Fraudster on the Roof

Posted by on Dec 10, 2012 in Affiliate Fraud, Fraudster on the Roof, Mad Monday

Today I would like to kick off the “Fraudster on the Roof” series. If you know of a scam or scheme that you believe readers of iPensatori would find interesting, send it along to me and I’ll post it up for everyone’s benefit. Just to be clear here, I intend for readers to learn from this series so as to better detect fraud, not to improve how they implement it.

Fraudster on the roof

Our first post in this series comes from an iPensatori reader that prefers to remain anonymous. She calls it the “Burn to Earn” scam. It has affiliates targeting merchants with an affiliate program that has a higher payout to affiliates for a sale than what it costs to actually sign up. So if the merchant ACME sells an ACME subscription for $5 p/m, he would be eligible for this scam if he paid affiliates $10 for each subscription that is sent their way as a result of the affiliate’s actions.

At first this does not make sense. If X costs $5, why would a merchant pay $10 to sell it? This makes a lot more sense when you consider that the merchant is not just making a once off sale of X, instead the merchant sells X again and again over a long period of time. The best example of this type of merchant (and the one provided by the contributor of this post) is a hosting provider.

I have not changed my hosting provider in years. I had been with the previous hosting provider for five years before the current one. So if my existing hosting provider had paid $10 to get me on a $5 p/m subscription, it works out to be next to nothing (for I paid the $5p/m for several years). I’d imagine this is something that is fairly common with hosting providers, hence the reason they pay affiliates so much for a sale.

Take a look at the affiliate program for Hostgator. Note that their minimum payout is $50 per signup. This number increases if you get more people to sign up with them, eventually hitting a cap of $125 per signup (at 21+ signups p/m).

Now point your browser to how much it costs to actually sign up with Hostgator: their hatchling plan costs $3.96 p/m. If it has not hit you yet, the scam here is to repeatedly sign up using one’s own cash and affiliate id. With a minimum payout of $50 per signup, you’re basically spending $3.96 to make $46.04 (hence Burn to Earn). Not a bad rate of return for a fraudster.

Needless to say, this activity is forbidden by Hostgator, from their Terms and Conditions:

4. Commission Payment. Commissions deemed due and owed to you under the program will be paid to you directly by after any holding period and in accordance with a regular payout cycle established by No commission will be paid for signups by you, your household, or anyone within your organization. HostGator reserves the right to only pay for referrals that are active.

The anonymous contributor of this post explained to me that it’s not too difficult avoiding detection with this scheme, for the glory of the Internet and Prepaid Debit cards (you can buy these from Walgreens) make this a fairly reliable earner. Of course, avoiding detection in an effective manner adds more cost, thereby lowering the rate of return. She explained that even if the scam is detected, there are so many hosting providers paying more for a signup than the cost of a signup that moving an operation from one target to another is trivial.

How to detect this?

I think that for as long as a merchant pays more for a sign up than what it costs to sign up, then this is going to be a problem. There are definitely ways to raise the barrier to entry here, and Hostgator already employs a few of them.

I chose Hostgator for this example for they are one of my current hosting providers. When I signed up with them, I had to go through a screening process via a phone call before they made my subscription active.

One could argue that there are ways around this as well, since it’s simple and cheap to buy phone numbers online. That’s true, but it’s not simple to keep faking (and remembering!) who you are supposed to be all of the time.

“Hmmm, isn’t it strange that affiliate X only sends male signups between the ages of 30 and 45 to us?”

Another barrier to entry would be increasing the delay between confirmation of an active account and actual payout to an affiliate. In doing so, one could effectively shut this scam down if the cost of running a fraudulent campaign were greater than the cost of signup, or at least a lot closer than it is now. For example, instead of paying a month after a signup, the merchant could pay 6 months after a signup. The fraudster would then have to spend 6X$3.96 in order to make any money.

Affiliates could complain that six months is too much of a delay. But even this can be countered by reducing this delay once the affiliate has become a trusted and valued contributor to the affiliate program in question.

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  1. xilu
    December 11, 2012

    Start slow, 2 or 300 per month.This accumulates to easy 1600 – 2000 dollars a month, but it takes six months to arrive. Before you apply for the affiliate program, you must obtain a site which reviews hosters (buy it, its easy). Let this race for 3 weeks.

    When you register as a member of affiliate program then buy traffic. you want that the hosting provider to begin viewing impressions. When you are ready, debit card you buy has to be the one without a green dot (not is activated online). When hoster calls, prepare to answer these questions
    -Name and surname
    -Date of birth
    -What you want to host on their servers.

  2. Mouse
    December 24, 2012

    However, I don’t agree calling this method a “fraud”.
    You don’t violate any terms or conditions.

  3. wesleyb
    December 24, 2012

    See term 4 of hostgator’s T&Cs.

  4. Mouse
    December 30, 2012

    I don’t agree. You don’t make anything illegal.

    What about if I buy a car for $1,000 and I sell it for $10,000? Do you call me “fraudster” only because I’m making profit on you?

  5. wesleyb
    December 30, 2012

    Feel free to disagree with the terms and conditions. You can then argue in front of a judge when the merchant does not see things the same way you do (look up Shawn Hogan).

    Re your analogy, if you buy a car for a thousand from me and sell it for ten thousand, then you’ve just pocketed a good sum of money. Would I call you a fraudster? Of course not, that’s silly.

    For me to call you a fraudster, one would have to work on your car analogy a little more:
    – I am a car dealership with an affiliate program that pays affiliates $2,000 for every person they send my way that ends up buying a car for $1,000 from me
    – In the legal contract that my affiliates agree to before signing up, it strictly prohibits affiliates and their family and friends from buying cars from me for $1,000
    – If you sign up to my program and then buy cars from me directly, it doesn’t take much to see that you are a fraudster (regardless of your opinion on my affiliate program‘s terms and conditions)

  6. Mouse
    January 1, 2013

    As I said above, I don’t agree with your opinion.
    You’re just taking advantage of something. It’s Hostgator responsibility to make sure they give money to the right people.

    Their T&Cs say: “No commission will be paid for signups by you”
    I don’t make any signup.

    “No commission will be paid for signups by your household”
    My households don’t make any signup.

    “No commission will be paid for signups by anyone within your organization.”
    I don’t have an organization.

    I can simply pay some people $5 to signup and I don’t brake their T&Cs.

    “You can then argue in front of a judge when the merchant does not see things the same way you do”
    Things are easy when the merchant and the affiliate are in the same country.
    Hostgator is based in Houston (US). What about if the affiliate is based in Germany, Swiss or any other country?
    Why merchants don’t sue their affiliates who use cookie-stuffing? Because things are not easy when you want to sue someone who doesn’t live in your country.

    P.S: Sorry for my bad English but it’s not my mother tongue.

  7. wesleyb
    January 1, 2013

    Don’t worry about poor english.

    Open up Hostgator’s Terms and Conditions and scroll down to:

    3. Commissions

    Incentivized commissions, and offering any form of incentive to obtain a sale is forbidden, unless prior approval is given and cleared by HostGator Staff.

    What that means is that unless Hostgator gives you their blessing then you can’t pay someone to sign up, for doing so would violate the T&Cs that you agreed to before becoming an affiliate.

    With regards to merchants not taking legal action against affiliates who use cookie-stuffing, did you look up Shawn Hogan yet? It was cookie-stuffing that had him pulling a seven figure (and more!) income. But it was also cookie-stuffing that has landed him in hot water with the feds.

    On finding sanctity in being so far away from your merchant, know that what goes on in the blackhat world can only go so far and no further. It’s a house of cards that must come down, one way or another.