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Domain auction house wrestles with alleged shill

SnapNames in legal action against ex-exec

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Internet Security Threat Report 2014

Oversee.net CEO Jeff Kupietzky has revealed that the company is in active but pending legal action against the former executive who allegedly fixed tens of thousands of its domain-name auctions under the pseudonym “halvarez."

Last week, at the company's Domainfest conference, Kupietzky refused to be drawn on the company’s precise action toward former vice president of engineering Nelson Brady, citing legal constraints. However, he did reveal a number of details surrounding the scandal and its aftermath, including the multimillion-dollar compensation the company has paid out to swindled punters.

Back in November, as we reported here, the company announced that an executive - later identified as Brady - had been using the name “halvarez” for years in his own company’s auctions. It sent letters to every affected bidder explaining the situation and offering compensation.

The company said that an investigation revealed that Halvarez had bid against others, increasing the price, and then dropped out at the last moment ensuring that the Oversee-owned SnapNames made a greater profit. On the occasions that he won the auctions - presumably by mistake - Halvarez would usually seek a partial refund. Oversee bought Snapnames in October 2007 for $25 million – a purchase figure based in large part on auction revenues.

What makes the situation worse in punters’ eyes is that several of them posted their concerns about Halvarez years earlier, some even stating that they believed the bidder worked for SnapNames. According to Kupietzky, the company had retained a major flaw by possessing a “single point of failure:" Brady, says Kupietzky, was in charge of investigating claims of fraud against himself.

Oversee has won praise for its response to the scandal by coming clean and offering to pay anyone involved in a losing bid with Halvarez the difference it what they would have paid without his action, plus 5.22 per cent interest.

Kupietzky declined to give an exact total of the cost of compensation, but said that the full cost was “significantly lower” than our estimate of $7.5 million, which was extrapolated from the details that have emerged so far. The company has so far paid out 55 percent of the compensation pool it created, Kupietzky revealed. It's not known how much of the remaining funds cover those involved in two class-action lawsuits filed against Oversee - lawsuits that Kupietsky says he is confident of beating.

The company has introduced new measures to ensure that the situation doesn't happen again. It is in regular contact with frequent customers and has three people overseeing investigations into unusual behaviour, Kupietzy noted.

Despite the scandal, Oversee held one of the strongest domain-name auctions it has seen in recent years on the last day of Domainfest in Los Angeles. Of 285 domains up for grabs, 122 were sold, netting $1.07 million. The biggest sale of the night was $215,000 for loancalculator.com. ®

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