Affiliates Indicted For Cookie Stuffing

The defendants in the following cases are considered innocent until proven guilty in a court of law. Additionally, the general schemes alleged in the cases are practices I have personally observed of numerous affiliates over the years.

Background

On August 28, 2008, eBay filed a civil suit against Shawn Hogan, Brian Dunning and Todd Dunning, along with their respective company entities Digital Point Solutions, Kessler’s Flying Circus, Thunderwood Holdings and BrianDunning.com. The suit alleges numerous actions including fraud, racketeering activity under RICO (Racketeer Influenced and Corrupt Organizations), wire fraud and unauthorized access of eBay’s servers. See full complaint (pdf).

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 (pdf) and Brian Dunning (pdf) 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.

Indictment Specifics

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.

Implications

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.

About Kellie Stevens

You can follow Kellie on Twitter: @KellieAFP.

65 Responses to Affiliates Indicted For Cookie Stuffing

  1. Kellie thank you so much for laying this out in a clear way – having it easy for all of us to understand, I'm sure, will make it easier for all of us to take actions against cookie stuffing – not just for the benefit of merchants, but to steer misguided affiliates who otherwise may have good intentions into the right direction.

    • David says:

      Hope shawn hogan goes to jail!
      THANK GOD!……..GOD IS GOOD….. I hope Shawn goes to jail and gets hit with thousands in fines.

      I always knew Shawn was a filthy crooked human being for what he did to me years ago.

      I also knew that a crook like Shawn would never change his colors and he will get it soon…and now he has….

      THANK YOU EBAY!!!!!!!!!!!! Now I have more proof to show that Shawn is a filthy crooked human being.

      MESSAGE TO SHAWN…. If you think I forgot what you did to me years ago, you are mistaken….I will soon be in California and I am coming after you too. Let’s see how tough you are when I’m standing in your face you filthy sc.m b.ag.

      I am going to also post everything against Shawn on the Internet to let everyone see how much of a crooked filthy human being Shawn is.

      Wait for it Shawn…it’s coming.

  2. Pat Grady says:

    I can hear thousands of butts puckering as I read this.

    The $$$ are astounding!

    And CJ didn't catch it earlier, shocker.

  3. Vinny O'Hare says:

    Kellie great article but I have to ask if this surprises anyone. I don't remember the year we had the "Friends of Abestweb" meetup in Las Vegas. The lunch was sponsored by EBay. They were proud that they had one affiliate driving over some crazy amount of money.

    I want to say it was 1 million a month and was 97% of the affiliate sales that EBay made a month. Whatever it was only 3% of the rest of the affiliates were driving the rest of the traffic and revenue. The numbers just didn't ad up, I wish I had saved the flyer they handed out. They had to know exactly what was going on. Does anyone remember what year that was? I want to say 2005.

  4. @Trishia: you're welcome. Glad it made things easier to understand.

    @Pat: You're usual eloquent self.

    @Vinny: I'm not surprised about cookie stuffing. I am surprised (and pleased) that the Justice Department considers it criminal. It isn't typical to see a merchant going to the lengths of a civil suit and involving the Feds for a misbehaving affiliate.

    I don't remember what year the ABW meet up was. I do remember Ebay's lunch and giving a figure for the monthly earnings (somewhere in the million plus range). I don't recqall any particular % of the top affiliate for the total program though.

    I'm not going to speculate on who knew what and when. The court document does mention CJ at least being suspicous as they contacted both Hogan and Dunning in 2005 and 2006 to question them about their traffic sources. Both denied in TOS violations and their responses to CJ's inquiry seem to be being used now to substantiate the wire fraud charges.

    I can't imagine Ebay was fully aware of hidden forced clicks going on early on and turned a blind eye to it with those amounts of commissions.

    I'd think that they knew for some time and did not terminate the accounts as they were gathering evidence. There is some indication of that in one of the court documents in the civil suit which outlines how Ebay installed special code on their home page attempting to quantify how much traffic was coming from hidden forced clicks.

  5. [...] started life as “Foursquare Allstars LLC”. In the somewhat dubious context of a lawsuit brought about by eBay suing various affiliate marketers for cookie stuffing comes [...]

  6. Tim Engler says:

    I wouldnt be surprised if this weren't a major factor in ebay taking their program in-house.

    Networks just dont have as much incentive as merchants do to stamp out fraud. Although it does look like CJ was on to them.

  7. I'm inclined to wonder how much this had to do with Ebay implementing Project Rover, in effect taking the tracking off of CJ and moving it onto the ebay servers while they were still on CJ. Ebay rolled out the final phase of Rover in Sept 2006. Certainly having the tracking going through their own servers and not CJ provided them with more data when looking for misbehaving affiliates.

    Another interesting side note is the CJ class action suit over adware. That suit addressed forced clicks as well, although confined to adware (which isn't alleged against Hogan and Dunning). It was filed in June of 2007, which also seems to be the time Hogan and Dunning had their accounts terminated, based on that's the ending date of revenue earned through CJ. The resulting settlement in that case would have made sense.

  8. ahhh it's stories like this that proves the wonderful world of Affiliate Marketing never fails to amaze me…

  9. Good article. The criminal indictment reads much better than the civil claim. The nature of an affiliate, their rewards, and deceptive methods of Digital Point are described nicely.

    You would probably find Ben Edelman's site useful.

    http://www.benedelman.org/

  10. Mike Allen says:

    Thank you, Kellie, for sharing this information. The ramifications of this are huge for our industry and could bring about more government oversight.

    While I wish we would simply police ourselves, there are some who make that very difficult. As an industry we (networks, affiliates, merchants, everyone) simply must demand that everyone stop polluting the water we swim in or the government will jump into our pool and establish strict guidelines that could stifle innovation and growth.

    Thank you for all the work you do in making our industry more self-accountable and transparent. We need more like you, Kellie.

  11. Great article. Thanks for shedding light on the FBI case.

  12. Billy Kay says:

    I thought you cleaned up the industry already Kellie. Apparently, these discrepancies occurred while you were taking a break on that casino riverboat :)

  13. I am also super surprised that it has escalated over to the Justice Department instead of keeping it a civil suit. Great article Kellie.

  14. [...] I just found out CRIMINAL CHARGES were filed on June 24, 2010 and 2 indictments were handed down by the grand jury against the same people [...]

  15. Christel Murray says:

    This story doesn't shock me and I also am not suprised that the FBI was involed at the amount of money that was gained. I also feel that they will probably make an example of these people.

  16. [...] Affiliates Indicted For Cookie Stuffing, ReveNews [...]

  17. A nice win for affiliates who play by the rules and letter of the law.

  18. wow, that is just amazing. What the heck did they expect would happen. Will be interesting to see how this all unfolds. But hopefully this will make "wanna be crooks" think twice before implementing shitty ways. Guys stay legit, slowly and steady.

  19. Shawn Hogan says:

    [...] and ultimately arrived at the conclusion that the tactics were criminal in nature. Source:http://www.revenews.com/kelliesteven…okie-stuffing/ What do you think. Is shawn going down for the big one this time. I have tweeted Shawn for a [...]

  20. Teena says:

    I'm sure they are not only ones engage in this kind of activity, this should serve as a warning for guys who don't play by the rules…

  21. rishil says:

    I would like to know if CJ are going to give back any of their cut of the earnings as override – after all, they were paid to try and avoid scams like this. at 20% over ride of $20M in commissions is quite a lot…

  22. Jon Poland says:

    Kellie:

    Thank you for writing this article and for bringing this matter to our attention.

    From the first day I learned of the term Cookie Stuffing I thought to myself that these guys are skating on thin ice. I'm sure there are a number of other Cookie Stuffing Affiliates that are sweating bullets this very moment.

    The bottom line is run your business ethically and you will build it for the long-term. And you'll sleep much better at night.

  23. [...] Kellie Stevens at ReveNews.com has authored a detailed account.  Here is the link to her article: Affiliate Indicted For Cookie Stuffing.  Mail this [...]

  24. Scott says:

    Great article, those guys cashed in. Its all fun until you get caught!

  25. Emily says:

    Where there's muck there's brass.

    And where there's brass there's muck!

  26. matt says:

    Jon Poland said…"The bottom line is run your business ethically and you will build it for the long-term. And you’ll sleep much better at night."

    So true Jon and you'll also sleep at home rather than in the slammer. :-)

  27. [...] approximately $15.5 million in commissions from eBay. Hogan was eBay’s number one affiliate. http://www.revenews.com/kelliesteven…okie-stuffing/ And here's Shawn's story (he's very open about the case) [...]

  28. John says:

    Excellent article Kellie. Apparently I'm the only person reading it though who didn't know what the heck cookie stuffing even was. I had to wiki it and find out. -:-0 Now I know that it has nothing to do with raiding granny's cookie jar at midnight. They were raiding eBay's instead.

    Cheers

    Dr. John Michael Christian

  29. Daisy says:

    It seems like slow and steady wins the race again. These guys made a lot of money real quick, but might not enjoy it. But let's wait til the verdict comes in!

  30. Andrew says:

    There is still a lot of fraud in the affiliate world. When I did PPC at agencies I would see plenty of affiliates using brand bidding at night to steal sales that should have been going straight to the merchant. This kind of thing still goes on and all that seems to happen is the affiliate might get thrown off the program. These affiliates are thieves.

  31. Jim says:

    This brings to light just one case. I wonder how much of this is happening everyday that goes undetected.

    James Greene

  32. Siva says:

    That's bad for DP

  33. John says:

    It is interesting to see the future of the DP with all these new issues surrounding them.

  34. Kym says:

    That was the first time I had heard of cookie stuffing. If nothing else, it seems to me that it is obviously theft. Whether the affiliate agreements specifically define legitimate, payable clicks or not (and surely they do!), clearly cookie stuffing is not a method that affiliates were intended to receive payment for. It doesn't benefit ebay or CJ which is why they pay affiliates. Any affiliate of minimal intelligence would know this was at least a gray area and probably not legal!

  35. Great post that explained the whole case from the start, would have been easy to gloss over exactly what cookie stuffing is.

    Glad I'm in the UK, Americans certainly don't muck about when it comes to criminal punishments

  36. Heidi says:

    If these guys made almost $21 million as the #1 and #2 eBay affiliates, and they generated 97% of all commissions, think of what a pittance the other hundreds of thousands of affiliates are bringing in from eBay.

    While these guys are definitely wrong, it kind of makes you realize that eBay is NOT taking care of their affiliates that ARE legitimately driving traffic to them.

    So, who IS making legitimate decent money from eBay as an affiliate? Anyone?

    • danny says:

      It's 97% percent because they were stealing from other affiliates- over-writing their cookies. Under DP's scheme CJ didn't gain sales from DP but had existing sales commissions redirected from other affiliates to DP.

  37. Heidi is making a great point.

  38. bluewren says:

    Amazing,no you are not the only one Dr Christian,I didn't have a clue about that kind of stuff.But I strongly suspected that there were those out there much too clever for their own good and ours.

    Never mind Ebay's affiliates their sellers have to deal with added costs and poor support and convoluted procedures.It's a buyers market and that is all Ebay care about.

  39. LM says:

    "# 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."

    Gee, I never made on dime under the CJ affiliate network. Not one dime. Despite always being an honest affiliate marketer. Wasn't looking to be a millionaire like these crooks. Just wanted an honest monthly income to pay bills. Very discouraging.

  40. Sven Laargren says:

    Defendant speaks his mind at:
    http://blogs.digitalpoint.com/entry.php?b=215

    if even a 1/4 of that is true, it paints a very grim portrait of ebay.

  41. @Sven, surprised that Mr. Hogan publicly aired such statements after an indictment. His legal team must be kicking him.

    Kellie Stevens, has a follow up article analyizing Shawn’s post here:

    Digital Point Solutions Responds To eBay’s Cookie Stuffing Allegations with Mud Slinging

  42. Andy says:

    Did CJ hand back their commission over-ride? Lets face it, they will have profited from this "fraud" themselves.

    ($15.5m + $5.3m) * 20% – 30% = $4.6m – $6.24m

    Quite a decent incentive to let it happen.

    Everyone seems to forget that in cases of "fraud", the networks profit if the affiliates get paid, whether knowingly or otherwise.

    • Guest says:

      Actually, your math is a bit off.

      20% of $20.8m = $4.16m
      30% of $20.8m = $6.24m

      Still, your point is well taken. CJ can’t take the high road on the criminal activity and then keep the commission…or can they? After all, as you said, this happens all the time.

  43. Danny K says:

    Wonderful post Kelly. – Thank you.

    Will top affiliates be more understanding and consider it now more justifiable of program managers to request, perhaps even require, further information about the sources of their traffic?

    In other words – If you are contacted and told you are one of the top affiliates, or recent new performer in a program, and asked for more specific information, will you, as an affiliate, be inclined to trust the program manager and understand their due diligence?

    I think a common reaction for some has been to protect affiliate's knowledge, methods and intellectual property by resisting full disclosure ("Figure it out yourself Mr./Ms. Program Manager". I'm not giving my methods away".) Though many affiliates have been very open and trusting.

    Should resistance, or lack of response to transparency requests be considered cause for immediate unapproving for safety's sake? If all we see is IP addresses behind those clicks, the suspicion becomes necessary.

  44. Mason says:

    Even if they tried to hide the cookie stuffing from CJ I find it odd that noone blames CJ more than they do. CJ benefitted greatly from this scam and to think that they had no idea on how their top two affiliates worked is naive. I’m quite sure that most of the top affiliates still do this kind of shit so let’s not out the networks too much. Just a big shame for good affiliates that the big ugly ones fuck up the repution for all affiliate marketing. We could all get so much better paid for fair traffic if the networks cleaned out the crap.

  45. [...] ran that they actually came out and filed a civil suit, but the stakes have been raised because revenues.com reports that it’s actually an indictment now with the FBI investigation by the Cyber Crimes Department [...]

  46. Danny K you bring up some very good points. On one hand affiliates want networks and merchants to keep their programs clean and with justification. On the other hand, many want to keep their promotional methods close to their vests. And there are some legitimate reasons for that as well. But those two points of view are in opposition to one anohter. IMO, there is much room yet in our industry to find the mechanism to facilitate compliance while protecting the business models of affiliates. Unfortunately, we don't seem to be putting many resources towards finding that solution.

  47. The questions regarding CJ's and Ebay's role in monitoring the program are certainly understandable and underscore the importance of having effective compliance in place. Remember that this stuff was going on beginning about 6 years ago. A lot has changed since then, particularly with this type of cookie stuffing behavior when it comes to detection. That's not to say there still isn't more room for improvement. :)

    What does strike me trudging through the civil suit documents is that questions were being asked by both CJ and Ebay with regards to how the traffic was being generated. That's in the court documents already. I find it hard to believe that Ebay references specific incidents in a legal document if they can't back it up.

    But what seems to have happened with those inquiries is that the word of the affiliates were accepted, at least in the sense that the relationships continued. This is something I've seen happen repeatedly over the years when there was only suspicions without proof.

    At some point Ebay tracked down where the behavior was happening. And it appears the action by Ebay at that point was to refuse to pay the outstanding commissions, put CJ on notice of the questionable accounts, file a complaint with the FBI and begin building their own civil case. It's quite clear in the court documents that the cookie stuffing stopped when the FBI seized the defendents computers in June of 2007.

    I doubt CJ got off the hook completely with Ebay. I also doubt that is anything we'll ever see public information about. I do know that CJ had to sue one of the defendents (KFC) to try and get back some commissions CJ had paid but then Ebay refused to pay and then had a counter suit filed against them by the affiliates. And ultimately Ebay left CJ, although what extend all of this played into the decision in unknown. But i do remember listening to a VC stockholders conference at the time and VC stating Ebay had been their number one merchant.

    There are plenty of lessons to be learned by all of this. Do we learn them or just get distracted by the sensational stories flying around now.

  48. Me says:

    CJ benefited from the scam and probably so did the eBay aff team. While ebay lost the aff team must have gotten bonuses as they were credited with revenue ebay might have gotten anyway, but without the cost.

    While not excusable, they are also different shades of "cookie stuffing," in this case it's absolutely fraud. I could see a minor excuse if people grab a coupon code from a site without clicking and arguably that site deserves some credit.

  49. Pat Grady says:

    CJ's merchant agreement specifically and clearly leaves it completely to the merchant to determine whether things are kosher. Sadly, I think this can and will be used to provide them insulation from any flames. Merchants should consider their term's upfront denial of responsibility as having very real significance… think $$ millions.

  50. Great write up, and great comments everyone. Good to see a good old fashioned Cookie Stuffing debate :)

    I'm going to stay out of judgment on this one but I do think we probably don't have all the facts … will be a very interesting case to follow.

  51. cookie monster says:

    Who's saying the clients are the merchants' when the affiliates are the ones that lead them to their product? Just a technological technicality? In the sense that many clients click ''back'' and then return to the merchant's main website, or click the main website of the merchant and the referral's lost. This just kills of affiliates and it's silly. You want fair, invent a better technology that'll really track if the client got there via the affiliate or not. The lawcourts made that decision with poorly knowledge of IT because they hate everything that has to do with the internet, really hate it. They're the ones that sued 1,2 million out of 12 songs of Metallica uploader, purely because Law is a syndicated unionised labour force and the internet is a global competition, defiant in its newness.

  52. [...] millions of ads and pages, Hogan quickly cannibalized honest affiliate’s revenue, becoming eBay’s single largest affiliate in less than a [...]

  53. [...] ran that they actually came out and filed a civil suit, but the stakes have been raised because revenues.com reports that it’s actually an indictment now with the FBI investigation by the Cyber Crimes Department [...]

  54. [...] You can read about the case against them HERE [...]

  55. [...] Solutions, Kessler’s Flying Circus, Thunderwood Holdings and BrianDunning.com, and subsequent indictment of Shawn Hogan and Brian Dunning for allegedly committing over $20 million dollars in [...]

  56. Trigont says:

    Any more recent info on these cases?

  57. [...] Between 2006 and June 2007, Shawn Hogan (Digital Point Solutions) earned approximately $ … Bing: shawn hogan digitalpoint court Related PostsDigital Point Solutions Responds To eBay's Cookie Stuffing … Digitalpoint Owner in [...]

  58. wesleyb says:

    Yes. Hogan is going to jail.

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