Michael Smith, a former long-time employee of Hearst, filed a wrongful termination lawsuit against the magazine company on Thursday. Smith — who Hearst had supposedly once rated as one of their best managers — accused the company of firing him in retaliation after he reported alleged fraud.
Smith had an “outstanding track record” at Hearst for over a decade, according to the court documents obtained by TheWrap. However, that came to an end once he reported “pervasive fraud,” as he put it. The former employee claims his supervisor began to give others “his job responsibilities and staff” before insisting he was “gone from the company altogether.”
The documents also state that Smith’s ousting violates New York’s whistleblower protection law as well as New Jersey’s Conscientious Employee Protection Act. Hearst did not immediately respond to TheWrap’s request for comment.
Before joining Hearst in 2013, Smith worked at Forbes for 13 years and also spent time at TheStreet.com. He was first brought on to Hearst as the company’s vice president of Revenue Platforms & Operations and moved up through the ranks.
Smith has alleged that multiple acts of fraud were committed at Hearst that he dated back to 2014, when then-president David Carey and his team decided to stop using Core Audience, an audience management platform. Smith was assigned a role as GM, and “within six months, Smith discovered that Core Audience had been committing systemic fraud.”
The documents claim that for two years, “advertisers had been buying digital advertisements from Core Audience that grew over time to approximately $1 million per month worth of advertising revenue for Core Audience.” The program was meant to “deliver these advertisements to specific custom-targeted audience segments such as website visitors ‘from [a specific geographic region] and with [specific] interests.’”
“But instead of using the Boolean ‘and’ operator, which would have ensured
advertisements were served only when both targeting criteria were met, Core Audience had been using the ‘or’ operator, causing advertisements to be served when either targeting criterion was met,” the filing stated.
As a result, local businesses that bought advertising targeted to local audiences “were instead having their advertisements served nationally.” Further, “Core Audience was purposely doing this as a means of fulfilling advertising campaigns,” the lawsuit alleged.
Smith claims he corrected the Boolean operator, but Hearst allegedly did not offer refunds to affected customers. He then uncovered a second instance of fraud in 2015 when he found that ads were set up on www.caranddriver.com that allowed for one ad to obscure another. “As a result, one advertisement would be visible, and the other would not,” the documents read. “A review of the developer log files showed that this code may have been intentional.”
Similarly, Smith claimed that Hearst did not refund those impacted customers.
A third instance of fraud allegedly occurred in 2016 when then-CFO (now president) of Hearst-owned iCrossing Dmitry Klebanov “directed Core Audience’s leadership, which reported to Smith, to spend only two-thirds of that client’s budget and ’round-trip’ the company’s remaining third of the media budget back to iCrossing as an agency kick-back.”
Such “round-trips” are described as “deceptive means of financial malpractice involving the transfer of assets between companies to fraudulently inflate revenue and artificially increase income.” Smith said he was later told that iCrossing had a “different ethical standard than publishers.”
A fourth instance of fraud then allegedly occurred in 2017, when Smith was working for Hearst China and found “nearly 100% of website traffic on various Hearst-operated Chinese publishing brands was robotic (i.e., fake) traffic designed by Hearst China.” Advertisers had been led to believe their ads were reaching real customers. Smith estimated the cost to advertisers was approximately $15-20 million a year, and that the practice had been in place for “several years.”
Smith claims he was removed from his role after he voiced opposition to a plan that involved “slowly retire[ing] the fake traffic to avoid alerting and alarming advertisers.”
The documents also claim that his supervisor, Debi Chirichella, began her campaign against Smith in earnest after she was named president of Hearst in 2020. She allegedly began to marginalize Smith from that point, and the two had their final meeting in 2022. He received a new employment contract in January or February 2023 that was set to expire on Dec. 31, 2024. Hearst also hired several employees in Smith’s former positions, and Smith received notification that his contract would not be renewed on Oct. 4.
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