Wow, amazing on how things work out. Back in my early days of “link humping” and SEO I used to spend hours in SEOChat and Digital Point forums. Talking with people and looking for ways to get links. These were some top places in the early 2000’s to look for advice, strategies and get some links from others.
Well it appears that the owner of Digital Point forums, Shawn Hogan (no relation to the Hulk) and along with the creator third-party developer of FileMakerPro, Brian Dunning and his brother have been indicted and charged for defrauding Ebay and CJ out of millions of dollars from a cookie-stuffing campaign. This apparently lasted from 2003-ish through 2007 and netted the trio some $20+ million in affiliate revenue.
Why is this worthy of a blog post?
The affiliate space online has been a wild ride for the past 10 years. Like IP (intellectual property) it has taken time to make real cases on utilizing a trademark or slogan in your website, or bidding on one in PPC a crime. Now there have been many trials and verdicts that lay the groundwork for what you can and cannot do in regards to IP online. Real professional online marketers know what you can and cannot do, and when you can walk a thin line.
The suit against the trio alleges numerous actions including fraud, racketeering activity under RICO (Racketeer Influenced and Corrupt Organizations), wire fraud and unauthorized access of eBay’s servers. More so it is going to layout the groundwork for affiliate marketing and “best practices” to follow.
With more and more people becoming involved in the online marketing, work-from-home, I have a blog and make money, business, etc. etc space one of the #1 sources of income is affiliate marketing. Marketing products for others on your site, in your email list, etc. for a small commission if those go and buy from you.
Furthermore these claims from the FEDs tell all of us that the normal general public is now becoming more antiquated with online marketing, affiliate marketing and web-lingo in general.
The short version is that eBay alleges that the affiliates named engaged in “cookie stuffing”, specifically generating hidden forced clicks of their Ebay affiliate links. Hidden forced clicks are when an affiliate link is invoked without a physical click by the end user. Various forms of technology and/or coding are used so that the merchant’s site is not actually seen by the end user. The alleged activities in question occurred between 2003 and mid 2007. eBay claims measures were taken to hide the activity and that the defendants denied any wrongdoing when questioned by CJ, which at the time was still running eBay’s program, regarding suspicious traffic.
While this case should be of significant interest to affiliates, networks and merchants, it is a civil matter. Currently the case is unresolved with the outcome pending before the courts.
Criminal Charges Filed
On June 24, 2010, two separate indictments were handed down by a grand jury in California against Shawn Hogan and Brian Dunning following an FBI investigation by the Cyber Crimes Department. The indictments charge Hogan and Dunning with wire fraud and criminal forfeiture. Hogan was charged with ten counts of wire fraud and Dunning with five counts of wire fraud.
On July 22, 2010, Hogan and Dunning appeared before the court. Both were released under a $100,000 property bond and surrendering their passports. Both Hogan and Dunning entered not guilty pleas. Hogan’s next court date is September 9, 2010 and Dunning’s is August 19, 2010.
According to court documents, the maximum penalty in both cases is:
- Imprisonment of 20 years
- Maximum fine of $250,000 or twice the gross gain/loss (whichever is greater)
- 3 years of supervised release
- $100 special assessment (per count)
The indictments parallel the eBay civil suit, accusing the affiliates of engaging in hidden forced clicks within the eBay affiliate program.
For years cookie stuffing techniques have been discussed and debated in the affiliate marketing world. I’ve seen a rather casual attitude taken by some regarding the practice. I’ve seen long debates about what constitutes a physical click by the end user. I’ve seen black hat techniques for cookie stuffing and hiding the behavior discussed publicly. For me, one striking point with the indictments is that the FBI and a grand jury were evidently able to grasp technical aspects of affiliate marketing and tracking, and ultimately arrived at the conclusion that the tactics were criminal in nature.
Several interesting specifics were outlined in both of the indictments:
- Between 2006 and June 2007, Shawn Hogan (Digital Point Solutions) earned approximately $15.5 million in commissions from eBay. Hogan was eBay’s number one affiliate.
- Between 2006 and June 2007, Dunning (Kessler’s Flying Circus) earned approximately $5.3 million in commissions from eBay. Dunning was eBay’s number two affiliate.
- Hogan and Dunning are accused of generating hidden forced clicks on both their own web sites as well as sites not connected with the defendants in order to increase the number of computers storing the eBay affiliate tracking cookie.
- The legal criteria for wire fraud was established not on money (commissions) being transferred over the wires, but because of transmission of the tracking cookie between states and internationally.
- The affiliates attempted to hide the activity from eBay and CJ by not engaging in the cookie stuffing on computers located in San Jose (eBay headquarters) or Santa Barbara (CJ’s headquarters). This is geo-targeting and is readily known to be used by affiliates engaging in questionable activity. Of course, not all geo-targeting activity in nefarious.
- Both Hogan (2005) and Dunning (2006) denied any cookie stuffing behavior when questioned by CJ.
- Each individual wire fraud account is related to a particular incident on an IP address outside California (location of eBay servers) where an affiliate cookie for the defendants was set.
Hogan and Dunning face serious repercussions if found guilty of the charges handed down by the grand jury. This is in addition to a pending civil suit which potentially carries stiff penalties of its own.
Regardless of the innocence or guilt of Hogan and Dunning, the fact that the U.S. Attorney deems cookie stuffing criminal should be a wake-up call for our industry.
As Linda Buquet stated when she first talked about the case, “For the blackhatters out there that say, ‘cookie stuffing isn’t illegal and all is fair in love and affiliate marketing’ – I say you better take a very close look at this case!”
The behavior outlined by the indictment is behavior, with some minor technical variation, I witnessed only yesterday by some affiliates. Nor is it difficult to find resources on how to engage in these types of activities, whether through web pages, adware, widgets, email or any other vehicle. Maybe now that the practice has been deemed illegal, the higher stakes will deter potential abusers.