MIAMI – A class-action lawsuit filed Monday in Miami-Dade County Circuit Court may represent only the proverbial tip of the iceberg in potential legal fallout after last week’s revelation a now-former SnapNames employee engaged in shill bidding during the domain-name reseller’s online auctions.The lawsuit alleges a former SnapNames vice president — reportedly Nelson Brady, who became one of the company’s first employees in 2000 and served as the architect for the auctions’ technological infrastructure — secretly bid on tens of thousands of domain-name auctions, thereby inflating purchase prices and creating greater profits for Portland, Ore.-based SnapNames and its Los Angeles-based parent company, Oversee.net.

“Domain names are the last frontier for the average person to stake their claim on some very valuable property,” Santiago A. Cueto, an attorney representing the plaintiffs, said. “The defendants’ conduct has made it harder for people to do so and we intend to put a stop to this practice, which we perceive as being a major concern in the industry.

“The domain name industry is the Wild West of intellectual property because it remains unregulated,” he added. “It is impossible to know whether you are bidding against someone that isn’t working or affiliated with the company conducting the auction.”

According to a letter emailed to at least some auction participants, SnapNames discovered the shill bidding in October and determined the deception began in March 2005.

“Bidding affected approximately five percent of total SnapNames auctions since 2005, most of which occurred between 2005 and 2007,” Oversee.net Chief Executive Officer and President Jeff Kupietzky and SnapNames General Manager Craig Snyder wrote in the email. “The incremental revenue from the bidding represented approximately one percent of SnapNames’ auction revenue since 2005.”

Interestingly, the email received by YNOT was addressed to “Dear Moniker customer.” Oversee.net also owns Moniker, a major provider of live and virtual domain-name auction services to the adult entertainment industry.

Oversee.net has denied any knowledge of the shill bidder’s activity prior to October and, following what the company called “a thorough investigation,” dismissed the involved employee Nov. 2 for violating the company’s internal policies. SnapNames has vowed to provide financial remuneration for auction winners who believe they were harmed.

“Though on some occasions the [SnapNames] employee won the auction, in many instances the bidding caused the ultimate auction winner to pay more for a name than had the employee not participated in the auction,” Kupietzky and Snyder wrote in their email. “SnapNames neither condones this conduct nor wants to be perceived as benefiting from the conduct. Accordingly, we have decided that regardless of the circumstance, in every auction where the employee’s fictitious account submitted a bid which resulted in a higher price being paid by the winning bidder, SnapNames will offer a rebate, with 5.22-percent 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. The rebate will be available in cash or in credit on the SnapNames platform, at your discretion.”

Despite Oversee.net’s protestations to the contrary, speculation in the domaining community runs high that Brady, a long-term SnapNames officer and shareholder, may have engaged in the bidding as a way of increasing the company’s value and his income both before and after Oversee.net bought SnapNames in June 2007.

“Brady’s activities seem to be largely concentrated to shill bidding for purposes of increasing Snapnames.com revenue, increasing the company’s value in which he was a shareholder and giving him a big payday when Oversee purchased them (remember Oversee said 75 percent of his activity was before the purchase),” a blogger known as MHB wrote at TheDomains.com. “In the process [of] bidding he pushed prices up and up, increasing his bottom line, increased his shares’ value prior to Oversee’s acquisition and would guess his compensation with Oversee after the acquisition. There would seem to be little doubt the Brady compensation with Oversee was based [in] part (small or large) [on] the performance of SnapNames, and the higher the gross, the higher his compensation.”

Oversee.net Vice President of Communications Mason Cole told The Washington Post’s Brian Krebs as many as 50,000 domain-name auctions may have been affected by the shill bidder’s actions. Cole also said the company has not decided what further legal action it will take, if any. The email to auction participants assured recipients SnapNames has instituted some changes to help prevent similar occurrences in the future, though.

“…[W]e can assure you that we have taken all necessary steps to ensure the integrity of the platform and reinforced controls and procedures to avoid any possibility of further breach,” the email stated. “These include enhanced monitoring of bidding activity for suspect behavior, additional controls over financial transactions and specific domain-name registration policies for employees.”