The Federal Trade Commission has closed an investigation into “astroturfing” by Yahoo employees and declined to take enforcement action because of the limited number of workers involved and the fact the apps reviewed were free.

The agency took a look at allegations that Yahoo employees posted positive reviews of Yahoo mobile apps without disclosing that they worked for the company, according to a letter from Mary K. Engle, Associate Director for Advertising Practices at the FTC.

Section 5 of the Federal Trade Commission Act requires that material connections between a marketer and an endorser be disclosed when their relationship is not otherwise apparent from the context of the communication that contains the endorsement, Engle explained.

Although Yahoo’s social media policy requires that its employees disclose their status when reviewing Yahoo apps, “we were concerned that employees were not adequately informed of the policy,” Engle wrote.

But the agency elected not to take enforcement action against the company. Several factors contributed to the decision, including “that only a very small number of Yahoo employees” reviewed the company’s apps without disclosing their affiliation. In addition, “it does not appear that Yahoo encouraged or otherwise incentivized any of these employees to write these app reviews,” and the apps at issue were free and did not include in-app purchases.

Yahoo also “committed to improve its social media policy and to more actively inform its employees of the policy,” Engle added, closing out the investigation.

To read the FTC’s letter to Yahoo’s counsel, click here.

Why it matters: Although Yahoo managed to avoid an enforcement action for astroturfing, other companies haven’t fared as well. In March 2011 the maker of learn-to-play-guitar-at-home DVDs paid the FTC $250,000 for paying affiliates to promote its products in positive endorsements in blog posts and articles. The agency also settled charges with Reverb Communications, a public relations firm that posted glowing reviews about its clients’ game apps from persons posing as independent users. Advertisers must disclose any material connections and have social media policies in place that clearly emphasize the need for such clear and conspicuous disclosures.