Chipotle Mexican Grill, Procter & Gamble, and Uber Technologies were all victims of an advertising fraud scheme that was perpetrated through apps associated with the Roku (NASDAQ:ROKU) platform, which cost them millions of dollars collectively.

It wasn't Roku working the fraud; rather, it was operated through an outfit called Monarch Ads where advertisers were led to believe they were buying video ads on Roku connected TV (CTV) devices. The ads actually showed up on screensaver apps or passive viewing apps, such as content played for pets left home alone.

Monarch, which is a subsidiary of Barons Media, says it is investigating the occurrence and has suspended operations at its affiliate Aragon Creek, an app developer that was one of the vehicles through which the alleged scam occurred.

The alleged fraud was discovered by Pixalate, an ad platform fraud protection service, which says it is the second time this year some Roku apps have facilitated a fraud against advertisers.

Woman watching the Roku Channel

Image source: Roku.

Exploiting a loophole

According to Pixalate's research, the apparent fraud infiltrated some of the most popular apps on the Roku Channel Store representing the top 4% of apps. It was able to bypass Roku's prohibition on ads appearing on apps like screensavers because the apps were instead classified as "special interest." That made them susceptible to exploitation.

Roku told AdWeek it recommended over-the-top, or OTT, ad buyers "buy directly from Roku or trusted publishers on the platform." Advertisers, which included numerous consumer products companies, as well as political campaigns, were duped into believing their ads were being seen by many more people than they actually were. Pixalate estimates 58% of Aragon Creek's app users and 76% of the impressions delivered to them were "suspicious."

Because of the explosive growth in self-serve OTT ad buying, the venues have become ripe for fraud.