Digital Advertising

Criteo counters fraud claims made by infamous short-seller Gotham City Research

By Ronan Shields | Digital Editor

September 21, 2017 | 6 min read

Criteo is locked in a war of words over allegations that its revenues are derived from fake traffic and fraud, claims made by Gotham City Research, a notorious investment fund with a reputation for short-selling, that has now taken aim at the adtech sector.

The dispute kicked off when Gotham City Research made public an earlier audit from Method Media Intelligence which had been circulating among players in the industry for weeks, as part of a two-step assault.

Method Media Intelligence, which maintains it has no association with Gotham City Research, investigated the prevalence of fake traffic in online advertising on behalf of an advertiser, with the report questioning the transparency of Criteo practices.


Criteo contends the allegations by Gotham City Research, which has experienced legal challenges in the past over its claims. / Criteo

This has been followed up by the publication of Gotham City Research’s own audit – entitled ‘Criteo: The true fraudster in the adtech industry?’ – today (September 21) which makes multiple potentially damaging allegations.

Among the controversial claims are: Over 50% of websites using Criteo are of suspect quality; Clients can cut 50%+ spending on Criteo without hurting sales; 54.8% of Criteo’s clicks have no attributable source.

However, Criteo branded the claims as “unsubstantiated and false” in an emailed statement sent to The Drum, citing its “90%+ customer retention rate” as evidence of the value it provides for clients.

The statement read: “Ensuring high traffic quality is a key component of Criteo's business model. Criteo regularly conducts external audits with renowned third parties on its traffic which do not correlate with the accusations of Gotham City’s report.”

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Criteo went on to claim: “The author failed to seek clarification from Criteo regarding any of the facts and assumptions relating to Criteo's business model before writing the report.”

The adtech outfit declined the opportunity to comment any further on the claims. Although Gotham City Research’s Daniel Yu claimed that he did attempt to clarify his conclusions when investigating Criteo, it’s just that he did not disclose his identity, whenever he was presented with the adtech outfit’s claims.

The Drum also contacted to Method Media Intelligence with queries about its conclusions, with the company's chief executive Shailin Dhar standing by the methodology he employed. He also pointed out that the report was not meant for publication, rather it was intended for submission to a client.

However, the report was thus circulated among a wider circle – it was first seen by The Drum in mid-September, with the client cited in Method Media Intelligence’s report unable to respond to requests for comment by time of publication.

Gotham City Research is a New York-based investment outfit that has earned itself a reputation for controversy, last year its report into MDC Partners helped spur a 16% drop in its share prices, with the outfit having also faced legal action in the past over its claims.

Speaking with The Drum, Gotham City Research’s Daniel Yu, said: “We’re looking for companies where there seems to be a systematic pattern of rumbling.”

Yu acknowledged that his outfit’s reputation for short-selling would likely draw criticism from those industry observers. However, he went on to say: “But damned be the truth…because that’s all that we care about. This is not an easy game to play. In one sentence, our thesis is if clients know what they’re doing, it’s game over.”

Criteo’s stock price has actually risen since publication of the Gotham City Research report earlier today (see chart below), although it was noted to be down in the days running up to publication. However, this may have been a market reaction to the announcement of iOS 11, which will limit the ability to target ads online, a critical hurdle for adtech companies.

Criteo Fraud report reaction

The Drum contacted advertising analyst at Pivotal Research Brian Wieser for his opinion on Gotham City Research's claims, he said: "I think Criteo faces a lot of challenges, but it also has a lot of opportunities. Investors are mindful of those concerns, but Criteo has proven itself to be an entrepreneurial company."

These claims come the same week as it emerged that Uber was taking its media agency Fetch to court, itself citing allegations of fraud, and US Federal authorities are known to be probing fraudulent activity in the online advertising sector.

Writing in his influential blog bokonads earlier this week, AppNexus chief executive Brian O'Kelley proposed a Turing Test to tackle the issue of fraud, whereby a human interrogator asks both a person and an AI unit a series of questions through an interface that hides their physical manifestation.

"If the human can’t tell which is the AI, it passes the Turing test: it is indistinguishable from a human," reads the post. "What makes the Turing test so challenging is that the AI has no idea what the interrogator is going to ask."

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