the signed contracts after premium ad programs had been sold to clients!
Here’s what that looked like in practice: Once a deal was inked with, say, a wedding invitations company to have its ads shown on pages where brides were browsing wedding invites, the sale was recorded in the finance system. Business as usual—except that executives then instructed the sales support team to go back into the operating system, bypass the SOX compliance systems,* and reprogram the ads to appear on a lower-value area of the website (where the target customers may not have been looking), wherever there was available inventory.
This was not the placement many clients had paid a premium for. Worse still, they would never be aware that their ads had been served up on a less-relevant (and less valuable) area of the site, because no one sits and monitors a website all day. The company was generating revenue under false pretenses. And executives were instructing support staff to conceal this scheme from the sales team—presumably so we would keep selling.
We were being kept in the dark. But not for long.
Lifting the veil.
By early 2017, some sales support employees with firsthand knowledge of what was going on behind the scenes began to speak out. Multiple individuals—primarily women in the advertising operations department who were early in their careers—confessed to us, the sales team, and others that they had illegally violated the terms of client contracts in the company systems at the direction of senior management. They told of executives physically walking over to their desks and insisting that they breach the contracts. They were instructed that they could not turn away business, even if there was no media inventory to fulfill the contract.
And these weren’t isolated incidents. Employees with direct knowledge described that this practice had been going on for an extended period in 2016 and well into 2017. They also stated that it was widespread, affecting many client contracts over a period of many months and millions of dollars in revenue.
These horrifying admissions confirmed our observations related to our own clients’ ads and contracts, which we had been reporting up to the highest levels of executive management for nearly two years. One of us was told that we wouldn’t get a bonus because we were a “squeaky little wheel.” More than one of us were removed from the product-fix roadmap so we couldn’t see what was going on with the problems we were reporting, and were told repeatedly that the problems we saw were just isolated incidents—“flukes.” The gaslighting we had experienced in previous responses now made sense.
Having learned what was going on, two of us contacted the company’s whistleblower hotline and sent a letter to the Board of Directors. Astonishingly, our outreach went unanswered. We believe that the company didn't want to acknowledge our letter because it contained words like "illegal" and "SEC." It appears that the company was buying time and back-channeling to get those involved to fall in line with a “rogue employees” story.
We sent a second letter to the board, virtually the same but with "illegal" and "SEC" removed. In the days that followed, employees told us that senior leadership were holding them individually in rooms and instructing them to change their account of events to fit the company narrative: that they had acted of their own volition, that no one had instructed them to violate contracts or bypass compliance systems.
When these employees pushed back on taking responsibility for something that they had done at the direction of management, they were told that they would be in serious legal trouble. Scared to death and not understanding their legal position, some admitted that they caved, signing documents stating that they had falsified the terms of the contracts and acted independently. One young woman who refused to sign was told, “Fine, we will sign the document for you.”
Eventually, what we can only describe as a sham of an inquiry took place in response to our letters. We observed that no one was documenting what we were saying during our hours-long interviews (save a young-looking associate taking handwritten notes on a pad under the table). The only formal response was a denial of all of our allegations, despite the extensive documentation and testimony we provided.
From bad to worse.
Meanwhile, another launch to implement new internal operating systems in the local division (the company’s largest income sector, at almost 50 percent of revenue, comprising local wedding ad clients across the United States) made XO Group’s revenue problems even worse. Despite warnings that the new systems to manage contract entry, revenue calculation, commission payment, client billing, sales management, and advertising operations were not ready, senior management pulled the trigger.
All hell broke loose and an extended period of paralysis ensued. New and existing ads were arbitrarily falling off of the website or not always running in the correct place. Droves of clients were being incorrectly billed. Sales representative commissions could not be accurately calculated, and senior sales managers were openly admitting internally that they did not have a handle on vital company systems—including revenue.
Once again, this disaster had larger repercussions. We believe that the extent of these problems was not properly disclosed to Wall Street analysts. Though management admitted in earnings calls to issues with the new systems rollout, they downplayed the impact by repeatedly stating that this was a short-term disruption and would impact productivity for only a limited period of time. They also chalked up some of the problems to salespeople as having trouble adjusting to the new systems.
In truth, internal documents confirm that the tech issues were a cataclysmic event that disrupted revenue for a much longer period than was disclosed. Beyond this, many millions of dollars in bad debt on the company’s balance sheet were also unearthed around this period (confirmed by a later internal email), and we have not found any evidence to date that this was ever disclosed in the manner we believe was required.
Based on our understanding of disclosure rules, a company must also report any change or delay in a stated growth strategy. XO Group’s pivot to an Etsy-like “transactional-based revenue model” was failing, its proof of concept known as “The Concierge Program” quietly shuttered from late 2016 into early 2017, with employees told to keep its failure a secret. This, too, was not shared truthfully with investors. Transcripts of earnings calls reveal management dancing around Wall Street analysts' questions on the local systems implementations and requests for updates about the growth strategy, long after the program had been abandoned. Analysts inquired on these calls about the sudden plunge in national division revenue and headcount, and executives misled them, calling it a “temporary phenomenon” and repeatedly redirecting them.
Getting ditched.
Of course, as is often the case when big corporations do wrong, vocal employees who flagged fraudulent conduct were not responded to appropriately, but instead retaliated against. Some were fired. When one resigned in direct protest to the terms of the contracts being falsified, HR said in her exit interview that she “sounded disgruntled.” Another resigned, and the company rejected the resignation, stating that the job had “been abandoned and that the final paycheck had been processed”; both of these claims were false. One of us was even physically assaulted—grabbed by the forearms by a senior executive, who shouted, shaking and spitting: “Stop complaining about all of the contract violations! You’ve got to stop complaining about all of these problems!”
One of us sent a lengthy email to the head of HR, detailing contract violations and retaliation, and was threatened by senior executives with being fired if we did not stop voicing concerns. A senior-most executive directly stated to one of the authors of this essay, “The company is circling the wagons to protect itself. Do not make any sudden moves. Our attorneys wake up in the morning thinking of ways to f— you over.”
Another employee who had extensive knowledge of the fraud and pushed back on changing her story said that she was being followed outside the office. We later learned that she caved and assisted the company in covering its tracks, after being repeatedly threatened that she and the other employees—mostly women early in their careers—would be in serious legal trouble if they did not fall in line.
As another casualty of the company’s bedlam, over half of the national division sales team were forced out in rapid succession. Based on what we saw, we believe that this was due to their knowledge of the fraud against clients. Many of these employees described that management suddenly made charges of poor work performance to get rid of them, or withheld a rightfully owed bonus or other compensation until they signed ironclad nondisclosure agreements and quietly exited without causing trouble. Essentially every top-performing sales representative in the national division was dumped.
All of this was going on while executives were stating that employees should speak up when they saw wrongdoing, and that “the company has a strict non-retaliation policy.” But anyone who did speak up was essentially lifting their head from a foxhole—it wouldn’t be long before they, too, were likely terminated.
It won’t happen again.
In the wake of all of this, the XO Group refiled its 2016 annual financials with the SEC in early 2017 to offer an admission (sort of) that something was askew. But this was no mea culpa. Ernst & Young issued an “adverse opinion” in its audit report for this refiling, citing the ineffectiveness of the company’s internal control over financial reporting for the national online advertising revenue recognition.
The company downplayed the matter, claiming its problems with revenue recognition were not significant enough to impact the financials, essentially saying, “We have a material weakness, but it is nonmaterial to the financials.” (This is odd because a material weakness, by definition, is an acknowledgement that there’s a problem or a combination of problems with the financials that a company has reported, and that the inaccuracies are serious enough that they could affect the financials, which in turn could affect the stock price.) Putting this seemingly oxymoronic statement aside, the company said that the material weakness was related to a “control deficiency.”
What they don’t say, of course, is the actual reason for the control deficiency: the team operating the SOX compliance system for the national ad sales operations (made up almost entirely of young women) was being told by management to violate the terms of contracts on the backend.
We believe that XO Group used the rogue-employee narrative and unreliable confessions from the sales operations teams to justify the newly filed 10K financial statement to investors, and to escape scrutiny. These young women would be the company’s scapegoats. But other things were percolating, too: the Board of Directors and company executives had been preparing XO Group for a “walk down the aisle.”
Shotgun wedding?
As early as mid-2016, XO Group was courting buyers. Repeated failed initiatives had left the company in trouble. In an apparent attempt to make itself more attractive to suitors, the company adjusted its earlier presented numbers about the US wedding market, claiming that it had only tapped 5 percent of market share and that the size of the potential business opportunity had dramatically surged, as reflected by the hundred of thousands of businesses newly added to the Salesforce CRM System as “untapped sales opportunities.” The company also boasted about its 80 percent retention rate among its advertising partners.
In reality, this was subterfuge. Internally, advertiser cancellations were accelerating, and salespeople were fielding a barrage of client complaints that traffic via The Knot was down precipitously and a large number of leads were fake or spam. As laid out above, data and financials, including accelerated revenue numbers, were being manipulated and reported in a way we believe is not compliant with Generally Accepted Accounting Principles (GAAP) and the new AS606 Rule required by the SEC to be in place by December 15, 2017.
Curiously, as merger negotiations were warming up in the first quarter of 2018, the company also issued unaudited restatements of both its 2016 and 2017 financials—which, by definition, means the numbers were “materially different” than previously reported financials (despite their earlier assertion that theses problems were “non-material,” as detailed above). The company provided analysts and authorities these unaudited financial statements for both years and quickly referenced them as “housekeeping items”on the First Quarter 2018 Earnings Call. The company remarked that these restatements were related to their having implemented the required new accounting rules.
Of course, as we have learned from examples including FTX and the college financial aid company FRANK, such things are only a lie if you get caught. And XO Group did not get caught. The Board of Directors blessed a merger with WeddingWire, but not before XO Group’s stock was shooting up like an excited groom on his wedding night, surging more than 80 percent during the period that nonpublic merger discussions had taken place. The company then filed its Second and Third Quarter 2018 financials—which were also unaudited. Right around this time, XO Group also announced that its quarterly adjusted EBITDA had moved upward to as high as 24 percent, and the stock eventually reached $35.83 per share**. A merger price of $35 per share was settled on.
The company did, however, file an amendment for their 2017 10 K/A in August 2018, with senior-most executives attesting that the restated financials did not contain any untrue statement of a material fact—and that the previously reported “material weakness” had been remediated. Perhaps most noteworthy is the fact that a $933 million dollar transaction occurred even though no officially audited financials had been on file with regulators for the previous 33-plus months.
To prepare for the nuptials, an XO Group executive said in a company all-hands meeting that their “good friends at the DOJ” (Department of Justice) would oversee the merger review process. But what the DOJ was actually reviewing was, in our opinion, not an accurate picture. Sales employees were given a script of what to say about the two industry giants joining forces, and instructed to tell ad clients that the merger would allow the combined companies to “pass along the operational costs savings.” The mantra was, “We do not anticipate any rate increases at this time.” This, it turned out, would prove to be far from the truth.
Cheating so soon?
In 2019, shortly after the two companies married and became The Knot Worldwide, the new leadership and newly formed company got their first real look under the veil at XO Group’s inner workings and financials, and the honeymoon appeared to be over. As one former executive stated to one of us, “They thought [that] Wedding Wire buying them was a success. They destroyed the company. I can't believe they are not in jail.” This executive added, surprised that WeddingWire had not come after XO Group: “They bought a crock of sh—, basically."
That all was not as had been reported by XO Group during the romancing period was confirmed post-merger, when the new company began to share metrics in documents that directly refuted previous filings made by the former company. Ad renewal rates sharply and inexplicably declined mere months after merging, despite the prior claims of a 78–80 percent ad client retention rate.
The aforementioned Salesforce leads that XO Group had referenced to make the growth potential attractive to a partner were revealed to be “dirty data.” All the talk on earnings calls to ad partners of how “traffic is up” and “both quality and value of leads are increasing” was false. In fact, according to one employee, advertisers were getting leads that were not in the appropriate geographic area or price point, or for a date that was already booked—essentially worthless.
And the new company was compensating accordingly. After making all assurances to clients that the merger would be good for them and savings would be passed along to them, The Knot Worldwide began to drive up advertising rates almost immediately after the dust settled—as much as 300 percent, particularly in bread-and-butter categories such as reception venues. In one exchange with a sales executive regarding an advertiser’s complaint about a steep rate increase, the Director said to the executive, “So list price jumps from $3K to $9,600? Apparently? Haha.” Another executive said, “We can just tell the clients ‘whatever’ in terms of leads.”
Now understanding that a large percentage of the leads they were providing were junk, management at The Knot Worldwide also took up the mantle. A senior employee warned the new executive management team that this strategy was “unethical and stupid, as the media partners would surely cancel shortly afterward.” But the executive team sanctioned the practice nonetheless. One sales employee summed it up well: “What more can they do to screw these clients over?!”
This internal chatter among The Knot Worldwide’s customers is confirmed by looking at currently available web review sites; to this day, you can see complaints of contracts unfulfilled and impossible to get out of, and torrents of fake and spam leads. A recent Business Insider article also reveals that things are still amiss, reporting that 70–80 percent of the company’s leads are scams and that little to no inbound results from their advertising.
Even as advertisers begin to see the light, for most of the public and to brides and grooms around America, The Knot still has a sheen. For decades, it has been a place that people turn to in celebrating their love. Yet an untold number of large and small businesses may have been flushing their money down a toilet all these years, to a company waving a pro-women flag but bullying its women employees behind a beautiful veil.
Though none of us work at The Knot anymore—having departed after raising our arms loudly and repeatedly in protest—we feel it is essential that others know the darkness beneath its pretty exterior. We are speaking up now on behalf of our colleagues who were pressured into acts that they knew were wrong but were scared into submission, their voices silenced by NDAs. We are speaking up for the clients harmed by the company's siphoning of revenue from customers around the country, and its lack of appropriate action to remedy this. And we are speaking up for the right to speak up itself. We loved much of our time at The Knot, but none of us signed NDAs in exchange for hush money, and we will not remain silent any longer.
* Sarbanes Oxley Compliance Systems (commonly called SOX), implemented after the massive corporate frauds of Enron and Worldcom in the early 2000s, are required by law for companies such as XO Group. Changing a contract without the client’s knowledge and express permission is not permissible according to compliance regulations.
** For historical context, XO Group’s stock was hovering in the range of $19 per share as merger negotiations began to warm up.
The authors can be contacted at http://knotwhistleblowers.com.
A spokesperson for The Knot Worldwide responded to the original publisher’s request for comment with the following statement:
At The Knot Worldwide, our priority is to serve our couples, vendor community, and national advertising partners, while also supporting the wellbeing of our employees across the globe.
In this case, former employees of XO Group, Inc., which operated The Knot until late 2018, relayed their concerns to leadership before parting ways with the company years ago. Their concerns were taken seriously then, as they are taken seriously now.
The senior leadership team who were alerted to these concerns and worked at XO Group Inc. prior to the merger with WeddingWire, Inc. in 2018 are not a part of The Knot Worldwide today. At the time, an external law firm was engaged to conduct a thorough investigation into the complaints made by the former employees. The investigation found that XO Group accurately reported financial performance in all material respects, and any claims of widespread misconduct were unfounded. XO Group also cooperated with federal regulators who did not pursue enforcement action based on these allegations.
