Wikia (originally "WikiCities") was co-founded in 2004 by Wikipedia co-founder Jimmy Wales and Angela Beesley. They hoped to capitalize financially on the working model presented by Wikipedia. In fact, it has been said that Wales' ambition was to take the success of Wikipedia and "commercialize the hell out of it."
At one time, 60% of the Wikimedia Foundation board of trustees were simultaneously employees of Wikia. As of December 2009, there are over 21,300 external links from Wikipedia to Wikia.com sites, which are funded by Google AdSense and other advertising revenues. For the better part of 2009, the Wikimedia Foundation was paying rent to Wikia, Inc. on a monthly basis, using a tax-advantaged grant from the Ruth and Frank Stanton Fund.
A wave of problems began with a decision by Jimmy Wales to hire a 24-year-old college dropout named Ryan Jordan to work at Wikia. The hiring decision was made, even though Wales apparently knew Jordan had been passing himself off to the Wikipedia community (and to The New Yorker magazine's Pulitzer Prize winning Stacy Schiff) as a tenured professor holding multiple advanced degrees. Further aggravating the issue, Jordan (whose Wikipedia screen name was "Essjay") was soon appointed by Wales to the highest volunteer adjudicating body within Wikipedia -- the Arbitration Committee. So, this was another instance of a Wikia, Inc. employee holding an exclusive position of power on Wikipedia.
When The New Yorker outted Ryan Jordan's academic fraud, their editors contacted Jimmy Wales for comment. Wales was quoted with the now infamous, "I regard it as a pseudonym and I don’t really have a problem with it." This set off a firestorm of criticism, both within Wikipedia and external to the world's largest encyclopedia community. Especially damaging seemed to be the numerous administrative cover-ups that attempted to hide the historical wiki record of Essjay's actions and the community debates that followed.
A "completely separate" organization
Despite all these connections, Jimmy Wales nonetheless has the audacity to declare on his Wikipedia user page that "Wikia [is] a completely separate organization, unrelated to Wikipedia and the Wikimedia Foundation."