Snapnames discovers employee fraud

In a stunner of a development, Snapnames has discovered that one of their employees has been secretly bidding on domain names for the last four years. The employee set up a Snapnames account under a fake name and bid on domain names.

The company says in their press release that this affected only a small percentage of auctions. How much exactly is that small percentage? They go on to say:

  • Bidding affected approximately five percent of total SnapNames auctions since 2005, most of which occurred between 2005 and 2007.
  • The incremental revenue from the bidding represented approximately one percent of SnapNames’ auction revenue since 2005.

Five percent of all auctions since 2005? That’s huge! One percent of total auction revenue coming from one fraudulent employee? Again, that’s huge!

I have many questions about this.

  1. How could this have happened? I am quite frankly shocked that this could have gone on for so long undetected. Even now it appears that the employee will retain the domain names he/she purchased.
  2. How could an employee come up with the funds to purchase 1% (in revenue) of all domains? Is he independently wealthy? Or did he have a backer who colluded in this fraud and benefited from it? Maybe he was even secretly employed by someone else.
  3. In their announcement, Snapnames says they have created new controls and procedures to prevent this from happening again, including, “Specific domain name registration policies for employees.” What? You mean you didn’t already have specific domain name registration policies for employees in place?
  4. Does this represent a breach of the law in any way? Can this employee be prosecuted?

Snapnames will be offering a rebate to anyone who participated in an affected auction, amounting to 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.

I am curious how they will calculate this. It’s not as straightforward as it seems. Sometimes the level of activity in an auction acts as an X-factor that draws in other bidders. But this can be hard to quantify.

This is a bad development for Snapnames. Domain name discussion forums have always been rife with speculation about the presence of company “shills” in auctions. Of course that’s not what this is, since this employee acted independently and against company policy. Still, it will only feed those sorts of rumors.

I like the Snapnames system and I’ve acquired many domains through them. I expect I will be contacted regarding this rebate. I sincerely hope that Snapnames continues to address this issue openly and decisively and comes out of it stronger and wiser as a company.

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