By Jason Drohn
Newsflash: The Washington Post and the Wall Street Journal disclose that what could be the world’s largest shill bidding scam that’s caused thousands of domainers to pay more than they should have for the domains they bought. It’s hot news, a major scandal and one with wide implications.
How does shill bidding work? Dishonest sellers set up fake accounts in everywhere from eBay to domain auctions. They then bid on their own auctions to drive the price up and force real bidders to increase their bids. Small catch with shill bidding: The real buyers may choose to drop out of the bidding leaving the shill as the highest bidder in his own auction. Shot in the foot!
But one smart shill bidder discovered a way around that. He realised that when you own the company or control the bidding platform you’re in a no-lose position, you can rig auctions with impunity. You can bid as high as you want and in the “unfortunate” event of winning the auction you can proceed with the transaction and then reverse it by giving yourself a refund / partial refund.
Step forward Nelson Brady who was the VP at SnapNames, the world’s largest reseller of domain names. It is alleged that he is the person behind the big Snapnames scandal and has been using the bidding name of “Halvarez”. What’s amazing is that he got away with it for several years since 2005, made fake bids on as many as 5% of the auctions run at the world’s largest such domain auction house and made millions in the process.
Snapnames was bought by oversee.net a couple of years ago for an estimated $25 million.
The news and the fallout of this auction rigging are reverberating across the Internet. And while some are talking about how it could have possibly happened and the consequences of this episode, I’ve seen no mention about the obviously slip-shod way in which oversee.net made their acquisition. When I’m buying a domain or site I make a few basic enquiries, try the sellers’ names, site names etc., in a few searches, read a few forum threads where the business is mentioned… that sort of thing. In fact, due diligence starts with those kinds of checks. I’m stunned that a company could shell out $25 million dollars without finding threads like this that blew the whistle on Halvarez as early as 2006!
To put it politely: Not Smart! Not smart at all. Get a professional to do your due diligence if you don’t know how to do it yourself.