EcommerceBytes-NewsFlash, Number 3052 - April 26, 2013     2 of 4

eBay Affiliate Pleads Guilty in Cookie-Stuffing Scam

By Kenneth Corbin

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A California eBay affiliate has pleaded guilty to wire fraud, admitting that he engaged in a so-called cookie stuffing scam that netted millions in bogus referral commissions from the auction giant.

Brian Dunning, at one time the No. 2 affiliate in eBay's network, entered his plea earlier this month in the U.S. District Court for the Northern District of California, copping to federal criminal charges that he defrauded eBay by surreptitiously placing cookies on unsuspecting users' computers. If users with those cookies installed then went to eBay and made a purchase or created a new active account, Dunning would receive a referral fee for the traffic through eBay's affiliate program.

The initial criminal complaint alleges that Dunning racked up at least $5.3 million in revenue from eBay's affiliate program from 2006 to 2007.

"Affiliate fraud is a real problem," Ben Edelman, an assistant professor at Harvard Business School, said in an email. "For more than a decade, advertisers mistakenly thought affiliate marketing was "fraud proof" because affiliates only get paid when users make purchases. But it turns out the system can still be gamed - including via affiliates using all manner of schemes to claim commissions on purchases that would have happened anyway."

Ahead of Dunning's sentencing, the court set an evidentiary hearing to determine the actual losses in the case for Aug. 8, with briefs for that proceeding due by Aug 2.

Dunning's plea stems from a civil case that eBay had initially brought in 2008, naming Dunning and his operations Thunderwood Holdings and Kessler's Flying Circus as defendants. That same year, eBay filed a complaint concerning cookie-stuffing against Shawn Hogan, who ran Digital Point Solutions, which at the time was eBay's top-earning affiliate.

In 2010, the feds stepped in with indictments against both men, along with another, Christopher Kennedy, who was charged with creating a software program that facilitated cookie-stuffing operations.

eBay's civil litigation has been on hold since the criminal charges were filed.

Kennedy entered a plea agreement last year and received a sentence of six months in prison. Hogan, who had initially claimed that he was pressured by eBay to ratchet up traffic, pleaded guilty in December and has yet to be sentenced.

According to Edelman, who has a long history of bringing nefarious activities on the Web to light, many online criminals continue to operate under a fundamentally different mindset than those who, say, break into a building and commit larceny.

"An additional twist is that many perpetrators of online fraud have thought themselves above the law - as if they're not subject to legal requirements because their scheme occurs online. These criminal proceedings show that that's not the case. The penalties properly include repaying the funds taken as well as incarceration, consistent with federal sentencing guidelines," Edelman said. "One might hope that this would deter future violations by others, but in my experience these problems remain surprisingly widespread."

Edelman maintains a page on his website offering resources for advertisers to guard against various types of online fraud.


About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.


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