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Whistleblower alleged shenanigans at DirectNIC

Kevin Murphy, December 18, 2010, 15:49:56 (UTC), 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
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, 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 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 โ€“ 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, 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,’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.

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Comments (16)

  1. Steve says:

    Great research.

  2. Louise says:

    That was good; that was entertaining! There is no limit to the damage the mafia is doing to the internet in its new, whitewashed, white collar form: Registrars, ICANN, and Verisign! Registrars who engage in organized crime activities are supposed to be de-accredited. Will that happen with DirectNic? I don’t think so!

  3. Bob A Lot says:

    Hmmm… this reads like every single domain registrar in business today. What else is new?

    • Mike says:

      No. Its just Directnic in action – the way its been since c. 2003-2004… Dont believe that Hurricane Katrina bullshit either.

  4. domain juice says:

    This was complete blackmail by an employee….because quite simply arbitrage is in no way shape or form illegal. It might be against some terms and conditions of companies involved etc. However, not illegal.

  5. You Know Me says:

    Sounds like a bogus whistelblower to me just using it to extort a big severance. He knew DirectNic did not want to stay tied up in court.
    What a scumball he is.

  6. andrew says:

    Paragraph #90 sure seems to indicate that arbitrage is “criminal” and against the “law”; which it certainly is not.

  7. Hung says:

    @ Louise
    Your misinformed post “as usual”
    proves they should require a IQ test to post here!
    Geez, Idiot

    • Kevin Murphy says:

      You’re welcome to express your opinion, Hung, but let’s try to keep it polite in future, shall we?

  8. Hung says:

    @ Kevin Murphy
    Bigger Idiot …
    Your welcome to your opinion …
    Well my opinion is that you are a control freak,
    and need mind your own.
    no wonder this blog is like a graveyard with bores like you …
    Piss OFF! oh yeah … ๐Ÿ™‚

  9. GP Singer says:

    That keypath response sure looks like one lie after another. Maybe Verizon should refile their case and name Keypath, with all those employees just being moved from one company to another it could be a link to keypath being responsible too. There are sure to be ex-employees out there with info that Mark could have presented, but Verizon still could go somewhere.

  10. […] Deshong filed a “whistleblower” suit against his former employer โ€“ Keypath LLC, which he said shares ownership with DirectNIC โ€“ last […]

  11. Mike says:

    I would steer very clear of these bozos. Every last one of them.
    Its amazing none of them are in prison………. YET. I think DOJ should be interested in these folks by now.

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