SnapNames, a downtown Portland company that provides website domain registration services, sued one of its former executives for $33 million today, alleging that he rigged the company's online auctions and caused customers to overpay.
Oversee.net, SnapNames' California-based parent company, alleges that Nelson Brady also caused it to overpay when it bought the Portland business three years ago. The activity allegedly took place over four years, from 2005 until the company discovered it last October.
Brady's attorneys did not have an immediate response to the suit, filed today with the U.S. District Court in Oregon, but said they had been in discussions with SnapNames about settling the allegations.
Domain names are the addresses that Web surfers type into their Internet browsers when they visit a Web site. Popular names can be hugely valuable, and there's a vigorous resale market for the most popular domains.
SnapNames acquires expiring domain names and then sells them to the highest bidder, keeping a percentage for itself.
The company alleges that Brady, a Vancouver resident and nine-year employee, was secretly bidding up the price of domain names under a fake name: "Hank Alvarez."
The activity affected 36,000 auctions, according to the suit, and prompted SnapNames to refund overpayments, plus interest, to thousands of customers.
The allegations have been a hot topic in the domain name business since SnapNames disclosed the alleged auction manipulation last fall. Indeed, some domain name buyers had suspicions about Alvarez's activity before then.
"It's been a distraction. Lots of people worked with Brady for a long time, and everyone was surprised and very disappointed by what we learned," Mason Cole, SnapNames' vice president of corporate communications, said this afternoon.
"It took quite a while for us to make the information known to our customers," Cole said. "We are still in the process of offering rebates to our affected customers.
SnapNames does not put a dollar figure on its loss in the suit, but Oversee.net alleges that Brady's actions inflated the Portland company's revenues -- thereby inflating the undisclosed price it paid for SnapNames.
Overall, though, SnapNames said Brady's activities affected less than 1 percent of its auction revenue during the years in question. It said his activities affected 5 percent of the company's auctions during that period.
SnapNames said it has notified U.S. prosecutors and the Federal Trade Commission.
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