SnapNames Scandal: Former exec. Rigged Auctions, bid up domain prices

from www.washingtonpost.com – SnapNames, the largest reseller of Web site names, Wednesday alleged that a former top executive [Nelson Brady- pictured]] secretly bid on tens of thousands of domain name auctions over the past four years, driving up costs for other bidders and enriching himself in the process.

SnapNames owner Oversee.net said it learned about a month ago that the executive had been bidding on its domain auctions in violation of company policy that bars employees from doing so.

Mason Cole, vice president of Oversee corporate communications, said the executive was dismissed Monday.

The company Wednesday began notifying affected customers via e-mail, stating that “in every auction where the employee’s fictitious account submitted a bid which resulted in a higher price being paid by the winning bidder, SnapNames will offer a rebate, with 5.22 percent interest (the highest applicable federal rate during the affected time period), to affect customers for the difference between the prices they actually paid and the prices they would have paid, had the employee not bid in the auctions.”

The message to customers said the bulk of the bidding occurred on auctions between 2005 and 2007, but that the employee’s bidding affected about 5 percent of total SnapNames auction since 2005. In addition, Oversee said the incremental value from the bidding represented approximately one percent of SnapNames’ auction revenue during that same time.

Cole said as many as 50,000 domain name auctions may have been affected by the employee’s unauthorized activity. Cole declined to say what legal steps, if any, Oversee planned to take a result of the incident.

“He had pretty deep insight into our system,” Cole said of the former executive. “I don’t know whether he was one of the founding employees [at SnapNames], but he was one of the first.”

Oversee alleges that the employee made the bids using an auction account set up under the alias “Hank Alvarez”. The company says that in certain cases where the employee won the action, he paid for the domain and then arranged to refund a portion of the winning bid amount to his account.

from www.dnjournal.com – At the 2007 T.R.A.F.F.I.C. West conference in Las Vegas I was scheduled to speak about the domain aftermarket at a closing day luncheon sponsored by SnapNames.com. Two of the company’s Vice Presidents, Mason Cole and Nelson Brady, spoke to the crowd just before I went to podium and I took the opportunity to snap some photos of them for our files. At the time SnapNames was riding high and less than six months later the company would be scooped up by Oversee.net in a deal reportedly worth $25 million.

On that Wednesday in March 2007 I met Brady for the first time and he came across as a very personable and intelligent guy. No one could have guessed that, if company allegations released today are true, Brady, under the user name Halvarez, had already been been involved in rigging SnapNames auctions for two years, behavior they say continued for two more years before SnapNames finally discovered the fraud and made it public in a letter to their customers today.

Brady was fired a week ago Monday, but the fallout from the scandal will be felt for a long time to come and, like a dirty bomb going off in a metropolitan area, the radiation will contaminate innocent people as well as the guilty.

Bidders are now asking if they can trust anyone. While SnapNames obviously faces the biggest hurdle, other companies will also have to reassure skeptical customers that they provide a level playing field. That started just hours after the SnapNames news broke when one of their chief competitors, NameJet, sent a letter to their customers saying they had systems in place to prevent the same thing from happening there.

A quick read of commentary on blogs and in domain forums shows that the distrust is spreading beyond auction houses to all kinds of industry service providers, including PPC companies and affiliate programs. The incident has also given the industry’s critics fresh ammunition that they are using to try to taint everyone involved in the domain business. For one man, Brady is causing an incredible amount of collateral damage beyond the millions he could cost his former employer in legal fees and settlements with customers who were shortchanged.

Brady reportedly drove prices up with fraudulent bids in as many as 50,000 auctions. SnapNames announced a plan to compensate their customers, saying “in every auction where the employee’s fictitious account submitted a bid which resulted in a higher price being paid by the winning bidder, SnapNames will offer a rebate, with 5.22% interest (the highest applicable federal rate during the affected time period), to affected customers for the difference between the prices they actually paid and the prices they would have paid, had the employee not bid in the auctions. The rebate will be available in cash or in credit on the SnapNames platform, at your discretion. ”

It was wise for SnapNames to lay their cards on the table and declare their intention to make things right, but this remains a nightmare situation for everyone. In addition to SnapNames’ financial liability to customers, anticipated legal fees and the hit to their reputation, bidders have lost untold thousands of dollars as well as domains they should have won. As for Brady his career is obviously in tatters.

One can only imagine why someone with his background would go down this path. A brief bio on Brady’s at ICANNWiki says “Nelson is the VP of Engineering at SnapNames.com and also manages TelID’s technical operation. He has 20 years experience in the design and implementation of complex software systems. Nelson’s experience includes key technical positions at Dynamics Research Corporation, Mentor Graphics, OrCAD and Tektronix. Nelson has been a member of the Portland Venture Group, advising early stage companies on software application development.” If the charges against him are true – and no one has heard his side of the story yet – where will he be welcome now?

The primary question being thrown at SnapNames now is how did Brady get away with this for four years, especially when many domainers say they spotted the fraudulent bidding patterns in the Halvarez account and repeatedly alerted the company. I spoke with Oversee VP of Communications Mason Cole this evening and he said Brady held a position of trust, covered his tracks well and was the last person anyone expected this from. “We all feel wounded here,” Cole said.

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