Whatnot is a fast-growing live e-commerce platform that connects independent sellers with buyers through live-streamed auctions of collectibles, fashion, and other goods. Founded in 2019, Whatnot has attracted nearly $11.5 billion valuation after rapid funding rounds[1], and the platform reportedly facilitated over $6 billion in sales in 2025 alone[2]. This explosive growth underscores Whatnot’s influence in the online marketplace sector. However, beneath the success lie serious structural risks and legal exposure for the platform. Numerous reports and documented cases reveal patterns of unfair treatment of sellers, potential regulatory non-compliance, and alarming internal governance issues.
This white paper, prepared by the Whatnot Seller Alliance (WSA), provides a comprehensive analysis of platform-level risks associated with Whatnot’s policies and practices. It is intended for U.S. regulators (federal and state), media investigators, investors, legal experts, and the general public concerned with fair commerce and consumer protection. We focus on systemic issues under Whatnot’s control – platform design, policies, and enforcement – rather than isolated bad actors.
The analysis covers eight key areas of risk and legal concern:
In addition, a detailed case study (referred to as “Case WN-16082469”) is presented to illustrate how these issues converge in practice. All evidence referenced (such as seller communications and video statements) is documented and can be made available confidentially to regulators upon request. For public safety and privacy, specific personal details are withheld.
The paper concludes with a regulatory mapping and calls to action – urging oversight authorities to investigate and intervene, encouraging media and legal observers to scrutinize these practices, and recommending reforms that Whatnot’s leadership must undertake to address these problems. The goal is to ensure fairness, accountability, and lawful conduct in this influential platform before more sellers and consumers are harmed.
One of the most troubling issues is Whatnot’s pattern of suspending seller accounts and withholding earned funds without clear evidence or prior notice. Sellers have reported being permanently banned and denied payouts for sold goods with little to no explanation from the platform. In many cases, these bans occur immediately after large sales or payout requests, raising concerns that the platform may be arbitrarily seizing funds under the guise of “fraud prevention.”
For example, in one widely-discussed case a seller shipped over $20,000 worth of merchandise (sealed iPhones) in good faith, after Whatnot indicated the buyer payments were cleared. Immediately after shipment, Whatnot banned the seller for “fraudulent activity” and refused to release the payout – over $20k of the seller’s own inventory value – even though the seller had already fulfilled the orders[3]. The platform provided no evidence of wrongdoing by the seller. Instead, it turned out that the buyers had used stolen or fraudulent payment methods, yet Whatnot’s response was to punish the seller and hold the funds[4]. The seller was left without the products (already shipped to the fraudulent buyers) and without payment, a financially devastating outcome. As the seller noted, “Whatnot approved and green-lit these transactions before I shipped… If this happened to me, it can happen to anyone dealing with high-value items.”[5]
Such scenarios highlight an apparent “heads we win, tails you lose” approach by the platform. When transactions go well, Whatnot takes its commission; when a transaction is later flagged (even due to buyer fraud beyond the seller’s control), Whatnot shifts all losses to the seller by withholding payouts. This arbitrary withholding of earned income without due process raises serious legal and ethical questions. If a company permanently retains a seller’s funds without proving a breach of policy or law, it could be seen as conversion or unjust enrichment, regardless of what the Terms of Service purport to allow. As one observer starkly put it, “They think their policies trump the law. It’s unlawful for a company to permanently keep your money just because they believe you’ve done something wrong.”[6] In the U.S., contract provisions do not permit a party to seize funds without cause; a platform’s internal rules cannot supersede fundamental legal rights to one’s property.
Moreover, numerous complaints on consumer forums and to regulators echo this pattern. On the Better Business Bureau (BBB) website, which has logged hundreds of complaints about Whatnot, sellers (and buyers) report funds being held or sales voided without explanation. Over the past three years, 704 complaints were filed with the BBB against Whatnot, and tellingly over half (360+) received no response from the company at all[7][8]. One complaint describes a user being denied a refund for returned items with Whatnot “making excuses” and repeatedly delaying action[9]. Another complaint recounts how support flagged a user’s account for “too many refunds” and simply kept the user’s $40.38 (including sales tax) with no further recourse, despite no written policy ever communicated about such a limit[10][11]. These reports paint a picture of a platform that unilaterally withholds money and cuts off users, operating more like a closed regime than a fair marketplace.
From a regulatory standpoint, arbitrary suspensions and holds may constitute unfair or deceptive trade practices. The Federal Trade Commission (FTC) and state Attorneys General enforce laws prohibiting businesses from engaging in unfair business acts. A practice can be “unfair” if it causes substantial harm that consumers cannot reasonably avoid and is not outweighed by benefits. Indefinitely freezing a small business’s revenue without due cause or recourse is likely an “unfair” practice, especially if the seller upheld their end of the transaction. State attorneys general, who have received complaints (sellers often consider contacting their State AG when faced with non-payment[12]), could investigate whether Whatnot’s actions violate consumer protection statutes or even payments laws (e.g. misappropriation of funds).
Due to these concerns, arbitrary payout holds represent not just a contractual dispute, but a potential regulatory violation and legal liability for Whatnot. Sellers are beginning to pursue legal remedies in response – ranging from formal demand letters to arbitration or lawsuits – which could evolve into class-action challenges if not addressed. This practice also erodes trust in the platform: sellers operating as small businesses cannot sustain a model where their payout might be confiscated on a whim. The chilling effect is detrimental to honest sellers and ultimately to Whatnot’s own long-term viability as a commerce platform.
Whatnot’s business model involves processing payments from buyers and then disbursing funds to sellers, often after a delay (to handle shipping, buyer protection windows, etc.). This flow of funds means Whatnot is effectively handling other people’s money – a function that can trigger financial regulations, specifically Money Transmitter laws at both federal and state levels. The Bank Secrecy Act (BSA) and related regulations classify many businesses that accept and transmit payments as Money Services Businesses (MSBs), which must register with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) and obtain appropriate state licenses[13][14]. Nearly every state (49 out of 50, all except Montana) requires money transmitters to be licensed if they operate in the state[13]. These laws aim to ensure consumer funds are protected and to impose anti-money-laundering controls on entities handling money flows.
There is a regulatory exception for marketplaces that simply facilitate payments as an agent of the seller (sometimes called the “payment processor” or “agent-of-payee” exemption). Under that model, if a buyer’s payment to the platform is legally treated as payment to the seller, the platform might avoid being labeled a money transmitter. Many e-commerce companies partner with licensed payment processors or structure their transactions to fit this exemption[15][16]. It appears that Whatnot does use a third-party payment service (Stripe) to route payouts[17][18]. Sellers must connect a Stripe account to receive their funds, suggesting that Stripe – which is a registered MSB – carries out the actual fund transfers. If implemented properly, this partnership can reduce Whatnot’s direct regulatory burden.
However, serious questions remain about Whatnot’s compliance in practice:
Flow of Funds Control: Even with Stripe as a processor, Whatnot exercises control over when payouts are released (for example, imposing a 2–7 day standard payout timeline, or 31 days in the event of a permanent ban as noted in Whatnot’s help center)[19][20]. If Whatnot has the ability to hold or freeze funds at its discretion, regulators may view the platform as engaging in money transmission rather than merely facilitating. The distinction is nuanced: FinCEN guidance emphasizes examining the facts and circumstances of who holds customer funds and has control[21][14]. If Whatnot is, in effect, holding a seller’s money in escrow pending outcome of investigations or appeals, it might be performing an MSB function without proper licensure.
State Licensing: Each state defines money transmission slightly differently. Some states require a license if a company has even a momentary custody of funds between a buyer and seller. If Whatnot is not itself licensed, it must be certain that all transactions fall under Stripe’s licenses or an exemption. Any oversight (e.g., allowing payments outside the scope of Stripe’s involvement or expanding into new financial features like wallets, stored credits, gift card balances, etc.) could inadvertently put Whatnot in unlicensed territory. Even large tech companies have stumbled here. Regulators have pursued unlicensed money transmitter cases in the past against marketplaces and apps that didn’t realize they’d crossed the line[22]. The penalties for non-compliance can include heavy fines and orders to cease operations in a state.
FinCEN Registration and AML: Even if state licenses are not triggered, at the federal level FinCEN registration is required for MSBs. MSBs must implement Anti-Money Laundering (AML) programs, KYC (know-your-customer) checks, and file Suspicious Activity Reports. If Whatnot is deemed an MSB and has not been following these protocols, it risks federal enforcement. Given the presence of high-value transactions (e.g., luxury goods, gold, high-end collectibles) and international users, the platform could be abused for money laundering if proper controls aren’t in place. Regulators will consider whether Whatnot is doing enough to prevent illicit financial activity.
In summary, Whatnot faces a compliance risk under money transmitter laws unless it has carefully structured its payment system to avoid “sitting in the flow of funds.” The lack of transparency around how and why funds are held (as noted in Section 1) exacerbates this risk – prolonged holding of seller money for reasons beyond immediate payment processing starts to resemble unlicensed escrow services. Whatnot should proactively confirm and demonstrate its compliance framework to regulators. This may include showing that Stripe or another licensed entity is the one legally holding consumer funds, and that Whatnot itself is either exempt or separately licensed where required. If such measures have not been fully implemented, Whatnot could be subject to enforcement by state financial regulators or FinCEN for operating an unregistered money transmission business.
Notably, incidental money transmission as part of a marketplace doesn’t automatically excuse a company from these laws[16]. All online marketplaces must “consider how money transmission laws apply to their business model”[23], and many have obtained licenses or partnered with banks to ensure compliance. Whatnot’s rapid scaling and significant transaction volumes make it imperative that it not be operating in a legal gray area here. Regulators such as state banking departments or the U.S. Treasury will have an interest in examining this aspect, especially if complaints continue about funds being frozen or not delivered to intended recipients.
Another major structural failing in Whatnot’s platform governance is the absence of a fair, transparent process for users to defend themselves or appeal against enforcement actions. Sellers who are suspended or banned consistently report that there is no meaningful avenue to challenge the decision or even understand it. Procedural fairness – the idea that one should have notice of accusations and an opportunity to be heard – is a cornerstone of any just system, whether in legal tribunals or private platforms. Whatnot’s current practices fall dramatically short of this standard.
Officially, Whatnot claims to offer appeals. The Whatnot Help Center states: “If you think a penalty has been applied to your account in error, please respond directly to the email you received with relevant information and we will review your appeal.”[24]. On paper, this suggests banned sellers can email the support team and have their case reviewed. However, in reality, sellers describe this process as a dead-end: appeals often receive no substantive reply or only a generic form-response (e.g. “we have reviewed your account and our decision stands” with no explanation). There is typically no escalation path, no independent reviewer, and no hearing or evidence-sharing. Sellers are not told what specific evidence or accusation led to their ban (“fraudulent activity” is given as a vague label, for instance), which makes it impossible to rebut or clarify misunderstandings.
The case study of Case WN-16082469 (detailed in a later section) starkly illustrates this lack of due process. In that case, the seller was permanently suspended without evidence, then sent multiple inquiries and even a formal video statement to Whatnot vehemently denying the platform’s stated reasons for the ban. The outcome? Total silence from Whatnot – the seller received no reply addressing the evidence or arguments presented, effectively nullifying the concept of an “appeal.” Unfortunately, this is not an isolated incident but rather emblematic of how Whatnot handles seller disputes.
Furthermore, Whatnot’s enforcement practices appear to involve undisclosed “strikes” or flagging systems that users only learn about after the fact. For example, a BBB complaint recounts that a user’s account was flagged for having “too many refunds,” resulting in denial of a refund on a purchase[25]. The user was never informed that such a flag existed or what the threshold was; indeed, “There is no written rule regarding [refund limits]... nothing in writing saying they were flagging my account”, the user noted[26]. When the user asked how to remove the flag, they were told by support to “buy more, pay more, be nice to hosts and maybe [we’ll] remove [it]”, an utterly capricious and punitive response[26]. This anecdote reveals a complete lack of transparency in policy enforcement. Secret algorithms or policies that punish users without disclosure violate basic notions of fairness and could be deemed deceptive (since users cannot avoid or address rules that are not communicated).
The lack of procedural fairness on Whatnot has several legal and regulatory implications:
Unfair Practice Concerns: Both the FTC Act and state Unfair and Deceptive Acts and Practices (UDAP) laws may come into play. If a platform metes out punishment in an arbitrary manner, especially one that results in financial harm, it can be considered “unfair.” The impacted sellers often have no alternative recourse but to complain to government agencies or forums. Regulators have intervened in other industries where companies used opaque algorithms or internal policies to the detriment of users without recourse (for instance, rideshare driver deactivations and the push for due process in those platforms has caught the eye of regulators).
Contractual Breach of Good Faith: Even if the Terms of Service grant Whatnot broad discretion, contract law in many states imposes an implied covenant of good faith and fair dealing. This means neither party should exercise contractual discretion in a manner that deprives the other of the benefits of the contract. A seller who follows all rules and ships products expects to receive payout; an arbitrary ban and fund hold may be seen as bad faith interference in that right. Courts have held that even at-will termination rights must be executed in good faith. Whatnot’s near-zero tolerance approach (banning first, asking questions never) could breach this covenant.
Lack of Notice – Possible Violation of Platform Policies: Ironically, Whatnot’s own stated policies champion “fair, transparent selling” and proportional enforcement[27]. If in practice the platform is not living up to these promises, it risks reputational damage and inconsistent application of rules (which in turn can raise discrimination or bias concerns, even if unintentionally). From a policy perspective, regulators may question whether Whatnot’s internal Trust & Safety operations have adequate training, documentation, and consistency. The company advertises a “Trust & Safety Regulatory Counsel” role[28] – suggesting it anticipates regulatory scrutiny on these issues.
In essence, sellers on Whatnot face a system where they can be effectively “defendants” in a secretive process with no rights. They are not shown evidence of alleged violations (e.g. a buyer claim of a fake item, or an accusation of off-platform transaction, etc.), nor given an impartial forum to rebut it. The appeals, if any, are handled by the same authority that imposed the ban, with no transparency. This one-sided process would never meet standards of fairness in a public legal system, and while private companies are not bound by constitutional due process, the principle of fairness still applies in the marketplace, especially when livelihoods are on the line.
The Whatnot Seller Alliance urges Whatnot to implement a robust and transparent appeals process – for example, a dedicated appeals team separate from initial enforcers, a requirement to disclose the general reason for action (and any evidence that can be safely shared), and a timeline for reviewing appeals with a chance for sellers to present their case. Other major platforms (eBay, Amazon) have faced criticism in the past for arbitrary suspensions, and they have at times been compelled to improve their processes under pressure. We believe Whatnot must do the same to avoid regulatory intervention. Indeed, some sellers have begun contacting their state Attorneys General and even the FTC about the inability to appeal or recover funds[12][29], which could trigger investigations into whether the platform’s practices violate consumer protection laws.
One procedural fairness issue observed on Whatnot is the enforcement of a non-existent “host identity” rule as a pretext for punitive actions. Whatnot has repeatedly cited an unwritten requirement that “the livestream host must be the person who completed KYC verification” (i.e. the account owner) when banning seller accounts and withholding their payout funds. However, no such rule appears in any of Whatnot’s public policies, Terms of Service, or Community Guidelines. The platform’s official onboarding requirements only state that sellers verify their own identity (phone number, payment method, and government ID) to comply with Know-Your-Customer (KYC) laws and ensure sellers are who they claim to be[55]. Nowhere in the published rules is it declared that the person appearing on camera must be the same individual as the verified account holder. In other words, Whatnot has been enforcing an undeclared/unpublished rule. Using a hidden rule as the basis for permanent bans and non-payment of earned funds is procedurally unfair and amounts to deceptive enforcement, since sellers cannot reasonably anticipate or verify such a requirement in advance.
Case WN-16082469 – Identity Verification Misrepresentation Case: This case starkly illustrates the contradiction between Whatnot’s written guidance and its actual enforcement actions. The seller in Case 16082469, after being banned, was told during the appeal process that they must upload the host’s government ID because “the host must be the KYC-verified person” – the exact rationale given for denying the appeal and freezing payouts. Yet in a prior official support email (Request #15918804), Whatnot explicitly stated “a streamer does not need additional verification.” In other words, the platform’s own documented guidance said that no extra identity check is required for someone hosting a stream on a verified seller’s account. This directly contradicts the later enforcement stance. Such a policy reversal and inconsistency indicate:
Crucially, Case 16082469 is not an isolated incident but part of a broader pattern. Multiple sellers have reported similar experiences of the “ban + no-payout” strategy using the host-identity pretext. In these cases, sellers are suddenly asked to produce the host’s ID documents or otherwise told that the person appearing in their live shows must match the KYC-verified account holder – and if they cannot immediately satisfy this surprise demand, their appeals are denied, their bans upheld, and their payout funds remain frozen indefinitely. Most affected sellers had no way of knowing such a rule existed (because it actually doesn’t in any public-facing policy). Whatnot appears to be taking advantage of this lack of user awareness to impose a systemic punitive pattern:
Using unverifiable identity demands as a punitive mechanism in this manner poses serious legal and regulatory risks for Whatnot. Such conduct can be analyzed under several legal frameworks:
In conclusion, Whatnot’s practice of using a non-existent rule as an enforcement basis represents a structural risk on the platform – not a one-off mistake by a rogue employee, but a deliberate strategy that contradicts the platform’s stated policies. Case 16082469 provides a clear written evidence trail of this deception: the company first assured the seller that no additional host verification was needed, yet later denied that same seller’s payout by claiming the opposite. Such glaring policy inconsistency and deceptive enforcement patterns are exactly the kind of issues regulators look for when assessing fairness in online marketplaces. Whatnot’s approach here erodes trust and could invite regulatory intervention due to the apparent bad-faith conduct.
To mitigate these risks, it is recommended that regulatory authorities require Whatnot to take corrective actions:
By implementing the above measures, Whatnot can begin to restore trust and demonstrate that it is not engaging in arbitrary or deceptive enforcement. Until then, the misrepresentation of host identity requirements and misuse of KYC verification remains a significant risk factor in Whatnot’s platform governance, one that not only harms individual sellers but could also draw legal consequences for the company if left unaddressed.
Like many tech companies, Whatnot’s relationship with its users is governed by a lengthy Terms of Service (ToS) – a non-negotiable contract of adhesion that users must accept to use the platform. However, Whatnot’s ToS contains provisions that are exceptionally one-sided, arguably to the point of being unconscionable and legally unenforceable. The ToS also purports to grant Whatnot sweeping powers that go beyond what is reasonable or, in some cases, beyond what the law permits. Such overreach not only harms users but also exposes the company to legal challenge and public censure.
Key examples of problematic provisions in Whatnot’s Terms of Service include:
Mandatory Arbitration and Class Action Waiver: The ToS prominently states that users must resolve “any dispute between you and Whatnot through binding, individual arbitration rather than in court”[30]. It also features a Class Action Waiver, prohibiting users from joining together to sue Whatnot as a group[31]. In practice, this means a seller who lost $20,000 due to an unjust ban cannot sue Whatnot in court or join a class action – they would be forced into private arbitration, alone. While such clauses have been upheld in many contexts, they have faced growing criticism. They tilt the playing field by removing the deterrent of a public lawsuit or class action, thereby reducing Whatnot’s accountability for widespread harms. It’s worth noting that unconscionability challenges to arbitration clauses are mounting in courts; a term that effectively immunizes a company from any collective legal accountability might be deemed substantively unconscionable (overly harsh and one-sided)[32][33], especially if combined with procedural unconscionability (no real choice but to accept).
Broad License and User Content Claims: Whatnot’s terms likely include broad language giving it the right to use any content users post (images, streams) and to monitor communications. While not unusual, users and regulators have an interest in how such data is used, especially if it involves personally identifiable information or could be seen as an overreach into privacy.
Disclaimer of Liability: The ToS almost certainly disclaims Whatnot from liability for various issues (for example, harm from transactions, accuracy of listings, etc.) and limits damages. An extreme disparity in responsibility – where the platform takes credit for successes but no accountability for failures – can be unconscionable if it “shocks the conscience.” Courts have refused to enforce disclaimers that completely insulate a party from the consequences of its own intentional wrongdoing or gross negligence. If, hypothetically, Whatnot wrongfully withholds a seller’s money, a blanket disclaimer that “we are not liable for any damages” might not hold up in court.
Sole Discretion Penalties: In the community guidelines and ToS, Whatnot grants itself sole discretion to impose a range of penalties on users for any violation – including withholding any payments due to the seller and suspending or banning the account without prior notice[34][35]. Notably, the ToS explicitly says Whatnot may “in its sole discretion” cancel transactions, retain funds, charge extra fees, or permanently terminate accounts for a breach (or even suspected breach) of its rules[34][35]. This imbalance of power is a hallmark of unconscionability. One party (the corporation) reserves the right to be judge, jury, and executioner of the contract, while the other party (the user) relinquishes all rights and defenses. Such clauses “significantly imbalance the parties’ obligations” – a key test for unconscionability under contract law[36].
Legal Overreach in Content and Conduct Policies: There are anecdotal reports that Whatnot’s policies sometimes attempt to govern off-platform behavior (e.g., preventing banned users from even appearing on another user’s stream) or claim ownership in ways that could conflict with law (such as broad intellectual property assertions). Any policy that exceeds the platform’s lawful domain could be struck down. For instance, a clause that forbids users from discussing their case or from disparaging Whatnot might collide with rights to free speech or whistleblowing (the FTC has acted against companies that gag consumers from reviewing products or speaking out).
The cumulative effect of these provisions is to create a regime where users have virtually no legal recourse or bargaining power, and Whatnot can operate with impunity. In legal terms, this is the very scenario that “unconscionability” doctrine aims to prevent: an agreement so one-sided that no reasonable, informed person would agree to it, and no honest business should enforce it[33]. If challenged in court (for example, if a seller manages to bypass arbitration or in arbitration itself), there is a real risk that a judge or arbitrator would find certain clauses unenforceable. Courts have the authority under contract law (and specific statutes like UCC §2-302 in many states) to refuse to enforce unconscionable clauses or contracts[37].
Regulators likewise take interest in oppressive terms. The Consumer Financial Protection Bureau (CFPB), though not directly overseeing marketplaces like Whatnot, has scrutinized arbitration clauses in financial contracts. State attorneys general have challenged companies that imposed egregious terms (for instance, some states ban waiver of class actions in certain contexts). The Federal Trade Commission has also warned that terms which mislead consumers about their rights (e.g., a false impression they can’t complain to authorities) could be deemed deceptive.
In Whatnot’s case, while the company may argue that users consented to these terms, true informed consent is questionable. Sellers often feel they have no choice but to accept whatever conditions if they want to access Whatnot’s marketplace – a classic take-it-or-leave-it adhesion contract scenario.
To mitigate legal exposure, Whatnot would be wise to voluntarily reform its Terms of Service. At minimum, it should reconsider clauses that claim the right to withhold funds or impose monetary penalties without a clear process or proof of actual damages – as these may not stand up if litigated. It should also explicitly allow users avenues to seek redress for wrongful platform actions (for example, not objecting to good-faith reports to regulators or allowing arbitration to award equitable relief). Doing so would not only reduce the impression of overreach but also demonstrate a commitment to fair dealing, which could ward off the kind of legislative or regulatory crackdowns that have befallen other industries with lopsided contracts.
Whatnot, like all marketplace facilitators, is responsible for calculating, collecting, and remitting sales taxes on transactions where required by law. The complexity of U.S. sales tax – with differing state and local rates, product taxability rules, and exemptions – makes this a challenging task. Nevertheless, any errors in tax handling can directly harm consumers and sellers and expose the company to liability. Evidence suggests that Whatnot’s system has experienced tax miscalculations and that the company’s support has at times denied rightful refunds of sales tax or other taxes when mistakes occur.
Marketplace Facilitator Tax Collection: As of recent years, all 45 states with a sales tax (and D.C.) have enacted marketplace facilitator laws requiring platforms like Whatnot to collect and remit sales tax on behalf of third-party sellers[38]. Whatnot acknowledges this duty in its help center, stating that in all required jurisdictions, it “collects sales taxes on behalf of sellers”, calculating the tax based on the buyer’s location and item details[39]. This relieves individual sellers of the need to register in every state, but it also concentrates the compliance obligation on Whatnot.
Instances of Tax Miscalculation: Users have reported scenarios where the sales tax charged was incorrect. This could happen for a variety of reasons: an item might be miscategorized (e.g., charged as taxable when it should be exempt, such as a piece of currency or bullion in certain states), or a tax rate might be outdated or wrongly applied (e.g., charging a generic state rate but not accounting for a local district tax, or vice versa). Another issue could be the taxation of shipping or fees – for example, some states tax shipping charges if the item is taxable, others do not; if Whatnot’s system errs, a buyer could be overcharged tax on shipping.
One concrete example involves sales tax on Marketplace fees. In late 2024, Whatnot informed sellers that certain states (e.g., District of Columbia, HI, NM, WV for commissions; CT, OH, SD, TX, etc. for payment processing fees) require tax to be charged on the fees the platform collects[40][41]. This indicates that previously, Whatnot may not have been charging those taxes and had to adjust to comply with state laws effective December 2024[42]. If so, there could have been a period where required taxes on fees were not collected (potential undercollection liability), or conversely, any retroactive application could confuse sellers. The Value Added Resource industry report noted that compliance in this area is complex and other platforms have bungled similar implementations[43][44]. In essence, the risk is that tax compliance gaps or calculation errors – whether on item sales or platform fees – could subject Whatnot to audits and penalties from state revenue departments.
Denial of Tax Refunds to Buyers/Sellers: Perhaps more troubling are reports that when a transaction is canceled or an item returned, Whatnot sometimes fails to refund the associated sales tax to the buyer (or fails to credit the seller, depending on the situation). Under normal circumstances, if a sale is canceled or refunded, the sales tax collected should also be refunded to the buyer, and the platform should adjust its tax remittance accordingly (or if already remitted, file a credit with the state). If Whatnot retains the tax or refuses refunds, it effectively results in an overpayment that either the consumer or the state is owed.
One BBB complaint (mentioned earlier) shows a buyer who returned items and never got their money back, including the tax – “all items were returned… I have sent proof… They have done nothing but make excuses… I demand a refund immediately. Order number [redacted]… all items were returned.”[9]. In that case, the buyer was left without both the product and the refund, an outcome that likely includes the sales tax they paid. Another complaint describes support refusing a refund by citing an internal flag (too many refunds on the account) and thus the user says, “They kept my $40.38 including sales tax… I want [the] total order refunded.”[45]. Keeping the tax on a non-completed sale is improper; at best it should have been remitted to the state if the sale was deemed final (in which case the user could theoretically petition the state for a refund, an onerous process), but here it appears the company simply held onto it, since no refund to the buyer or remittance to the state occurred given the dispute status.
Such practices can violate consumer protection laws and tax regulations. Most state tax codes prohibit sellers (or facilitators) from knowingly overcharging sales tax. If a company collects more tax than is due, it must refund the excess to the customer or remit it to the state – keeping it is often considered illegal (sometimes termed an “unlawful enrichment” or false collection). For example, if Whatnot’s system accidentally charged 10% sales tax instead of the correct 8%, that extra 2% cannot just be pocketed by the company. Similarly, if an entire transaction is nullified, any tax collected should be returned. Failing to do so might subject Whatnot to state enforcement action. State Attorneys General have, in the past, taken action against businesses that systematically over-collected tax from consumers.
From the seller perspective, tax mishandling can also cause problems. Sellers rely on Whatnot to handle tax correctly. If Whatnot miscalculates and under-collects tax, a state could potentially pursue the seller for the difference (though marketplace facilitator laws generally make the platform liable, there have been cases of confusion). If Whatnot over-collects and doesn’t refund, buyers may blame the seller or the overall transaction experience deteriorates, which again harms sellers’ reputation through no fault of their own.
In summary, tax issues on Whatnot represent both a consumer issue and a regulatory compliance issue. We identify the following risks:
To remedy these issues, Whatnot should conduct a thorough audit of its tax calculation engine and refund procedures. Any identified miscalculations should prompt proactive remediation – for instance, issuing credits/refunds to affected users and correcting the rates/item mappings for future. The platform should also clearly communicate to users that if a mistake in tax occurs, it will be corrected, and then follow through. Regulators such as state Departments of Revenue and state AG offices will be interested in whether Whatnot is fulfilling its role as a tax collector fairly and accurately. The Whatnot Seller Alliance is prepared to compile instances of tax discrepancies to assist any regulatory review.
In the bigger picture, these tax issues tie into the next topic – marketplace facilitator obligations – of which tax collection is a primary component but not the only one.
Beyond just calculating taxes, marketplace platforms like Whatnot have a broader set of obligations under various e-commerce and consumer protection laws. The term “marketplace facilitator” is used in legislation not only for tax purposes but also increasingly to assign responsibilities in areas such as product liability, record-keeping, and consumer redress. There are signs that Whatnot is not fully living up to some of these obligations, which could expose it to legal action or require corrective measures.
Sales Tax Remittance and Reporting: As discussed, Whatnot is obligated to remit the sales taxes it collects to the appropriate state authorities. Each state has specific filing frequencies (monthly, quarterly, etc.) and reporting requirements, including sometimes providing transaction details. A failure to properly remit taxes (especially if combined with the refund issues above) would mean Whatnot is holding funds that belong to the state treasury. This is a serious offense – states can impose fines and interest, and in extreme cases, criminal penalties for tax evasion or misappropriation. While we do not have evidence that Whatnot is failing to remit (the company likely is remitting on schedule to stay in operation), the lack of transparency on refunds and adjustments raises the question of whether the platform’s internal accounting is robust enough to avoid errors. If, for instance, Whatnot collected tax on $100 million of sales in a month but $5 million of those sales were refunded, it needs to adjust the remittance accordingly. Given the aggressive stance of state tax authorities, Whatnot must ensure it files accurate returns and promptly claims credits for refunded transactions so that buyers are not left footing the bill for taxes on canceled sales.
Regulatory Compliance Beyond Tax: Marketplace facilitator laws in some states extend to other areas. For example, certain states require marketplaces to disclose to sellers their sales information for income tax purposes (issuing 1099-K forms, which Whatnot does via Stripe, and possibly providing breakdowns by state). There are also requirements in some jurisdictions for marketplaces to cooperate with law enforcement requests (for instance, providing information on high-value sales or suspicious activities). Whatnot should be prepared to handle such requests; failure to do so could result in subpoenas or legal action (e.g., California’s marketplace laws mandate response to online fraud or theft inquiries, etc.).
Consumer Protection and Safety: Although not labeled under “marketplace facilitator” laws, general consumer protection law implies certain duties for a platform that intermediates sales. Major platforms have been pressured to take responsibility for ensuring products sold are authentic, safe, and as described. While Whatnot’s model is live auctions (often for collectibles), there have been concerns about counterfeit merchandise, scams (e.g., fake giveaway claims), and other issues. To the extent that Whatnot allows or does not police clear violations (like sellers breaking laws or terms), it could be considered to be facilitating illegal activity. Regulators could view the platform as not fulfilling its “duty to monitor” in egregious cases, despite any ToS disclaimers. In fact, Whatnot’s own policies promise efforts to keep the platform safe (reporting illegal content, cooperating with NCMEC on any exploitation issues, etc.) [49]. Any lapse, such as failing to enforce its rules consistently or turning a blind eye to high-revenue sellers’ violations, would breach those obligations. We note that some prominent controversies (like the Backyard Breaks incident [50] [51], where a major seller was only suspended after public outcry for offensive behavior) suggest that enforcement can be uneven. If a marketplace facilitator treats users differently based on clout — enforcing strictly on small sellers but leniently on big ones — it risks claims of unfairness or even facilitating unfair trade practices.
Product and Service Taxes/Fees: Some states have introduced unique marketplace fees (for example, recycling fees, or in Colorado, a $0.27 retail delivery fee per order). If Whatnot hasn’t accounted for those, it might not be fully compliant as a facilitator. The VAR report noted how Etsy was late on implementing the Colorado fee [52]. These small obligations can slip through cracks; however, non-compliance can lead to state penalties or forced remediation (as happened with Etsy). It’s worth verifying if Whatnot handles such state-specific obligations.
Returns and Refunds (Marketplace as Seller of Record): Under some consumer laws, marketplaces are treated as the seller of record for certain purposes, especially when they control payments and listings. That could mean Whatnot has an obligation to ensure consumers receive refunds for returned goods or that products are delivered as described. If sellers default (e.g., fail to ship an item), the marketplace may be on the hook to reimburse the buyer under “marketplace guarantee” principles. Whatnot does advertise a Buyer Protection policy. The BBB complaints show cases where buyers did not get refunds for returns [9], which indicates a breakdown in fulfilling that duty. If those instances are systemic, state AGs could investigate whether Whatnot is effectively aiding and abetting unfair conduct by not delivering refunds that are due.
In summary, Whatnot’s legal exposure in this category stems from any gaps between what the law expects of a marketplace and what the platform actually does. Marketplace facilitator statutes primarily focus on tax, and by all accounts Whatnot has taken on that role (with the issues noted). But regulators will take a holistic view: as an $11 billion enterprise hosting commerce, does Whatnot have the appropriate compliance infrastructure? That includes tax compliance, payment compliance, consumer safety, fraud prevention, record-keeping, and responsiveness to legal processes.
To avoid regulatory sanctions, Whatnot should review all its facilitator obligations:
The Whatnot Seller Alliance is particularly concerned that failure in these obligations not only harms users but could invite a patchwork of state enforcement that disrupts the platform’s operations. For instance, if a state finds Whatnot non-compliant with licensing or tax, it could order the platform to cease transactions in that state until fixed. This would be a lose-lose scenario. It is far better for Whatnot to aim for gold-standard compliance now, given its ample resources from fundraising.
Perhaps the most alarming category of risk – albeit one that is harder to quantify – are the signs of potential internal corruption or unauthorized interference in enforcement decisions within Whatnot. These signals primarily come from community reports suggesting that third parties (possibly including current or former Whatnot personnel or individuals with inside connections) have offered to “unban” sellers or otherwise influence account enforcement in exchange for money or favors. Such allegations, if true, point to a grave internal control failure and even criminal implications (e.g., bribery, fraud). Even if the allegations are just rumors, their existence highlights erosion of trust in Whatnot’s integrity and the opacity of its operations.
Some anecdotal instances that have circulated among sellers include:
The implications of internal corruption or interference are severe:
At this stage, the evidence of these claims is largely testimonial. The Whatnot Seller Alliance is collecting any credible information on such offers and encourages whistleblowers to come forward (confidentially, to appropriate authorities). Meanwhile, Whatnot’s management should treat this risk seriously. Even the appearance of internal impropriety can damage the platform’s credibility in the eyes of regulators and users. We recommend that Whatnot:
In conclusion on this point, the integrity of platform enforcement is fundamental. If trust collapses – if users widely believe the system is rigged or corrupt – it could spell the end of the platform as a credible venue. Thus, addressing even the possibility of corruption is not only a legal necessity but an existential one for Whatnot.
Having outlined the key risk areas, we now turn to a real-world example where many of these issues coalesced: Case WN-16082469, a seller on Whatnot whose experience showcases the platform’s deficiencies in stark relief.
Background: Case WN-16082469 (a pseudonymous seller handle) was a reputable seller on Whatnot in the category of fine jewelry and precious metals. Over the course of several weeks, Case WN-16082469 rapidly built a solid track record, completing numerous live sale events with positive buyer reviews.[53] The seller complied with all verification requirements and adhered to Whatnot’s rules. Problems arose when Case WN-16082469 initiated a routine payout withdrawal for the proceeds of recent sales — a significant sum representing both expensive inventory sold and buyers’ payments that had cleared.
The Suspension Incident: Immediately following the payout request, Whatnot’s system suddenly and permanently suspended Case WN-16082469’s seller account, effectively freezing the payout. The only explanation given was a brief email stating that the account was terminated due to a “violation of terms,” specifically citing an alleged cause that was vague and unsubstantiated (for privacy and legal reasons, we do not publish the exact accusation here, but it was akin to accusing the seller of prohibited items without proof). Importantly, Whatnot provided no evidence of the alleged violation – no buyer complaints, no counterfeit test results, nothing. Case WN-16082469 was left in the dark, with nearly $20,000 in limbo and their business effectively shuttered overnight.
Initial Response and Template Replies: Case WN-16082469 immediately reached out to Whatnot’s Trust & Safety and Support teams, seeking clarification and reinstatement. The seller’s communications were professional and detailed, asking what evidence existed and offering to address any concern. Over the next two weeks, Case WN-16082469 received only canned responses in return — generic messages such as “We understand your concern. Your case is under review. We will get back to you soon.” These replies repeated several times, each offering no new information. It quickly became clear to the seller that no one was genuinely investigating the matter; the account had simply been placed into a holding pattern, with boilerplate messages used to delay without providing substance. Meanwhile, the withheld payout remained frozen due to the alleged “violation,” even though no evidence of wrongdoing was ever presented.
Formal Appeal – Video Statement: To contest the suspension, Case WN-16082469 submitted a video statement recorded by the account’s KYC-verified representative. In the recording, the representative explained that the suspension was triggered by Whatnot’s allegation that “You falsely claimed that an account was created in your name.” The representative stated clearly that no such claim had ever been made, nor had any communication been sent to Whatnot that could support that allegation. The representative further noted that the suspension appeared to be based on an incorrect or unverified assumption, and formally requested reinstatement of the seller account along with the release of the withheld payout. The video was submitted to Whatnot’s Trust & Safety team as part of the formal appeal process.
Outcome – Shifting Justifications and Contradictory Enforcement Attempts: After extended periods of silence and generic delays, Whatnot eventually responded to the appeal. However, instead of addressing the original allegation — “You falsely claimed that an account was created in your name.” — the platform introduced an entirely new justification for maintaining the suspension: a demand for “Identity Verification for the host on Livestream.” This new requirement directly contradicted Whatnot’s own prior written guidance. Weeks earlier, when the seller had proactively asked whether livestream hosts needed to complete any form of identity verification, Whatnot Support had explicitly stated in writing that:
“A streamer does not need additional verification.”
Relying on this documented response, Case WN-16082469 immediately pointed out the inconsistency. The seller clarified that the new verification demand was not only absent from any published rule, but also contradicted Whatnot’s own official communications. As a result, the attempt to use this requirement as a new basis for continued suspension and payout withholding collapsed under its own contradiction. This exchange revealed that Whatnot was not conducting a genuine investigation into the original allegation. Instead, the platform appeared to be searching for new and shifting rationales to justify a pre-existing decision to keep the account suspended and the payout frozen. Such post-hoc reasoning, combined with inconsistent and unpublished requirements, strongly indicates arbitrary and bad-faith enforcement rather than a rule-based compliance process. To this day, the underlying funds remain withheld, and Whatnot has not provided any evidence to substantiate either the original allegation or the later, contradictory livestream-host verification demand.
Implications and Issues Highlighted: The Case WN-16082469 encapsulates many of the systemic problems discussed in this paper:
Arbitrary Suspension & Fund Seizure: The ban occurred at the moment of payout, with no prior incidents – suggesting a possible automated flag or a hasty manual judgment. The immediate effect was to seize the seller’s revenues without evidence. This aligns with the pattern of arbitrary account suspensions (Issue #1). Case WN-16082469 had shipped products to buyers (expensive jewelry) and now faced not being paid, analogous to the earlier iPhone case [3].
Lack of Procedural Fairness: Case WN-16082469 was given no meaningful opportunity to contest the suspension or understand the factual basis of the allegation. The appeals process consisted primarily of template responses followed by extended silence, with no substantive engagement or investigation. When Whatnot finally replied after weeks of delay, the platform did not address the original allegation at all. Instead, it introduced an entirely new justification — a requirement for “Identity Verification for the host on Livestream” — which directly contradicted Whatnot’s own prior written guidance that “A streamer does not need additional verification.” Rather than providing a forum for clarification or review, Whatnot’s shifting explanations and reliance on unpublished, contradictory requirements demonstrated a lack of procedural fairness and reinforced Issue: the absence of any meaningful or impartial appeals process.
Unconscionable Terms in Action: The seller’s only ostensible avenue was arbitration per the ToS, but initiating arbitration for an average individual or small business is costly and slow (and Whatnot’s ToS might bar class actions, meaning Case WN-16082469 has to go it alone [31]). The situation also demonstrates the real power imbalance codified by the ToS: Whatnot exercised “sole discretion” to terminate and withhold funds [34] [35], and the seller’s acceptance of the ToS was used as a shield against liability or immediate legal challenge. This case could be a textbook example a court might review to decide if those ToS clauses are unconscionable, given how they left the seller with essentially no rights or remedies.
Marketplace Obligation Failures: In the case of Case WN-16082469, the seller had successfully fulfilled the overwhelming majority of more than one thousand customer orders, with most buyers already having received their items without issue. However, when the account was suddenly suspended, approximately twenty outstanding orders — including those from the most recent livestream — could not be processed or shipped. Some were still in transit and awaiting delivery, while others could not be fulfilled at all due to the immediate removal of the seller’s access to the platform. Although the number of affected orders was small relative to the seller’s overall volume, the incident demonstrates a structural marketplace risk: Whatnot’s abrupt and unexplained removal of a compliant seller can interrupt legitimate commerce and create unintended consumer harm. Several buyers expressed confusion about the seller’s sudden disappearance, indicating a breakdown in marketplace continuity and trust. For a state AG or consumer-protection regulator, the concern is not tied to product authenticity — which was never at issue in this case — but to the platform’s failure to maintain a stable and predictable transactional environment. Suspending a compliant seller based solely on an unverified allegation (“You falsely claimed that an account was created in your name”), without investigation or due process, exposes both sellers and consumers to avoidable disruption. This case illustrates that Whatnot’s enforcement practices, when executed arbitrarily, can undermine the reliability of the marketplace ecosystem and impair consumer protection obligations, even when most orders have already been fulfilled successfully.
Internal Issues: The handling of Case WN-16082469 reveals deeper structural issues inside Whatnot’s enforcement process. After extended silence, the platform eventually responded to the seller’s appeal — but instead of addressing the original allegation (“You falsely claimed that an account was created in your name”), Whatnot introduced an entirely new justification: a demand for “Identity Verification for the host on Livestream,” a requirement that directly contradicted the platform’s own prior written guidance that “A streamer does not need additional verification.” This contradictory shift suggests significant internal disorganization or a lack of coordination among enforcement, support, and policy teams. Rather than a structured review, the response pattern indicates a reactive attempt to justify a pre-existing suspension decision, even at the cost of contradicting previously documented platform instructions. Such inconsistency highlights the “black box” nature of Whatnot’s enforcement system. Without transparency, external checks, or coherent internal policy alignment, the platform’s opaque decision-making environment creates the conditions where arbitrary or improper influence could occur unnoticed, reinforcing the concerns raised in Issue.
Financial and Reputational Damage: Case WN-16082469 suffered substantial financial loss (the withheld funds and unsold future inventory since they lost access to a major sales channel) and reputational harm (suddenly vanishing from Whatnot cast suspicion in the eyes of followers/customers). This is not only unjust at an individual level, but it also sends a chilling message to other sellers – at any time, a stable seller can be expunged without recourse. Many sellers in the community became aware of the Case WN-16082469 incident, increasing their anxiety about the platform.
Aftermath: Case WN-16082469 has since provided all their correspondence and evidence to the Whatnot Seller Alliance and, on advice of counsel, is considering formal legal action or regulatory complaints. Understandably, the seller is fearful of retaliation and has thus far refrained from a public campaign (given the binding arbitration clause and confidentiality provisions in the ToS, which often try to gag parties from speaking out). We have honored the request to keep identifying details confidential in this public report. However, we affirm that all factual claims here are backed by documentation (emails, timestamps, video evidence, transaction records), which can be furnished to appropriate authorities under confidentiality if needed.
Conclusion from Case Study: The Case WN-16082469 case is a microcosm of Whatnot’s platform-level failures. A legitimate seller was treated in an arbitrary and heavy-handed way, without due process, and with significant harm resulting. No mechanism within Whatnot corrected this error, leading to an outcome that is not only privately unjust but potentially illegal (conversion of funds, breach of contract, etc.). If Whatnot’s systems do not improve, it is likely only a matter of time before multiple sellers like Case WN-16082469 come forward (some already have on forums like Reddit and BBB), potentially banding together or drawing regulator interest to address these grievances.
Regulators looking at this case would likely see clear red flags: a company that wields immense power over users’ livelihoods with no accountability or transparency. For a public official tasked with enforcing fairness in the marketplace, this is precisely the kind of situation that warrants intervention.
The next section maps out which regulators and agencies are relevant for each issue we have discussed, and the final section will provide our recommendations and calls to action.
Multiple regulatory bodies at both the federal and state level have jurisdiction over different aspects of Whatnot’s operations. The following table outlines the mapping between the issues identified and the regulators or authorities likely to be concerned or empowered to act. This mapping is intended to guide oversight bodies in understanding where their mandates intersect with Whatnot’s risk areas, and to encourage coordination where appropriate (for instance, a state AG and a state tax authority might collaborate on a case that involves both consumer protection and tax matters).
| Issue Area | Relevant Regulators / Authorities |
|
Arbitrary Suspensions & Payout Holds (Unfair/Deceptive Practices, Conversion of Funds) |
Federal Trade Commission (FTC) – enforces prohibitions on unfair or deceptive acts in commerce, can investigate platform practices that cause substantial harm (e.g., holding seller funds without cause)[12]. State Attorneys General (Consumer Protection Divisions) – enforce state UDAP laws; can bring actions for unfair business practices harming citizens (e.g., a state AG could sue or negotiate assurances of voluntary compliance if many sellers in their state are affected). State Financial Regulators – in some cases, holding of consumer funds might pique the interest of state banking departments (overlap with money transmitter issues). Law Enforcement – if fund withholding crosses into clear theft/fraud (e.g., never intending to pay out large sums), local prosecutors could theoretically consider charges (though civil regulators are more likely first responders). |
|
Money Transmitter Law Compliance (Unlicensed Money Services, AML concerns) |
FinCEN (Financial Crimes Enforcement Network, U.S. Treasury) – oversees federal MSB registration and AML compliance [14] [13]. FinCEN can levy penalties for failure to register or implement AML programs. State Financial Regulators / Banking Departments – each state’s agency that licenses money transmitters (e.g., California Department of Financial Protection and Innovation, New York DFS, etc.) can investigate if Whatnot is operating without a license in their state. These agencies can issue cease-and-desist orders, fines, or seek injunctions. State Attorneys General – sometimes coordinate with financial regulators or independently invoke consumer finance laws if unlicensed money transmission harms consumers (for instance, if withheld funds are in limbo, AGs may step in to retrieve consumers’ money). |
|
Lack of Procedural Fairness & Appeals (Due process deficiencies, unfair platform process) |
Federal Trade Commission (FTC) – could view the lack of a fair process as contributing to an “unfair” method of competition or commerce, especially if it leads to unjust outcomes for small businesses (sellers). The FTC has authority to act against practices that undermine consumers’ ability to make informed choices – here sellers join platform not expecting random termination with no recourse (a possible deceptive omission if not disclosed). State Attorneys General – using UDAP statutes, AGs can argue that Whatnot’s implicit representations of a fair marketplace are false, and the hidden one-sided process is unfair/deceptive. Several AGs have tech initiative units that look at fairness in online marketplaces. Better Business Bureau (BBB) – while not a regulator, the BBB has notified patterns of unanswered complaints [8]. They sometimes refer matters to the FTC or AGs when a company shows blatant disregard for consumer feedback. So, BBB complaint trends can trigger regulatory interest. |
|
Unconscionable Terms of Service & Legal Overreach (Arbitration, class waiver, broad discretionary powers) |
State Courts – Ultimately, unconscionability is a matter for courts. If a case is brought (through arbitration or if a court challenge proceeds), a judge can rule clauses unenforceable [37] [33]. State courts (or arbitrators applying state law) would decide if Whatnot’s ToS is unconscionable, considering states like California or New Jersey that are more protective of consumers. State Legislatures & Congress – There is a policy trend to limit enforcement of some clauses (e.g., Congress has considered limits on arbitration in consumer contexts, and some states ban class action waivers in specific contracts). If Whatnot’s case became high-profile, it could feed legislative efforts to curb such clauses in online marketplaces. Federal Trade Commission (FTC) – The FTC generally does not ban arbitration clauses, but it has taken action when companies misrepresent consumer rights (for example, fake “you can’t disparage us” clauses). If any part of the ToS is used to mislead or threaten consumers away from exercising rights (like reporting to authorities, or posting honest reviews), the FTC or state AGs could step in under deception theories. |
|
Tax Miscalculations & Sales Tax Refund Denials (Over-collection, under-collection, failure to refund tax) |
State Departments of Revenue / Taxation – The primary enforcers of sales tax law. Each state’s DOR can audit Whatnot’s tax compliance. If there are systemic miscalculations (especially over-collection without remittance, which is essentially holding tax without authority), states can impose fines and require restitution to consumers or to the state. State tax authorities also oversee marketplace facilitator law compliance – if Whatnot failed to register or file in a state, that’s within their purview. State Attorneys General – AGs can take on tax-related consumer issues as well. For example, an AG could sue if a company knowingly overcharged consumers tax (viewing it as an unfair trade practice) – such cases have happened with telecom taxes and ticket fees in the past. Here, an AG might act if a sizable number of consumers complain about being overcharged tax and not getting it back [11]. Internal Revenue Service (IRS) – While IRS is about federal tax (income tax, not sales tax), one area IRS touches is the issuance of 1099-K forms for sellers (payment reporting). If Whatnot/Stripe failed to issue correct 1099-Ks or if sellers misreport because of withheld funds, the IRS could have an interest. However, IRS involvement is less likely unless there’s large-scale tax evasion or reporting failures. |
|
Marketplace Facilitator Obligations (Broad compliance: consumer protection, product safety, record-keeping) |
State Attorneys General – AGs are the general watchdogs for marketplace facilitator compliance beyond tax. For instance, if counterfeit goods proliferate on Whatnot, AGs could pursue the platform for enabling it (as they have with Amazon and others). If Whatnot doesn’t honor its own buyer protection (refund) policies, AGs can intervene for consumers. AGs also enforce many states’ versions of the Online Marketplace Consumer Protection Act, which may require verifying high-volume sellers to combat fraud (some new federal legislation like INFORM Consumers Act intersects here too, requiring marketplaces to collect and disclose certain seller information – FTC and state AGs enforce that as of 2023). Federal Trade Commission (FTC) – The FTC could examine Whatnot under its authority over online marketplaces for any patterns of facilitating deception. For example, if sellers scam customers on Whatnot and Whatnot fails to address it, the FTC might view the platform as having unfair practices (the FTC did this with an online sale platform that failed to fulfill orders, treating the platform’s inaction as a violation). Also, if Whatnot misrepresents its role (e.g., advertising “safe and secure transactions” but not delivering on that promise), that falls under FTC scrutiny. Product Regulatory Agencies (CPSC, etc.) – If any product safety issues arise (less likely in collectibles, but possible if things like electronics or toys are sold), the Consumer Product Safety Commission could get involved in forcing marketplace compliance with recalls or bans. This is a tangential point, but part of overall obligations. |
|
Internal Corruption / Enforcement Interference (Bribery, fraud, insider abuse) |
Federal Bureau of Investigation (FBI) and U.S. Department of Justice – If credible evidence emerges of bribery or wire fraud (for instance, an employee soliciting payments to unban accounts, involving electronic communications/payments), federal law enforcement can investigate. Bribery in the private sector can be charged under honest services fraud or other fraud statutes if it involves a scheme to defraud the company or users. The FBI often handles significant cyber-fraud or corruption cases in tech companies. State Attorneys General – State criminal prosecutors (often the AG or local DAs) could theoretically pursue this if it affects citizens (e.g., a scheme where a person in State X paid to get unbanned – that could be prosecuted as a fraud in State X). In many states, commercial bribery is a crime. Whatnot’s Board and Investors – While not regulators, they have a role here. If internal corruption is happening, board members could face shareholder suits for oversight failure. They would likely bring in outside counsel to investigate, which could pre-empt bigger regulatory intervention if handled properly. Federal Trade Commission (FTC) – Indirectly, if corruption leads to consumers or honest sellers being harmed (unfairly disadvantaged by others who cheat the system), the FTC might incorporate those facts into an unfair practices case. It would strengthen the narrative that Whatnot’s internal controls are so lax as to be unfair to users. |
Table: Mapping of Whatnot’s Risk Areas to Regulatory Bodies and Potential Oversight. Each issue may fall under the jurisdiction of multiple authorities. Coordinated action (e.g., a multistate AG working group, or referral from a consumer agency to a financial regulator) is possible in a case addressing Whatnot, given the multi-faceted nature of the platform’s impact.
Whatnot’s meteoric rise in the e-commerce world has not been matched by a commensurate investment in fair and legal platform governance. The issues detailed in this white paper reveal a pattern of systemic neglect at best, and willful overreach at worst, in how Whatnot operates. Sellers have been treated as expendable, buyers at times left unprotected, and the platform’s rules enforced arbitrarily – all while Whatnot enjoys the profits of a booming marketplace. Such an imbalance is untenable in a regulated economy and a society that values the rule of law and fairness in commerce.
If Whatnot continues on its current course without rectification, it faces multiple looming consequences: regulatory enforcement actions, reputational collapse, loss of user trust, and potential legal liabilities that could undermine its business. Conversely, if Whatnot’s leadership takes these warnings seriously, there is still an opportunity to reform and become a leader in responsible innovation – proving that a tech unicorn can grow rapidly and ethically.
This concluding section outlines specific calls to action directed at the key stakeholder groups who have the power to influence the needed changes:
For Regulators and Enforcement Agencies: We urge federal and state regulators to initiate inquiries into Whatnot’s practices. The FTC should consider using its broad authority to investigate whether Whatnot’s patterns of account closures and fund withholdings constitute unfair practices harming small businesses (sellers) and consumers. State Attorneys General should gather complaints (of which there are many) and potentially form a multistate task force to demand answers from Whatnot – similar to how AGs have tackled other large online platforms for consumer abuses. State tax authorities are called upon to audit Whatnot’s marketplace facilitator compliance, ensuring no tax mischief is occurring at scale. If evidence of internal corruption surfaces, law enforcement agencies (e.g., the FBI for interstate matters) should be prepared to step in. Regulators should use the full range of tools – subpoenas, civil investigative demands, public hearings – to bring sunlight into Whatnot’s black box operations and to hold the company accountable under applicable laws. We also encourage regulators to coordinate: the issues span multiple domains, and a unified approach will be most effective. Lastly, regulators should seek input from affected sellers (perhaps via public comment or outreach to groups like WSA) to inform their actions.
For the Media and Public Watchdogs: Investigative journalists and industry analysts play a crucial role in bringing these issues to light. We call on media outlets to scrutinize Whatnot’s conduct and report on the human impact of its policies. The stories of sellers who lost their livelihoods or buyers who were mistreated need to be told in full. Media attention will not only inform consumers and investors, but it also pressures the company to respond and regulators to act. We recommend journalists request comment from Whatnot’s executives on the specific allegations raised here – on arbitrary bans, lack of appeals, etc. Even if the company’s response is a no-comment or PR boilerplate, pressing the questions is itself important. Additionally, watchdog nonprofits and digital rights organizations (e.g., Electronic Frontier Foundation, Consumer Reports Digital Lab, etc.) may find interest in the broader themes: platform due process, fairness in algorithmic commerce, and adhesion contract reform. Public discourse and even academic research can be spurred by these revelations, contributing to a larger push for accountability in online marketplaces. The general public – especially Whatnot users – can help by sharing their experiences, upvoting discussions in public forums, and alerting their representatives about any concerns. Collective voices can ensure this matter is not swept under the rug.
For Whatnot’s Leadership and Investors: It is in Whatnot’s own long-term interest to heed these warnings and undertake serious reforms. We call on Whatnot’s CEO, executive team, and board of directors to immediately address the platform-level risks:
Implement a moratorium on permanent seller bans until a fair review system is in place. In the interim, use temporary holds with clear communication while investigating issues.
Overhaul the Trust & Safety and appeals process: establish an independent appeals panel or ombudsperson, publish transparency reports on enforcement actions, and give users a clear path to resolve disputes (including possibly an external mediation or supervised arbitration option for significant cases).
Revise the Terms of Service to remove or modify the most egregious clauses. For example, consider opting into the BBB’s arbitration program or another neutral forum that allows at least some collective or public element, or explicitly allow class-wide arbitration for systemic issues so that users are not entirely disempowered. Update terms to clarify Whatnot’s responsibilities (not just user responsibilities).
Audit and fix the payment and tax systems: ensure all money flows are compliant, consider escrow with a third-party bank for seller funds to build trust, and correct any tax engine errors with haste and transparency (notify users of mistakes and refunds).
Strengthen internal compliance: hire or empower a Chief Compliance Officer with resources to train staff, monitor for misconduct, and liaise with regulators. Introduce robust internal whistleblower channels and checks as discussed in Issue #7.
Engage with the community of sellers in a good-faith dialogue. Perhaps form a Seller Advisory Council that can provide feedback on policies and serve as a sounding board before drastic actions are taken. This could prevent future incidents similar to Case WN-16082469 by catching issues early.
Investors in Whatnot, including major venture capital firms and corporate stakeholders, should also insist on these reforms. The current risks are material to the company’s value and public image. We note that Whatnot’s valuation and success are built in part on trust – trust by users that they can transact safely. If that trust erodes, so does the business. Enlightened investors will recognize that strong governance and fair practices are not a drag on growth but a safeguard of it. We call on investors to use their influence (board seats, funding conditions) to push for changes and to avoid the fate we’ve seen with other startups that ignored red flags until too late.
For the Whatnot Seller Community: Continue to organize and support each other through alliances like WSA. Document every issue you encounter – documentation is power when making a case to regulators or media. Know your rights: even if the ToS limits some actions, you can reach out to authorities and you should when you’ve been wronged. The alliance will do its part in aggregating evidence and advocating on your behalf, but individual sellers also have standing to file complaints with the FTC (via ReportFraud.ftc.gov), with state AGs, and with the CFPB (if financial in nature), among others. Speak up, because silence only benefits the status quo. Each complaint and story shared adds to the critical mass that will compel change.
In closing, Whatnot has the potential to be a positive and innovative marketplace—one that empowers entrepreneurs and provides meaningful value to consumers. Yet as this white paper has outlined, the platform currently falls short of essential legal, ethical, and procedural standards. The opportunity for internal reform still exists, but the window is narrowing, and external oversight may now be required to safeguard the integrity of the marketplace.
The Whatnot Seller Alliance is prepared to make relevant case evidence available to regulators or stakeholders who choose to examine these issues. However, its role is limited to providing factual documentation and case materials; it does not have the capacity to engage in ongoing coordination, consultation, or investigative support.
Our hope is that by bringing these issues to light, Whatnot will take the necessary steps to become a platform where all participants—company, sellers, and buyers alike—can operate within a fair, transparent, and lawful environment.