Shawn Hogan - CEO of DigitalPoint Solutions sentenced to Federal Prison

[Eric Lyon]

Found this article a pretty interesting read today. I think it definitely qualifies as industry news since Digital Point Forums also has a small hold on domain marketplace selling.

Shawn Hogan, the CEO of a successful online marketing company called Digital Point Solutions, was sentenced to five months in federal prison for his role in defrauding eBay of an alleged $28 million in online marketing fees.

He must remain on three years' probation after that, and was fined $25,000. Hogan will enter prison on July 14, according to federal court records. Hogan previously reached a civil settlement with eBay also.

The sentence brings to a close one of the strangest chapters in eBay's history.

READ MORE: http://www.businessinsider.in/eBays...ederal-Prison/articleshow/34511382.cms#!HtEnR

 

[Ronald Regging]

Sounds like you didn't even read the article. Accused of fraud? They plead guilty to it. They admitted it. Hence, the prison time. You're disagreeing with them at this point.

"According to the FBI's account of its interrogation of Dunning, he and Hogan — while playing "World of Warcraft" — had discussed "techniques for masking activity that could be labeled as being outside the Affiliate Program's terms of service."

I guess you see nothing fraudulent in that either?

"Sites set cookies all the time"

Right, which has what to do with this? This is a case of cookie stuffing.

It wasn't just DP, goes to you not reading. It was the widget that was distributed to many other blogs - http://www.businessinsider.com/ebay-the-fbi-shawn-hogan-and-brian-dunning-2013-4?page=1

The point is that cookie stuffing is NOT illegal. Of course the guy plead guilty, because he didn't want to spend the 28 million dollars he made defending himself against an overreaching government. He even said that in the article. Had he actually fought this case, I believe it likely that he would have won. Nothing he did was ILLEGAL. So he broke the terms of service of a private contract? That sounds like a civil issue to me. One that I doubt would be able to be adequately argued to show that he caused HARM to Ebay. When some corporation wants to use the US Government as it's free in-house legal team, we should not be cheering that.

 

[JB Lions]

The point is that cookie stuffing is NOT illegal. Of course the guy plead guilty, because he didn't want to spend the 28 million dollars he made defending himself against an overreaching government. He even said that in the article. Had he actually fought this case, I believe it likely that he would have won. Nothing he did was ILLEGAL. So he broke the terms of service of a private contract? That sounds like a civil issue to me. One that I doubt would be able to be adequately argued to show that he caused HARM to Ebay. When some corporation wants to use the US Government as it's free in-house legal team, we should not be cheering that.

It actually is illegal, falls under wire fraud. http://www.law.cornell.edu/uscode/text/18/1343

 

[HeyNow]

Nothing he did was ILLEGAL.

Listen to yourself. The guy is in federal prison, serving time for commiting a crime, had competent legal representation, please guilty, and you know better than the judge whether or not he committed a crime. Do you understand how silly you sound espousing that here? No offense, but we're not totally brain dead here.

 

[DU]

I thought he was on jail on one count of wire fraud unrelated to 99% of his affiliate shenanigans.

Potayto Potahto, I guess.

 

[Ronald Regging]

Listen to yourself. The guy is in federal prison, serving time for commiting a crime, had competent legal representation, please guilty, and you know better than the judge whether or not he committed a crime. Do you understand how silly you sound espousing that here? No offense, but we're not totally brain dead here.

The problem here is that people fail to realize that this is a completely unique case. Never before has someone been charged with wire fraud for "cookie stuffing." And, never has such claims and charges actually gone to trial. It's so easy for you to say what he did was illegal "wire fraud," based on the fact that the government accused him and he plead guilty. But, that doesn't really mean anything. It just means that the man was afraid to go up against an opponent with infinite resources and thought he'd get off easier by copping a plea. That doesn't mean what he did was illegal. Just, because the government accuses you of a crime, doesn't mean what you did is illegal. It just means that they are funded by taxpayers and can afford to go after anyone for as long as they want. I've read the wire fraud statute, nothing he did constitutes wire fraud. He didn't devise a scheme under false pretenses to try to defraud someone. He used the established scheme, then figured out every detail about it and found advantages, which he used to his benefit. That's not wire fraud. That's ingenuity.

 

[JB Lions]

You read it? But, maybe you didn't comprehend it. Tell me how it doesn't apply.

"techniques for masking activity that could be labeled as being outside the Affiliate Program's terms of service."

"devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both."

So those don't match to you?

Let me ask you a question. If you were a business with an affiliate program, would you be alright with cookie stuffing? Besides the example I gave earlier, also consider this. A lot of people go straight to the merchant. Would you want to pay out to somebody, who didn't actually refer a customer? Who had some widget out there that was just loading people up with cookies? One of them being yours?

 

[DU]

I guess arson was ingenious at some point on history.

 

[enlytend]

I've read the wire fraud statute, nothing he did constitutes wire fraud. He didn't devise a scheme under false pretenses to try to defraud someone.

He defrauded eBay and stole from other eBay affiliates because he had nothing to do with the sales resulting from cookie stuffing.

A lot of people go straight to the merchant. Would you want to pay out to somebody, who didn't actually refer a customer? Who had some widget out there that was just loading people up with cookies? One of them being yours?

Exactly.

 

[Ronald Regging]

You read it? But, maybe you didn't comprehend it. Tell me how it doesn't apply.

"techniques for masking activity that could be labeled as being outside the Affiliate Program's terms of service."

"devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both."

So those don't match to you?

No, they don't. You're talking about criminal law vs. a private contract. He may have been in breach of the ToS, but that does not constitute wire fraud.

Let me ask you a question. If you were a business with an affiliate program, would you be alright with cookie stuffing? Besides the example I gave earlier, also consider this. A lot of people go straight to the merchant. Would you want to pay out to somebody, who didn't actually refer a customer? Who had some widget out there that was just loading people up with cookies? One of them being yours?

If I had a business with an affiliate program, I wouldn't use cookies as a means of referral tracking if I were concerned about how easily it can be manipulated. Also, phrases such as "A lot of people go straight to the merchant," do not hold up in court. My point was that Ebay would probably not be able to prove damages if this had gone to court.

This reminds me of a recent incident involving Phil Ivey (professional poker player). He went to a casino and noticed that the design on the back of the card deck was not uniform. He used his knowledge of this to win millions of dollars at the casino. Now, the casino is trying to claim fraud. But, he didn't engage in fraud. He used the system at hand and the information available to him to win. That's called business.

 

[iowadawg]

Wire fraud.
Done over the wire (in this case, the internet).

 

[Dave_Z]

That sounds like a flaw or limitation of the system, not fraud. DP set cookies on people's computers who visited that site. There is nothing inherently fraudulent about that. Sites set cookies all the time. You have the option to block cookies, or to view/delete them if you don't want them. Just because one site sets a cookie, technically, doesn't mean it has a claim to anything. If one cookie can be overwritten by another cookie, than that just shows that using cookies is an ineffective method of referral tracking. Someone designed a shoddy system and then wants to sue when someone else discovers it's flaws? And we accuse the guy of fraud? Maybe those affiliates who didn't get paid should be suing Ebay for gross negligence, since their entire method of tracking sales is completely flawed.

The point is that cookie stuffing is NOT illegal. Of course the guy plead guilty, because he didn't want to spend the 28 million dollars he made defending himself against an overreaching government. He even said that in the article. Had he actually fought this case, I believe it likely that he would have won. Nothing he did was ILLEGAL. So he broke the terms of service of a private contract? That sounds like a civil issue to me. One that I doubt would be able to be adequately argued to show that he caused HARM to Ebay. When some corporation wants to use the US Government as it's free in-house legal team, we should not be cheering that.

This link might help:

http://www.affiliatefairplay.com/extra/hoganindictment.pdf

Granted, one can always disagree. That's what courts, grand juries, etc. resolve -- unless something else happens such as this recent development.

Shawn might be found not guilty or something, the government might prove their arguments, who knows? At any rate, Shawn's decision essentially concludes this saga.

 

[Kate]

But, he didn't engage in fraud. He used the system at hand and the information available to him to win. That's called business.

This actually is the very definition of insider trading. And it's a crime too.

 

[enlytend]

If I had a business with an affiliate program, I wouldn't use cookies as a means of referral tracking if I were concerned about how easily it can be manipulated.

Interesting ... so how exactly would you propose to do it? (Off topic for this thread, but you're welcome to drop by the Affiliate Talk section and discuss)

So if you worked 6 days a week at a car dealership selling cars, and some guy sitting on a beach somewhere found a way to manipulate the system to have all your commission directly deposited into his own account while he swilled umbrella drinks and watched hot babes in bikinis, you'd have no problem with that?

 

[Ronald Regging]

Interesting ... so how exactly would you propose to do it? (Off topic for this thread, but you're welcome to drop by the Affiliate Talk section and discuss)

So if you worked 6 days a week at a car dealership selling cars, and some guy sitting on a beach somewhere found a way to manipulate the system to have all your commission directly deposited into his own account while he swilled umbrella drinks and watched hot babes in bikinis, you'd have no problem with that?

I hate this term "manipulate the system." First of all, it's not my system, I never asked for it, and you can be damn sure that the system favors those who created it and manipulates the rest. These entities want to create systems to benefit themselves, but then get butt hurt when some intelligent person actually sits down and analyzes those systems in order to make informed decisions? Apparently, according to sdsinc, this is called insider trading?? I guess we are all just supposed to ignorantly and happily use systems that have been put in place to control us without actually researching the available information? What I see here is more a factor of a highly flawed control system, coupled with a public-private policing partnership (Fascism) and a scapegoat named Shawn Hogan. They create flawed systems and then outlaw any activity that exposes the flaws. Knowledge is criminal.

Secondly, you said so yourself that some companies track the referrals along the entire path and give partial credit in cases where one person was the initial referrer and another closes the deal. Apparently, Ebay didn't do this, because if they had, they would have noticed an anomalous pattern very early on. So, your analogy of some guy depositing my money into his bank account is not accurate. No one stole anything from anyone, because those referrers didn't actually complete a sale and never had anything to begin with. And, really, the only one they should be angry at is Ebay, for not more accurately tracking referrals. According to you, Ebay had the means to implement a more accurate tracking system, but did not. Really, these people should be angry at themselves for not being more professional businesspersons and demanding accurate tracking capabilities from their partners. I don't know about others, but I don't work for free.

 

[enlytend]

Secondly, you said so yourself that some companies track the referrals along the entire path and give partial credit in cases where one person was the initial referrer and another closes the deal. Apparently, Ebay didn't do this, because if they had, they would have noticed an anomalous pattern very early on.

Doesn't stand to reason they would notice anything -

BTW, first/last click attribution is still done using cookies .... but they use data from multiple points to allocate commissions. He'd still have been getting a piece of someone else's pie.

No one stole anything from anyone, because those referrers didn't actually complete a sale and never had anything to begin with.

If a sale wasn't completed, there would be no commission paid. Since the cookie was set without the visitor's knowledge and without any action (click) on their part, it's Hogan who "didn't actually complete a sale" - he just siphoned off commissions direct from the merchant in some cases and from other affiliates in others.

Staying out of jail is rarely an issue for ethical business people.

Really, these people should be angry at themselves for not being more professional businesspersons and demanding accurate tracking capabilities from their partners.

Experienced affiliates test that their sales are tracking - if not, the affiliate manager gets a call, if it's not resolved the program gets dumped.

You keep talking about more accurate, fraud-proof tracking - I'd still like to hear your detailed plan for implementing that. My invitation to have a constructive discussion on the issue in the Affiliate section still stands.

 

[DU]

You keep talking about more accurate, fraud-proof tracking - I'd still like to hear your detailed plan for implementing that. My invitation to have a constructive discussion on the issue in the Affiliate section still stands.

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I didn't sign Up for That?
Their website was helpful
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Default the last.


I'm guessing that most people don't like affiliates and it's a shitty business model that yields low quality sites, low quality customer experience. I say let everyone opt out and then really opt out of 3rd party cookies altogether.

 

[iowadawg]

Well, I wonder how many people set their browsers to automatically clear out all cookies?
And yes, most people see an affiliate link and either have learned what to strip from it, or they just go directly to the site.
I say, eliminate cookies completely.
See how namepros acts up then....hahahahha

 

[enlytend]

I'm guessing that most people don't like affiliates and it's a shitty business model that yields low quality sites, low quality customer experience.

Sad, because it doesn't have to be that way, and you do so much better if you don't just throw banners and drivel at people.
For example: One of my merchants is shipping me one of their products to borrow so I can do a hands-on review with photos, maybe video. It sells pretty well from my site already, just with some comparison specs and some test results, but I like to let people see what they're buying (the good and the bad) answer their questions, and help them decide if it's for them or not. If not, maybe something else I've reviewed is a better choice for that person. Makes people more comfortable about picking up the credit card, minimizes chargebacks.
Would probably pass your shopping cart test.
That's the right way to do aff. marketing, and that's why I have a problem with dishonest affiliates who try grab a free ride at the expense of the ones who put in the work.

 

[DU]

That's the right way to do aff. marketing, and that's why I have a problem with dishonest affiliates who try grab a free ride at the expense of the ones who put in the work.

I typically try to remove all affiliate nonsense when I go out and about except when I find a blog or review that is geniunely useful and based on some quality basis. If I saw a site like yours where you do some kind of unboxing and comparison and it seems original content etc. I would have no problem giving you credit - no different to real life where people working are on commission.

I once bought something at BHPhoto that was rather expensive and I used an affiliate code because the blog was helpful. I even put a comment on there indicating that I had done so to make sure that he received his portion as a thankyou. From his response it seemed to genuinely make his day (he was an enthusiast not an affiliate marketer just sharing his passion). That's how it *should* work - but I'd take something halfway between that and a banner. I don't like commission bases businesses in general but I'm fine if it's done professionally or even just OPENLY.

It's all about transparency and general level of ethical standard.

I shouldn't tar the whole industry with the same brush as it can be done right (and from all our nit natter I trust you would do it so) but it seems for every one of you there's 100 of the other kind and at least one of them is as surreptitious as Hogan.

There are lots of things that aren't letter of the law illegal that should be... My grandmother changed her electricity provider ever other week due to salesman selling her on a service she didn't understand..... The commission kept getting earned and the only person getting po'd was my father who couldn't understand why she kept paying disconnect/reconnect fees. My friends Dad was taken $150,000+ by a woman because his Dad lacked a lot of his prior cognition (he was previously a very well respected vet and by all accounts extremely intelligent).... he couldn't get a restraining order to take while trying to get power of attorney because there was "nothing illegal or harmful" being done. He told the judge that he hope his mother experienced the same (he paid about $500 in contempt).

Selling phones to the elderly in Florida, reverse mortgages, there are a number of legal ways to dick people over. What about the guy in Florida I read about - owns 12 house 10 of which were paid off with sinkhole insurance "claims". He rents them out and not one neighbor ever recalls seeing any remediation - law didn't require you spend the money on remediation. Some people say clever and ingenuous. I say throw him into the biggest hole we can find.

It shouldn't always be incumbent on society to come up with lock proof solutions or air-tight laws.

 

[Ronald Regging]

Selling phones to the elderly in Florida, reverse mortgages, there are a number of legal ways to dick people over. What about the guy in Florida I read about - owns 12 house 10 of which were paid off with sinkhole insurance "claims". He rents them out and not one neighbor ever recalls seeing any remediation - law didn't require you spend the money on remediation. Some people say clever and ingenuous. I say throw him into the biggest hole we can find.

It shouldn't always be incumbent on society to come up with lock proof solutions or air-tight laws.

No, it should. The point is that someone in power devises a plan to manipulate and profit off the masses (insurance is one of the biggest fraud scams ever). All of the systems in place are designed to concentrate wealth and power. While, I agree with you entirely about the scammers and the fraudsters who target granny... The point is, these scammers and fraudsters are SMALL POTATOES compared to the systemic fraud that is inherent in a system that is thrown together to enslave us all. Everyone gets mad at the people who figured out how to "manipulate the system," but they give no credence to the fact that the entire system is inherently fraudulent. We attack those who figured out a way to be successful given adverse conditions, instead of those who placed us in those adverse conditions.

 

[TheWatcher]

It will hunt you! If not now, maybe in the future.

Greedy bite back!

 

[Fonzie]

He didn't devise a scheme under false pretenses to try to defraud someone.

Yes, he did... so egregiously that it inspired a test case that broke new legal ground.
If you want to see a bunk prosecution, Weev/Andrew Aurenheimer under the CFAA or Aaron Schwartz, those are examples of bunk prosecutions where technology is presented as witchcraft to scare the villagers by ambitious prosecutors who couldn't care less about right or wrong.

What this guy did was straight up fraud. Given the totals involved, he's very lucky he got 5 months and not 5 or 10 years.

 

[crunchyg]

eBay wined and dined this man and flew him in private jets to get MORE and MORE traffic so their CFO could brag to investors every quarter and inflate the stock price. eBay's managers at the time were getting ridiculously high bonuses for growing affiliate traffic, so they had a direct incentive to encourage their affiliates to do shady stuff. If you've ever worked at a big company, you'll know how many rules are broken by individual employees systematically in order to get that bonus.

The wire fraud law is a catch-all used when nothing else can be applied. eBay made a scapegoat out of this dude and got away with breaking huge parts of the Internet for nearly a decade by littering it with spam just to drive their affiliate numbers.

If you want to know details, read Shawn Hogan's post from 2010. It's an eye-opener for people who are not in the loop on just how filthy that system is.

 

[Fonzie]

The question was whether they knew (or didn't know) that he was stuffing cookies from non filtered traffic.
They knew he was an enormously outlying affiliate performer. They eventually learned that he got there by very cleverly cheating the system.

 

[enlytend]

eBay's managers at the time were getting ridiculously high bonuses for growing affiliate traffic, so they had a direct incentive to encourage their affiliates to do shady stuff.

It wouldn't surprise me that the AFFILIATE managers knew, or at the very least stuck their heads in the sand and looked the other way. Very unlikely that the top brass did. I doubt anyone at eBay (other than the affiliate management team and marketing) was using affiliate performance as a KPI.

Cookie stuffing wouldn't increase traffic, bids, sign-ups or purchases. Those people would still have to visit the site at some point and take action on their own. We can assume that would have happened even if he never set the cookies in their browsers behind the scenes.* That's not a growth in business, it's a needless expense.

(*Just referring to the commissions from cookie-stuffing here. I'm assuming some percentage of his commissions were from legit click-thru's)