SnapNames Gets Hit With Class-Action Suit

Nov 9, 2009 11:30 AM PST
MIAMI — SnapNames.com on Monday was hit with a class-action suit after it was revealed Friday that a former top executive secretly bid on as many as 50,000 domain name auctions over the past four years.

The suit, which alleges that the domain name provider used shill bidders to manipulate auctions, was filed at Miami-Dade County Circuit Court on behalf of lead plaintiff Carlos A. Cueto and others who participated in online auctions for domain names.

Friday’s allegations made by officials at Oversee.net, which owns SnapNames and domain auctioneer, registrar and appraiser Moniker.com, now have turned into a suit, with others likely to come.

Attorney Santiago Cueto, who represents brother Carlos Cueto in the suit, claims that the suit is just “the tip of the iceberg in the domain-name industry” because the trade remains unregulated.

“The online community has been up in arms over what they feel has been an opaque system that just begs for transparency,” Santiago Cueto said. “It is impossible to know whether you are bidding against someone that isn’t working or affiliated with the company conducting the auction.”

SnapNames.com says that a former top executive secretly bid on as many as 50,000 domain name auctions over the past four years with the motive to drive up prices and enrich himself in the process.

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

The executive, who was one of the founding employees of the company and allegedly a vice president, ran up the bids with the motive to drive up prices and enrich himself in the process. He was later fired.

Oversee last week notified affected customers via email, 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 executive’s bidding affected about 5 percent of total SnapNames auction since 2005.

Oversee also said the incremental value from the bidding represented approximately one percent of SnapNames' auction revenue during that same time.

Oversee alleges that the executive made the bids using an auction account set up under the alias "Hank Alvarez."

In certain cases where the executive won the domain name bid, he paid for the domain and then arranged to refund a portion of the winning bid amount to his account.

Attorney Santiago Cueto said as a result of the internal bidding, prices to purchase domain names were falsely inflated, leading to higher costs to buyers and greater profit for the defendants.

“Domain names are the last frontier for the average person to stake their claim on some very valuable property,” Santiago Cuetos said. “The defendants’ conduct has made it harder for people to do so and we intend to put a stop to this practice, which we perceive as being a major concern in the industry.”

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