The Case of the Clicks: The Rise of Digital Ad Fraud

On Behalf of | November 5, 2021 | Whistleblower Law

The advertising industry has undergone rapid changes in the past few decades. The growth of the internet has meant that businesses have pivoted to digital advertising options. This has come with its own set of challenges. While the two main stakeholders remain the same – companies that sell ad space, and companies that want to buy ad space – how this space is bought, who it is seen by, and how it is valued, are much more complex questions. These nuances have also led to more opportunities for deception.

Using a litany of techniques, companies that sell ad space are deceiving buyers, typically about the price or visibility of their ads. Previously, advertisers could pay X dollars for an ad, expecting to generate a certain amount of revenue from the people interacting with their content. This no longer holds true. Advertisers are frequently lied to about the value of an ad space, or its visibility. As a result, the platforms get to keep the inflated ad revenue, and the advertising companies do not receive the returns they paid for. Juniper Research estimates that the advertising industry loses a staggering $51 million per day to ad fraud.[1] Moreover, they only expect this number to grow, with annual fraud losses projected to hit $100 billion by 2023.[2]

Part of what makes digital ad fraud so lucrative is companies’ reliance on advertisements. Facebook, one of the largest platforms for ads, has more than 10 million advertisers who contribute more than 98% of its $29 billion revenue. The New York Times reported this in more concrete terms: “In the three months ending in June 30 [2021], [Facebook] pulled in an average of $78 million in ad sales every six hours.”[3] The scale of the industry is massive; the potential for fraudulent earning even more so.

There are a number of ways in which companies are engaging in this deceptive conduct. One method is to inflate user views by relying on non-human bots for advertisement “clicks.” Only the number of “clicks” is recorded, which artificially inflates the amount of attention that advertisers think their ads are getting. Other types of fraud are more straightforward: this past March, the Department of Justice penalized Outcome Health for $70 million for engaging in fraudulent practices. There were 26 indictments against the company in total, some of which stemmed from the fact that Outcome Health “billed clients for ads that never ran.”[4]

Google and Facebook, both of which use an auction-based system to place advertisements, are currently being sued by several state attorney generals for collusion in their ad technology systems. Apparently, the two companies had a deal in which Google “would grant Facebook certain advantages in auctions it runs for mobile app advertising inventory.”[5] This is significant, not only because it hints at the generally fuzzy understanding of these auction systems, but also because together, Google and Facebook get “just over 60% of every U.S. digital marketing dollar.”[6] The algorithms these companies use – often portrayed as completely tech-driven, and thus, neutral – are ripe for misuse. In 2020, for example, Google’s algorithm placed ads on websites advancing COVID-19 conspiracy theories. Some of the companies whose ads were being placed were unaware of such placement.[7] In fact, the Global Disinformation Institute used annualized estimates to predict that “advertisers will unwillingly provide US$25 Million to nearly 500 English-language coronavirus disinformation sites in 2020.”[8]

These practices are costing advertisers, as well as investors on both the ad-buying and ad-selling sides. Advertisers think they are reaching a certain number of customers on certain websites – and often, they are not. Their investors then receive a false image of the company’s outreach capabilities and operations. On the other side, investors at companies like Facebook or Google have an inflated understanding of the company’s revenue, since much of it may have been generated by fraudulent practices. Some might argue that ad revenue is just one part of a company’s performance, and so may not affect investor practices drastically. Nevertheless, this is different for a company like Facebook, for whom 98% of revenue comes from advertisements.

Some of these companies have recently been in the public eye for other aspects of their business. Frances Haugen and Sophie Zhang, the two whistleblowers who revealed a number of Facebook’s problematic practices, were part of the company’s Civic Integrity and Authenticity teams, respectively.[9] While the information they shared is significant and troubling, it does not neatly fit into the U.S. Securities and Exchange Commission’s purview. A recent New York Times article also mentioned the challenges associated with the SEC bringing legal charges: “A case from securities regulators is probably far from a slam dunk, several legal experts said. The accusations in the complaints don’t appear to be quite as clear-cut as many other accounting and fraud cases taken up by the agency, they said.”[10]

Digital ad fraud – with a clear impact on the financials of both ad-buyers and ad-sellers – provides a clearer path of intervention if the wrongdoer is a company required to file financial forms with the SEC. Whistleblowers with insight into ad  companies’ pricing strategies, or auction algorithms, can provide vital information about these systems. In doing so, they can help bring some much-needed transparency into this increasingly murky industry. While Facebook and Google dominate the digital ad markets, a number of companies sell highly specialized and targeted ads. In this competitive arena, it would not be surprising if there were other ad companies gaming the system. However, there is no way to know this for sure unless an insider, a whistleblower, comes forward and tells the inside story.


[1][2] Ibid.[3][4][5][6][7][8][9][10]