Editor’s note: This story has been updated to add a response from Phunware’s securities filings, and to clarify that Uber’s lawsuit is a countersuit against Phunware.
Continuing an ongoing legal battle, Uber has filed a lawsuit against Austin-based Phunware that accuses the mobile-app developer of carrying out and covering up a multiyear ad fraud scheme that allegedly cost the ride-share giant $17 million.
The lawsuit, filed in the Superior Court of San Francisco, accuses Phunware co-founder and CEO Alan Knitowski and several other Phunware employees of federal criminal wire fraud, racketeering, transporting fraudulently obtained funds across state lines and common law fraud.
The Uber lawsuit is a countersuit against Phunware, which initially sued Uber in 2017. In that lawsuit Phunware accused Uber of breach of contract and of owing $3 million in unpaid invoices. The lawsuit also involves Fetch, an advertising agency Uber retained to run its mobile advertising campaign for the period 2014 through the first quarter of 2017, according to a securities filing.
In the securities filing Phunware said, “All the claims stem from Uber’s assertion that Fetch and/or we (and/or other-as-yet-unidentified ad networks and publishers) are liable for the fraud-infested Fetch Campaign, under which Uber overpaid Fetch and mobile advertising providers due to fraudulent attribution for installments of the Uber application.”
“We maintain that our claims against Uber are meritorious and that Uber’s claims against us are not,” Phunware said in the securities filing.
The Uber lawsuit says Phunware is one of a number of third-party ad networks that were hired in 2015 by Uber’s former agency Fetch to help Uber increase its mobile app installations by consumers.
“Phunware falsely billed Uber for ad clicks they didn’t deliver and even placed Uber ads on porn sites in direct violation of our paid advertising standards,” Uber said in a written statement sent to the America-Statesman. “To make matters worse, they actively falsified reports to claim they were running our ads on legitimate sites. Once we realized the extent of Phunware’s fraud, we stopped paying them and now we are bringing this litigation to get the rest of our money back.”
Knitowski declined to comment on the lawsuit.
The lawsuit says that after Uber grew suspicious of Phunware’s ad activity in 2016, two unnamed Phunware employees conducted an internal investigation.
The employees, who no longer work for the company, found that most of the Uber app installs Phunware claimed to have achieved were generated via a process called “click flooding” and were fraudulent, according to the lawsuit. “Click flooding” causes a higher number of clicks to be reported than is actually occurring.
In addition, the lawsuit alleges that most of the traffic that Phunware bought for Uber came through auto-redirects that would automatically take users directly to an app store without them intentionally clicking on an ad.
The lawsuit alleges that when one of the employees conducting the investigation informed Knitowski of his findings and expressed his concerns, Knitowski responded “it would be professional suicide” to stop.
In an excerpt from an email sent on Oct. 31, 2016 between two Punware employees, one employee is quoted as saying, “Guys it’s that time of the month… no not that time… its (sic) time to spin some more BS to Uber to keep the lights on.”
Uber is seeking compensation for general and punitive damages under California fraud claims, according to the lawsuit.
Founded in 2009, Phunware has built a mobile platform that consumer brands use to connect with users on their smartphones and other devices. The platform provides marketing, analytics, content management and location-based services to customers that have included companies such as Warner Brothers, NBC Sports and NASCAR.
In December, Phunware announced it had completed a merger with Stellar Acquisition III Inc., a Greece-based company that Phunware used as a vehicle to enter the public markets. Stellar describes itself as a “blank check company,” which is an entity created to acquire or merge with another company.
Financial terms of the deal were not disclosed, but Phunware previously said the deal would value the company at around $300 million. The company’s shares trade on the Nasdaq stock market under the symbol “PHUN.”
Meanwhile, Phunware also created a digital currency called PhunCoin, that the company’s website says is for sale to accredited investors. When the company announced plans for PhunCoin last year it said it was aiming to raise $100 million initially through sales of the token.