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Verizon subpoenas DirectNIC whistleblower

Kevin Murphy, January 21, 2011, Domain Registrars

Verizon has subpoenaed a former DirectNIC employee as part of its ongoing cybersquatting lawsuit against the domain name registrar.

Mark Deshong filed a “whistleblower” suit against his former employer – Keypath LLC, which he said shares ownership with DirectNIC – last August, but it was quickly settled out of court.

He alleged Keypath was engaged in a fraudulent domain arbitrage scheme using Yahoo Search Marketing and credit cards applied for in the name of bogus companies.

Keypath’s lawyers (who denied the links to DirectNIC) in turn accused Deshong of trying to extort the company for a larger severance package. The case was settled in October.

Now, in a Florida court filing (pdf), Verizon said it has subpoenaed Deshong for information related to its own case, which is currently tied up in pretrial discovery arguments.

He was scheduled to provide a deposition on Tuesday.

Verizon claims DirectNIC engaged in cybersquatting via shell companies such as Kenyatech/Kentech and Belize Domain WHOIS Service.

While there’s circumstantial evidence connecting the companies, CEO Sigmund Solares signed a sworn affidavit in a previous case denying Kenyatech and DirectNIC were affiliated.

Verizon’s interest in Deshong appears to be limited to information about DirectNIC’s ownership structure and its affiliations, rather than his allegations about domain arbitrage practices.

Whistleblower alleged shenanigans at DirectNIC

Kevin Murphy, December 18, 2010, Domain Registrars

A former employee of a company allegedly affiliated with domain name registrar DirectNIC claimed the company operated a fraudulent domain arbitrage scheme using Yahoo ads and Parked.com.

Mark Deshong filed a whistleblower lawsuit in August. It was settled in October, but its claims are quite interesting, and don’t appear to have been reported on elsewhere.

Until April this year, Deshong worked for a company called Keypath LLC, a domain registration and monetization company based in Tampa, Florida.

According to his lawsuit (pdf), Keypath is owned by the same bunch of people (notably Sigmund Solares and Michael Gardner) who run DirectNIC and Parked.com, as well as entities including Intercosmos Media Group and The Producers Inc.

Deshong said he was fired after blowing the whistle on a “fraudulent” scheme to bilk money out of Yahoo Search Marketing using the old practice of domain arbitrage.

The suit claimed Keypath bought ads on YSM to bring traffic to sites such as cameras.com that, in turn, displayed nothing but contextual ads generated automatically by YSM.

The company would pay Yahoo small amounts for the traffic it received, but would be paid larger amounts for the traffic it sent elsewhere.

That’s domain arbitrage in a nutshell. It was commonplace among domainers back in 2007 and earlier, and Keypath was far from the only company engaged in the practice.

Yahoo tried to put a stop to arbitrage on its ad network in February 2008, as Domain Name Wire reported at the time, but the lawsuit alleged that Keypath carried on regardless, using bogus identities.

This is when the “fraudulent” behavior is alleged to have commenced.

The suit claimed Keypath “created fictitious, unregistered DBA [Doing Business As] company names” in order to obtain up to 1,000 credit cards from Regions Bank.

The complaint, in an eyebrow-raising paragraph, goes on to list almost 100 of these alleged DBA companies’ names.

Each one of these companies would get a Gmail or Hotmail email address and a Skype phone number for the city where the “fictitious” company was supposedly based, the complaint alleged.

A proxy server would be obtained in each of these cities, which Keypath would use to access YSM and order ads pointing to parked pages, under the guise of one of the DBAs, the suit alleged.

The scheme covered about 50,000 domains and made about $375,000 during January 2010, according to the complaint.

The lawsuit was filed under Florida’s whistleblower act, so while it alleged multiple illegal acts (such as bank fraud and wire fraud) on Keypath’s part, it only attempted to prove wrongful termination.

Deshong basically claimed that he was canned after telling his superiors he could no longer carry out duties he believed to be illegal – he didn’t want to go to jail.

In its response (pdf) to the complaint, Keypath denied essentially all of Deshong’s claims.

It also denied that the company has ties to DirectNIC, Michael Gardner, Sigmund Solares, Intercosmos, Parked.com or The Producers.

(Probably a disingenuous claim. Florida company records show they’re all currently or recently linked to businesses located at 5505 West Gray Street in Tampa, Parked.com’s main US office. Keypath’s web site shows the same address).

5505 West Gray Street

Keypath also accused Deshong of a shakedown, attempting to “extort an unreasonable severance package”, and said that he had “improperly retained” a company laptop after he was fired.

The suit was settled out of court (pdf) on October 25th for an undisclosed sum.

The lawsuit is only tangentially related to the cybersquatting lawsuit Verizon filed against DirectNIC earlier this year. That case appears to be currently tied up in a pre-trial discovery/jurisdictional nightmare.

DirectNIC chief tries to dismiss cybersquatting suit

Kevin Murphy, November 11, 2010, Domain Registrars

The CEO of DirectNIC is trying to wriggle out of a cybersquatting lawsuit filed by Verizon, seemingly on the grounds that the telco has been unable to track him down.

Sigmund Solares heads up the Grand Cayman-based registrar and lives in Florida, but since suing DirectNIC back in March, Verizon has not been able to find him to serve him notice.

Now, his lawyers are arguing on a technicality that the suit against him should be dismissed (pdf).

Verizon claims that DirectNIC and its directors, via a bunch of shell companies, cybersquatted “nearly every single famous trademark in existence”, including some of Verizon’s.

It filed an amended complaint (pdf) a month ago. Due to its inability to track down Solares, it served the Florida Secretary of State instead, which it’s allowed to do if the defendant evades service.

Verizon has filed a number of declarations from process servers who were unable to serve him, despite staking out his Tampa home on at least 10 occasions over the space of several months.

Solares’ lawyers now want the complaint against him dismissed on the grounds that he’s not been served, and that he was not evading service, he was just away on business and vacation:

no where in the Plaintiffs’ affidavits do the Plaintiffs allege any actions whatsoever on the part of Mr. Solares. The Plaintiffs’ complaint and affidavits merely recount their efforts to serve Mr. Solares. Such allegations cannot clearly show that Mr. Solares is evading process because they allege no actions on his part at all. Plaintiffs’ assertions only show Mr. Solares’ absence from Tampa during the periods when the Plaintiffs attempted to effect service of process.

In response, Solares has filed a fairly detailed account (pdf) of his whereabouts between March and September, which included trips to Milan, Miami, Aruba, Ireland and Boston.

Some of the dates and locations coincide with big domainer conferences.

Verizon’s complaint attacks DirectNIC on essentially two fronts.

It claims that DirectNIC’s practice of parking expiring domains – including those that infringe trademarks – constitutes cybersquatting. This is of course a fairly common industry practice.

It also claims that DirectNIC itself cybersquatted on thousands of domains via a number of shell companies, including NOLDC, Spiral Matrix, Kenyatech, Kentech, Speedy Web, Unused Domains, and Belize Domain WHOIS Service.

There’s a fair bit of circumstantial evidence connecting the firms, and UDRP panelists have previously inferred that they shared ownership, but I don’t think it’s ever been definitively proved.

I reported on this evidence in a bit more depth here.

It’s possible that more evidence could emerge during discovery, but the suit cannot proceed to that stage while the court is still figuring out whether Solares has been served or not.

Dell previously sued DirectNIC on the same grounds. Solares signed an affadavit denying he had anything to do with Kenyatech. That suit was settled.

Verizon hires investigator to track down DirectNIC bosses

Verizon has won a delay in its cybersquatting lawsuit against domain registrar DirectNIC, because it can’t seem to track down and serve its CEO, Sigmund Solares.

In its latest filings with the Florida District Court, Verizon says that it had to hire a private detective to track down DirectNIC director Michael Gardner, and ended up serving his wife instead.

But, two months after filing the suit, the company still hasn’t managed to track down Solares.

“Plaintiff continues to diligently attempt to serve the lone remaining Defendant yet to be served, Sigmund Solares… Plaintiffs continue to diligently try to locate and serve this Defendant.”

DirectNIC, previously known as Intercosmos Media Group, relocated to the Cayman Islands from New Orleans in 2008, which may explain some of Verizon’s difficulty.

Indeed, when Verizon turned up to serve the company in New Orleans, it found its old office (from where employees attracted global attention for live-blogging Hurricane Katrina) closed.

Verizon sued DirectNIC, along with several directors and alleged aliases, in March, claiming they had squatted on at least 288 domains that included Verizon trademarks.

The case is of note because Verizon alleges that DirectNIC broke US cybersquatting laws when it parked expired domains that contained Verizon trademarks.

Parking pre-delete expired names is a common practice among registrars, which makes the lawsuit puzzling.

But Verizon does appear to be digging for something else, its complaint suggesting a connection between DirectNIC and its nominal registrants that may not be entirely kosher.

Without legal discovery, its hunches could go nowhere. And before Solares is served, it cannot proceed to discovery.

The court has granted an extension until late August, or 30 days after Solares is served, for the first case management meeting.

Verizon seeks another registrar scalp

Kevin Murphy, March 21, 2010, Domain Registrars

After killing off small Indian registrar Lead Networks last week, Verizon wasted no time in gunning for a larger target, DirectNIC.

The carrier sued DirectNIC on Friday, claiming the company has been involved in the systematic typosquatting of hundreds of thousands of domains, including at least 288 belonging to Verizon.

There appears to be at least two things going on here.

First, Verizon is claiming that the common registrar practice of parking expired, pre-delete domains, somehow falls foul of US anti-cybersquatting laws if the parked domains are typosquats.

DomainNameWire addresses the possibly discomforting precedents this could set over here.

Second, the Verizon complaint resurrects the theory that DirectNIC’s owners, including CEO Sigmund Solares, are or were themselves typosquatters, using shell (continue reading)