Fraud, whether hi-tech or low, is based on three core principles: a lack of oversite or opportunity, a need of some type (typically financial), and rationalization.
While this case is complex in terms of the “instruments” in which fraud was perpetrated, it is little different than if the unethical actions had occurred at the local garden center or pizzeria. It is fraud none the same.
Micflo LLC
Based in Charleston, South Carolina, Micflo is one of those hi-tech sounding companies whose name could mean most anything. Whatever its original intention (it was founded in 1999), the CEO, Amir Golestan, has just faced charges of twenty counts of wire fraud.
So as to not turn this ethics blog into a primer on IP addresses, let me be accused of over simplification and explain that Golestan was essentially controlling the IP market forcing a secondary market, to people who wanted to buy them.
From 2014 to 2019, Micflo, under Golestan’s company created (according to the Columbia FBI field office): “fictitious persons and companies to sell fraudulently obtained internet address rights for millions of dollars.”
The company had intimate knowledge of the market and the demand for domains as it started its web hosting and internet services early on in the internet cycle.
At some point, Golestan found it easier to leave the legitimate world and then turn to fraud. To do so (according to Tim Renaud, Count on 2 News, Charleston), “Created ten separate and fictitious companies which he referred to as ‘Channel Partners.’ The purpose of these Channel Partners was to obtain address rights to Internet Protocol (IP) version 4 addresses (IPv4) from ARIN.”
Please stay with me! ARIN, stands for the American Registry for Internet Numbers. It is a non-profit organization. Renaud continued: “ARIN ‘administers IP address rights, allocations, and transfers in the United States, Canada, and parts of the Caribbean. To obtain an IP address allocation from ARIN, per its policies, an entity must provide a need-based justification. ARIN’s pool of IPv4 addresses has been depleted so there has been an increasing demand, which has resulted in a secondary market where prices for a single IPv4 address have increased dramatically.”
We may believe that IP addresses are unlimited. They aren’t. In a sense, they are a commodity. Micflo LLC and its 10 fake companies could essentially set the market pricing.
Selling stuff, we don’t own
Therefore, Micflo and its 10 dummy companies were given the rights to thousands of domain numbers. They controlled a huge portion of the IP market. When a company needed a domain name, they were often told the addresses were not directly available and had to go through one of several companies owned by Micflo. Micflo could then set outrageous prices.
According to the prosecution:
“Golestan pocketed approximately $3.5 million dollars, with another $6.2 million dollars waiting in escrow that would have gone to Golestan had he not been caught.”
This is virtual fraud, where a company dominated a market and in turn charged unsuspecting customers exorbitant fees for domain addresses. In controlling the competition by playing ten companies “against each other,” Golestan believed he had escaped oversite. He was a moving, albeit virtual target. His need was for cash, and he was bringing in lots of it, perhaps rationalizing he was dealing in a virtual, rather than an actual product.
In the end, Golestan will face millions of dollars in fines and could be locked away for years.
LEAVE YOUR COMMENTS!
Was MicroFlo audited or had outside accountants?