Acro.net – Technology Rants & Raves by Acroplex®

The current argument over the Snapnames rebate seems to be that there is more than meets the eye in the recent Nelson “Halvarez” Brady scandal.

Both victims and non-victims of the “Hank Alvarez” scam, which materialized while he was a VP of Engineering at Snapnames, seem to want a lot more beyond transparency from Oversee – the parent company of Snapnames.

As far as monetary damages are concerned, my out of pocket loss is well-defined in the document sent by Rust Consulting, the company hired by Snapnames to investigate the forensic evidence of the shill bidding and auction tampering that Nelson “Halvarez” Brady engaged into.

The approximately $2,000 I stand to receive back from Snapnames is a well-timed holiday bonus. After examining the 49 auctions I participated in and won against “Halvarez”, the monetary loss is restricted to the amount offered in that rebate. Despite the fact that I spent time carefully researching and bidding on these domains, I do not feel that I lost an additional amount of money that could be accurately calculated, without engaging into some form of emotional and thus inaccurate demand from the company that inherited the problem.

I believe that a lot of other domainers feel the same; that the rebate offers an accurate depiction of the losses, with the addition of interest that rounds the loss up – clearly an attempt by Oversee to sweeten the bitter pill of shill bidding.

Furthermore, the announcement of the filing of a class action lawsuit does not resolve the issue of compensation for the class; it’s not defined in the lawsuit, and given the fact that the range of rebates varies substantially from the low hundreds to the hundreds of thousands of dollars, one cannot assume that a class action lawsuit would ensure higher payment for the class. In other words, the bulk of domainers who lost small amounts *might* not receive much more, with those that lost the most being at risk to receive less than the average amount.

It all comes down to logistics: what is the amount of effort needed in order to pursuit higher return from Oversee. Additionally, if the proverbial feces hit the fan, Oversee might attempt to file for Chapter 11  protection which would freeze the currently allocated funds for a prolonged period of time.

Would I like to see justice delivered, in the form of legal action against Nelson “Halvarez” Brady and whoever else is guilty of defrauding thousands of domainers over the course of five years? Of course. And that’s currently pending, the next move by Oversee against the sole identified person in this case.

But I don’t want blood money in excess of my losses.

Now that the Snapnames auction history data is available as far back as 2004, the next question is: Did Nelson “halvarez” Brady act alone, both in the bidding alias sense and in the real wold sense?

In other words, was “halvarez” the only Snapnames account used to jack up prices in auctions – and did Nelson Brady have accomplices in this digital fraud?

If we look at the bidding volume, “halvarez” appears to be a prolific bidder, with more than 50,000 domains directly affected by his shill bidding activity. To establish the method of carpet bidding, “halvarez” took advantage of a little known fact: that one could place initial bids after the deadline had passed.

Once he was in every auction of domains dropping on that day, “halvarez” would attempt to delete all the auctions he participated in; the key was to avoid being a single bidder. Because of the mechanism in place, any auction that had other bidders participating would ensure that he would not be removed from and that he’d be a 2nd, 3rd etc. bidder in a row of participants; ready to take it to the next level at the private battle among those that entered the auction.

This was the safe method that frustrated many and which was shared by an elite few that discovered exactly what “halvarez” was doing and replicated it successfully – not for the purpose of shill bidding, but for the purpose of safely entering a large number of auctions.

The person that obviously knew of this loophole was the VP of Engineering, Nelson Brady. He exploited it to his benefit over and over again, during the course of several years. Once safely in a number of auctions, he was able to peruse the ones that others participated in; almost surely peeking at ongoing reserve prices and being able to monitor live the strategies of several big domain players. These players eventually stopped using Snapnames, leading to speculations that they were either frustrated by the artificial antagonism caused by “halvarez” – or perhaps after other arrangements took place.

On several occasions, “halvarez” was defended upon by Snapnames employees in various domain forums, alleging that he was “not suspicious of any wrongful activity” and that he was a “high-volume bidder”.

If Snapnames indeed  researched the background of “halvarez” after several domainers started to report his activity, it would appear that all research was stopped by a high ranking Snapnames officer, who had the authority to divert all research to results of his choice.

Therefore, it is not clear at this point whether Nelson “halvarez” Brady acted alone, or whether he abused his power as VP of Engineering, in order to shield himself and his activities from scrutiny. It is not clear whether the research was re-established after Snapnames started losing auction revenue – particularly after Namejet became a big player – or, whether someone had inside information on the activities and became the “deepthroat” in classic Watergate fashion.

The following weeks will definitely be very interesting to watch. Snapnames and its parent company, Oversee, will have a lot of hard work to do in order to reassure the domain community that the culprit of this large-scale fraud has been isolated.

Acting under pressure from domain blogs, posts in forums and angry emails and phonecalls to support, Snapnames has re-instated access to the full domain auction history per account – going all the way back to 2004.

So it’s time to compare notes.

After analyzing the data, Nelson “halvarez” Brady appears in 73% of all auctions that I eventually won! That’s up from the 46% calculated earlier, simply because in their document Rust Consulting do not list the domains where the bidding alias “halvarez” was not the 2nd highest bidder, thus not directly affecting the auction’s final “battle”.

This, however, is not entirely accurate.

By engaging in battle at its earlier stages, Nelson “halvarez” Brady affected the psychology of the bidding among the other participants; he literally, at times, drove up the price by hundreds of dollars, thus increasing interest, speculation and competitive bids among the remaining bidders. He would conveniently drop out of the battle as a “sore” 3rd or 4th, but the damage caused by his engagement was already done.

Therefore, there are two issues currently; the legal issue and the ethical issue. For each infraction, there are different penalties. The law punishes the guilty by issuing a sentence; there are also punitive damages for breaking the common ethos. At this point, it looks as if Oversee has been taking care of a good portion of the collateral damage, by issuing a 5.22% interest rate as “punitive” damages. It’s a good response that will silence many of those affected, leading them to accept the rebates and in the process waiving any future claims.

There is nothing wrong with calculating one’s true sustained damage and deciding whether to take the rebate or wait for  some other type of organized reaction to this scandal. However, there is something severely damaged in this process – something that is FUBAR: the trust in a company that on February 23, 2005 was proclaiming the following:

Fair Price Guarantee: Shill bidding, sniping and other common abuses are all prevented by our advanced auction platform.

To restore fidelity to the Snapnames platform, a rebate is not enough.

We all know the “lousy t-shirt” motto; it applies to almost anything that fails to deliver. In the case of the on-going “halvarez” scandal, it’s a bittersweet reference to an overall failure to proactively identify the fraudulent activity of a former VP of Snapnames.

Yesterday, like many other holders of Snapnames accounts I received an email from Rust Consulting – the forensics and mediation company hired by Snapnames – which contained the detailed breakdown of their findings for my account.

Over the course of 4+ years I bid on and won 49 domains through Snapnames. The bidding alias “halvarez” was a co-bidder in 23 of them. That’s 46% of all the auctions that I won, against the notorious Halvarez. A single auction went for $2,300 after Halvarez – a.k.a. Nelson Brady – tested my bidding limits to that range.

Now, keep in mind that 46% on a sample of 49 domains is not a firm indication of the activity volume  of that individual, who clearly violated the trust of the company he worked for. However, after communicating with a domainer with a larger sample of domains won at Snapnames – 850 – I concluded that Halvarez had a nice little business running in the back room of the Snapnames facility.

That 850-strong auction sample had a 40% participation by Halvarez. This means that in 4 out of 10 domains someone bid on at Snapnames, Mr. Nelson Brady was actively engaging in shill bidding. Considering the sheer number of auctions at Snapnames, the affected auctions are in the tens of thousands.

After perusing the PDF of the rebate breakdown, I could not help but shake my head in disbelief over the domains that Halvarez competed with me over; mostly dictionary generics or domains with established traffic. I recalled the agonizing moments seeing this invisible enemy bid up, the adrenaline rush of hoping that I could beat him.

The only problem was, that Halvarez knew it as well.

Nelson Brady’s little software script or echelon of computerized vultures preyed on domainers, inching its way up to the point that they either made a dramatic bid with a high reserve, or completely pulled out. The one that cost me $2,300 was clearly a domain that had been tagged by Nelson Brady’s homegrown software as “valuable”; indeed, it had traffic, and it was a dictionary .com

How is it possible that Snapnames – eventually taken over by Oversee – could not have known, after all the noise surrounding the “halvarez” moniker never ceased to create frustration among auction bidders?

How is it possible that fellow Snapnames employees publicly described “Halvarez” as a “high-volume” bidder and publicly defended his activity without examining the amount of evidence presented?

How is it possible for Nelson Brady to pull this off acting alone, all while maintaining a full time job as VP of Engineering and as an active member of other corporate boards?

These are questions that deserve solid answers – not just a lousy rebate.

While everyone is awaiting the next wave of the Nelson “Halvarez” Brady tsunami to hit the domain shores, the lingering question is obvious: will there be more transparency in the future?

Oversee is currently rushing to wrap up the Snapnames shill bidding scandal in a manner that does not instill confidence. The forensics company that was hired by Oversee to investigate the scandal is most likely driving the specifics of the “rebate” that was announced. However, this is clearly a method by Oversee to minimize any collateral damage, while giving the impression that the Augean stables would be clean.

But is this the case?

Snapnames has removed and currently does not provide access to crucial historical data older than 2 years, related to the exchange of bids per auction performed. The ousted former employee, Nelson Brady – a VP of Engineering no less – was allegedly driving a shill bidding process under the handle of “halvarez”, participating in thousands of auctions over the course of several years.

Transparency is a key element here, and Oversee does not seem to fully understand that they are not exactly doing what they should be doing: reassuring the Snapnames customers that their losses will be compensated, by providing access to historical data that is currently unavailable.

Due diligence must be performed independently by each person that has a reason to challenge the upcoming outcome of the forensics company’s research.

This is the first major wave that paints the domain industry in a rather unflattering light; it’s the first of several that – unless transparency is established – will severely hammer the domain coast. Because currently, there is no transparency in the PPC sector; there is no transparency in the drop-catching business and there is no transparency in the way domains are handled, transferred, secured and resold.

So while many – myself included – got upset with the TechCrunch article which called the domain industry “dirty”, perhaps that will be a stepping stone in order to begin the process of instilling transparency in every aspect of this Wild West called “domaining”.