Phoebe Gates’ Phia Faces New Scrutiny Over Alleged Cookie Stuffing Practices

Phia, the shopping startup co-founded by Phoebe Gates and Sophia Kianni, is facing renewed scrutiny over allegations that its browser software claimed commissions for purchases the company did not generate. New reporting based on internal company messages indicates the founders knew about features tied to the practice months before Phia publicly said it had only recently learned of the problem. Gates, Kianni and Phia have not been charged with a crime over the conduct.

The allegations center on a practice known as cookie stuffing, which can manipulate the tracking system used in affiliate marketing. Retailers typically pay commissions when a website, app, or other partner sends them a customer who makes a purchase. Phia allegedly caused its tracking information to replace other referral codes during checkout, allowing the company to claim credit for sales even when shoppers reached a retailer on their own or through another affiliate.

Questions about Phia's practices surfaced publicly in July, when Bloomberg reported that the company was receiving credit for sales it had not helped generate. After being contacted about the issue, Phia said it had been made aware of the situation within the previous 24 hours. Subsequent testing found the disputed attribution had stopped.

Bloomberg reported Aug. 11 that internal Slack messages and other company information indicated Gates, Kianni and employees had discussed features connected to the disputed practices as far back as December. Earlier statements from Phia had described the problem as a bug, while the newer reporting said one of the mechanisms involved a feature that could be switched on and off.

Internal figures cited by Bloomberg also indicated that the disputed attribution accounted for a large share of the sales Phia claimed credit for. The New York Post reported that cookie stuffing represented about 51% of the merchandise value attributed to Phia in June. Average daily revenue reportedly fell from about $80,000 to between $10,000 and $28,000 after the features were disabled. Phia said the decline was also caused by its decision to turn off most of its monetization efforts at the time.

Phia said features causing incorrect attribution were removed July 7 and that it has begun reversing affected transactions for brand partners. The company also said it is reviewing transactions and hiring a head of compliance. Impact.com, an affiliate platform used by Phia, suspended the startup following the initial reporting. Phia's latest public statement did not directly address the allegation that its founders knew about the disputed practices months earlier.

Separate records have also shown that Phia drew complaints to a federal regulator before the affiliate controversy became public. Inc. reported Aug. 13 that records obtained through a Freedom of Information Act request showed the Federal Trade Commission began receiving consumer complaints about Phia in January. Those complaints involved a different issue, alleging that some online promotions for the company were not properly identified as advertising. The FTC cautions that complaints submitted to the agency are not necessarily verified, and the records do not establish that the agency has found a violation.

Federal wire fraud law has drawn attention because manipulation of affiliate commissions has previously led to criminal prosecution. Under 18 U.S.C. § 1343, prosecutors generally must prove that someone knowingly participated in a scheme intended to obtain money or property through fraud and used interstate electronic communications to help carry it out. Intent is an essential part of the offense.

A coding error or incorrect commission does not by itself establish wire fraud. Prosecutors must prove beyond a reasonable doubt that the conduct was knowing and intended to deceive. Evidence showing what people knew about a disputed practice and whether they intended to obtain money through it can help distinguish a technical mistake from deliberate fraud. Wire fraud ordinarily carries a maximum sentence of 20 years in prison, but that figure is a statutory ceiling rather than an automatic sentence.

Federal prosecutors have previously used the statute in a cookie stuffing case involving eBay. Brian Dunning pleaded guilty to wire fraud in 2013 after admitting that software he created placed affiliate tracking cookies on users' browsers even though they had not clicked an eBay advertisement or link. The system allowed his company to receive commissions for transactions it had not legitimately referred. Dunning was sentenced the following year to 15 months in federal prison.

Similar disputes can also lead to civil claims without criminal charges. More than two dozen lawsuits involving PayPal's Honey browser extension have been consolidated in California federal court, where creators and affiliate marketers accuse Honey of replacing affiliate identifiers and diverting commissions. PayPal disputes those allegations, and the litigation remains separate from the claims involving Phia.

As of Aug. 16, no criminal charges or publicly announced government enforcement action related to the reported cookie stuffing allegations had been brought against Gates, Kianni or Phia. The company has said it is correcting improperly attributed transactions and adding compliance oversight following the controversy.