Domain auction site faces shill bidding lawsuit

A Miami lawyer has filed a class-action lawsuit against domain name auction site SnapNames.com, after the company announced that a former employee was bidding against potential customers in domain name auctions.

Attorney Santiago Cueto filed the lawsuit Monday in Miami-Dade County Circuit Court on behalf of his brother, Carlos Cueto, and others who participated in SnapNames.com's online auctions. The lawsuit alleges that a former vice president at SnapNames.com secretly bid on tens of thousands of domain name auctions over the past four years, leading to falsely inflated prices.

Some of the SnapNames auctions run into the tens of thousands of dollars, Santiago Cueto said. His brother, who owns about 3,000 domain names, has long suspected shill bidding in some domain name auctions, he said.

"He's been frustrated by the process for years," Santiago Cueto said. "I think the entire industry needs to be cleaned up."

SnapNames.com, a subsidiary of Oversee.net, sent out notices last week that it had discovered the employee bidding on domain name auctions. SnapNames, which resells expired domain names, calls itself the largest resale marketplace for domain names. The company runs hundreds of auctions a day, it says on its Web sites.

In a notice sent out last week, SnapNames said the shill bidding affected about 5 percent of all its auctions since 2005, with most of the activity happening between 2005 and 2007. Some auctions in 2008 and 2009 were also affected, it said. The former employee won the auction in less than 1 percent of the cases, the company said.

The company recently "discovered that an employee had set up an account on the SnapNames system under a false name and, under this name, bid in SnapNames auctions," it said in the notice. "This is a clear violation of our internal policy and was not approved by the company."

SnapNames will offer rebates to affected customers, with an independent auditor determining the rebates on a case-by-case basis, the company said.

SnapNames representatives weren't immediately available to comment on the Miami lawsuit.

Cueto called domain names "the last frontier for the average person to stake their claim on some very valuable property."

While his brother is the only plaintiff in the lawsuit so far, Cueto expects other bidders to join. The Cueto Law Group will also explore legal actions against other firms suspected of similar activity, he said.

"A lot of people are saying, 'Aha, I knew it,'" he said.

The IDG News Service is a Network World affiliate.