Due diligence in expired domain company acquisition missed a couple big problems.

Mergers and Acquisitions due diligence is thankless work. You have to learn everything about a company, including things about it that its current owners don’t know, in a short period of time. If you get everything right, no one remembers to thank you a couple years later. If you mess up, everyone knows about it.

And that’s exactly the case with Snapnames. The due diligence team at Oversee.net messed up when studying the company, and now everyone knows about it.

First, SnapNames lost Network Solutions after Oversee.net acquired it. This may have been identified as a risk by the due diligence team, but someone at Oversee.net didn’t deem it a severe risk. Oops.

But then there was the insider bidding, in which a SnapNames employee was bidding on auctions for four years. He was a prolific bidder, and certainly one of Snap’s biggest “customers” in terms of bidding activity.

Should the due diligence team have uncovered it? Of course. But it’s easier said than done. A friend of mine sold his software company for $16 million last year. He said that it was the toughest due diligence he has ever experienced. The acquiring company called literally every single one of his 30 customers. That may be overkill. But I would think you’d at least investigate the top 20 bidders or so of an online auction house to see if there’s any revenue risk.

The SnapNames bidding scandal sucked for a lot of people. Especially Oversee.net, which has to pay back money from before it acquired the company.

© DomainNameWire.com 2009.

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1. 2009 Domain Dunce Award: .CM Launch
2. 2009 Domain Dunce Award: Panelist Andrew F. Christie
3. SnapNames Employee Bid in Domain Auctions, Cleanup in Progress

Domain auction site awarded another patent.

Domain name auction platform Snapnames has been awarded U.S. patent 7,627,628 (pdf) for “Demand based domain name auctionability.” The patent’s abstract describes a system that triggers a domain as auction worthy if there is a certain level of demand for it:

A method for identifying a registered domain name as auctionable is provided. The registered domain names may be pulled from a database of desired domain names, such as a collection of domain names that one or more interested entities have requested to register using a domain name registration system. Requesting a domain name may be probative of demand for the domain name. Accordingly a domain name receiving a threshold level of interest may be tagged as auctionable. For example a domain name may be tagged as auctionable when a total number of interested entities is at least equal to a minimum threshold of interested entities. Tagged domain names may be acquired by an escrow agent when a current registration expires and auctioned among interested entities. In addition, the owner of a tagged domain name may be notified to see whether the domain name can be auctioned before expiration.

This type of system is used by expired domain drop catchers to determine if a domain should be auctioned.

The patent is a divisional patent and is similar to another patent SnapNames was awarded earlier this year that covers many aspects of domain backordering.

© DomainNameWire.com 2009.

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Related posts:

1. SnapNames Awarded Domain Backordering Patent
2. Demand Media Awarded Patent for Tiered Domain Name Registrations
3. Sun Microsystems Awarded Patent for Detecting Spoofed Domain Names

Lawsuit claims violation of California law and fraud.

Another lawsuit seeking class action status has been filed against Oversee.net over the SnapNames insider bidding scandal.

Law firm KamberEdelson LLC filed the case on behalf of its lead plaintiff, Stewart Resmer, in U.S. District Court Central District of California on November 18. Resmer, like Oversee.net, is located in Los Angeles.

Among other evidence, the lawsuit cites a now famous January 6, 2008 DNForum posting by a Snapnames employee that denied that bidder halvarez was associated with SnapNames.

It draws a parallel of SnapNames’ actions to a bank bidding on its own properties in a foreclosure auction”

halvarez bid in approximately 50,000 auctions or more from 2005 through 2009, thereby artificially raising the sale prices in these auctions and causing the bidders to spend thousands, if not millions of extra dollars. This is analogous to the bank that owns foreclosed homes secretly bidding in its own auctions to artificially increase the final amount paid by the winning bidder.

The complaint alleges Oversee committed a number of violations:

-Violation of California Auction Law
-Violations of Cal. Civ. Code 1572, 1573, 1709, & 1710 (having to do with deceit and fraud)
-Violation of Cal. Bus. & Prof. Code 17200 (California’s Unfair Competition Law)
-Breach of Fiduciary Duty
-Fraudulent Concealment
-Restitution/Unjust Enrichment

In addition to payment for direct damages and legal fees, the suit seeks to “Disgorge Defendants of all revenue earned from SnapNames.com Internet domain name auctions during the Class period”.

A previous lawsuit was filed by another firm in a Florida circuit court.

A copy of the lawsuit is available here.

© DomainNameWire.com 2009.

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Related posts:

1. First Class Action Lawsuit Filed Against SnapNames
2. Class Action Lawsuit Filed Against Network Solutions, ICANN
3. A Peek Inside the SnapNames Lawsuit