Affiliate marketer Shawn Hogan will spend five months in federal prison and another three years on probation after reaching a settlement and plea deal with eBay and the Federal government. This concludes a case that started with a civil suit and FBI probe going back seven years.
Once ranked the #1 affiliate marketer on eBay, Hogan reportedly received $28 million in affiliate fees that eBay now says he did not earn.
The FBI and eBay started investigating affiliate fraud in 2006. By 2007, Hogan’s relationship with eBay had come to an end, and eBay alleged Hogan had falsely taken credit for millions of dollars in sales he did not help generate.
Ebay first brought a civil suit in 2008 against Hogan and his company along with others including one Brian Dunning. Two years later, in June of 2010 a criminal indictment for fraud was handed down in the U.S. District Court for the Northern District of California.
Case Involves “Cookie Stuffing”
In affiliate marketing, marketers receive credit for sales made via tracking links, as a result of their marketing efforts.
In this case, eBay alleged that Hogan used a technique called cookie stuffing to falsely gain credit for sales made on eBay. According to Business Insider:
“Ebay initially alleged that Hogan had rigged eBay’s system so that it falsely credited him for sales he did not generate. He did it by seeding unknowing users with hundreds of thousands of bits of tracking code, or “cookies.” If any of those people bought something on eBay, the code signaled to eBay that Hogan should get a cut of the sale — even though he had done nothing to promote eBay.”
Hogan is a technology entrepreneur known for his software programming expertise, points out Barry Schwartz of SEORoundtable. Hogan also founded and still runs a well-known Internet marketing forum website, Digital Point Forums.
He is still running Digital Point and even today is openly discussing the situation he is in with forum members and on Twitter. For instance, in this tweet he takes a philosophical approach:
— Digital Point (@digitalpoint) May 2, 2014
In his defense, Hogan claimed eBay officials knew for years how he generated traffic for their site and even encouraged his activities:
“Ebay was pleased… they were getting massive amounts of traffic and it sure made their affiliate program look good. In the summer of 2005, eBay decided it needed more traffic from me. I told eBay I couldn’t drive any more traffic. They responded that I should ‘experiment’ with what they deemed ‘grey area’ things (this is what eBay called anything that violated their terms of service).”
Hogan says the company also wined and dined him with Las Vegas dinners in addition to the multimillion-dollar compensation he earned.
The five months in prison will be spent, according to Hogan’s comments, at a minimum security facility. In addition, he will pay a $25,000 fine, a fraction of the millions he is charged with having received from eBay.
One person observes that Hogan seems to have gotten off easy:
“On balance, Shawn came out of this with a very light sentence and much of his fortune intact, an outcome vastly underwhelming compared to the combined forces of the FBI and the eBay litigative Godzilla team that sought to fry him to the bone.”
Still, Hogan points out, he has spent years and, he claims, millions of dollars defending himself.
Ben Edelman, a Harvard Business School Professor who tracks forces shaping the Internet including fraud and privacy violations, points out that some people believe affiliate marketing is not subject to fraud. That’s because sales can be tracked through technology. However, since the mid-2000s there’s a growing body of litigation and criminal complaints being brought against affiliate marketers, and Edelman keeps track through an Affiliate Fraud Litigation Index on his website.