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Importantly:

1) Hashrocket has absolutely nothing to do with the criminal complaint 2) In the USA people are innocent until proven guilty

Now if you're interested in this case, read on...

There are hundreds of independent yellow pages (including Yellow Pages United) that legally use the term Yellow Pages and the "walking fingers" logo. http://en.wikipedia.org/wiki/Yellow_Pages

My partners have been doing direct mail and publishing a real, actual, yellow pages "Business Book" for something like 10 years. I've personally known them for almost 4 years and they're not crooks. They are important figures in the community and employ a few dozen people here. Their legal counsel for compliance with postal regulations is some of the best in the business and they have been operating without ever having any fear of being subject to criminal fraud prosecution.

Their detention hearing was today. After 5 hours of testimony the federal judge from Florida's Middle District decided to release Mark, Marian and Chris on bond, basically disagreeing with the Atlanta court's request. What I witnessed during the hearing was political grandstanding, a run-amok federal prosecutor trying to make a name for himself and sheer cluelessness on behalf of the government. A ton of "facts" in the criminal complaint simply don't make any sense. For instance, they claim that the FTC consumer complaint database has over 100,000 issues in it related to United Directories. That is plainly false and we heard testimony in court today that the FTC regularly investigates companies once they exceed 5-10 complaints. That the FTC would ignore 100 thousand complaints over the course of 5 years is complete bullshit.

Also, the $425MM figure being widely quoted in the news is based on deposits figures from United Directories' (UD) sweep account. SWEEP ACCOUNT. They summed up all the money ever deposited into the UD sweep account and spent hours claiming that the money had disappeared. It hadn't disappeared -- it never existed in the first place!

http://en.wikipedia.org/wiki/Sweep_account

In an almost funny episode, the federal prosecutor admitted he did not know what a sweep account was, later calling the explanation "trickery" on the part of the defense.

There's so much more to this case than what the media is reporting and we're going to do our best to make sure that our side of the story, the truth, is heard. All of Hashrocket is pretty distraught, but we'll do our best to soldier on and support our friends in whatever way possible.




I have little doubt this is essentially what happened-- quite possibly operating completely within the law. Perhaps they do publish a book. But we've all heard about "directory" services like this and I dare anyone to keep a straight face and say they don't greatly benefit from deceiving people.


They produced, published and mailed out a real 1000+ page book, twice a year, and I'm aware that it cost them millions of dollars and lots of manpower to do so. We can debate the usefulness of paper-based yellow pages in this day and age until the cows come home, but either way it would not mean they committed fraud.


I do not think the pervious commentor was implying that they committed fraud; he or she was simply saying that they likely benefit from deceiving people. Many legit companies benefit from deceiving people.


I think it's rather rude of you and that previous commentor to assert such things. A company does not 'deceive' its customers just because you think the service they offer is useless and could only possibly be sold as a result of grandiose claims of effectiveness and other false pretenses.

In fact, in this day and age, large parts of the worlds still work the same way they worked ten years ago. Time and time again, we internet savvy folks grossly overestimate the amount of business and consumption that has shifted to 'the web'. Yes, Amazon has a revenue of 24.5 billion. Do you realize what the total size of that market is?

I know someone that still makes money printing books of coupons that the receivers can redeem to obtains discounts, rebates, etc. If you honestely believe that companies only invest in that out of custom and the false belief that it still yields results, then you are out of your mind. You are mistaking intelligence for knowledge and making claims about a subject you actually don't know anything about.


Sending businesses invoices that are not really invoices until you read the fine print is scammy, even if the majority will never get paid it is essentially hoping for administrative people not being 'on the ball' enough to realize what they're doing.

Big corporations invented 'purchase orders' for that reason so they're fairly well protected, but the smaller companies that outsource their books because they're too busy doing their work are the ones that are the victims of companies like these.

I've received a couple of such 'not invoices' from companies here in NL and Belgium and they're usually crafted well enough that you have to read them three times before you realize they're not legit. One of them actually presented itself as a 'kvk' which is short for 'kamer van koophandel', the local chambers of commerce.

They're parasites, pure and simple, selling a service for which there is no real demand other than to create a 'product' used as a fig-leaf to hide the scam behind.


I understand all that; it's besides the point. The point is that there is no reason to assume that this specific company engaged in such behavior.


Obie, sorry to hear about this fiasco.

Do you by chance have an example of the solicitations in question? Showing that the solicitation was designed in good faith (and not to confuse people) can go a long way to quell the rumor mill.


IANAL, but you can check Exibit A at the end of the document embedded in this blog post: http://avramc.posterous.com/united-directories-federal-court...

Facts:

- They clearly state that it's not a bill/invoice.

- The fine print explains that there is no obligation to subscribe.

- The fine print explains that they are not affiliated with the actual Yellow Pages.

- The fine print font is larger than your typical bank statement fine print.

- The typical Yellow Pages logo is prominently featured in the solicitation. This is probably not illegal, but can be seen as potentially misleading.

- The first line of the return card is addressed to YELLOW PAGES (as opposed to Yellow Pages United). Probably not illegal, but again, potentially misleading.

Opinion:

I think they (United Directories, not Hashrocket) adopted an unpleasant business model that I wouldn't want to be associated with. But considering Exibit A, it appears that as far as the solicitation goes, they may be operating within the borders of legality. It will be interesting to see what the court will decide.


If it is within the borders, it's just so, not by much. Also, legalities aside, this is unethical business behaviour and I wouldn't want to be associated with it in any shape or form.

But, hey, maybe there's no such thing as bad publicity.


I think in this case, there is such thing as bad publicity. And as much as it may be unfair, I'd be surprised if this story didn't affect Hashrocket as well (which is not guilty of any wrongdoing).


This kind of deceptive business is quite common, and they usually get away with it. It would be naive to think that the Feds have the resources to go after every company that engages in deceptive marketing. There is something more here. They have taken the trouble to get access to bank accounts, this is no minor step. I think they saw enough in those accounts to warrant going after this. While there may well have been a sweep account involved, the document seems to clearly imply that they looked at the pattern of individual deposits coming in from the "customers." To say that this is some overzealous prosecutor desperate for fame seems a bit hasty.

Consider that they pulled records of how many business reply cards came into the PO box and compared that to how many names were actually published in the book. They compared that to the bank accounts. While I have my doubts that the actual solicitation was illegal and that the total dollar amounts were so high, there seems to be more here than just an out of control prosecutor.

If United billed far more names than they actually published in the book, that would be fraud.


After reading the complaint, I think its pretty clear the reason the Feds thought it warranted this much investigation:

"In November 2009, two victims from the Charles Smith/YPDP fraud scheme contacted the United States Attorney's Office in the Northern District of Georgia, indicating that they were still receiving fraudulent Yellow Pages solicitations..."

When they investigated and realized that the solicitation came from a company owned by Charles Smith's brother, I'm sure that was enough to launch a full fledged investigation.


My analysis was in fact limited to the legality of the solicitation. I'm in no way qualified to figure out the legality of their operations in general.


What's the deal with Mark Smith's brother Charles?

"In September 2009, a Grand Jury sitting in the Northern District of Georgia indicted Charles Smith for committing mail fraud. He remains a fugitive."


Mark's brother Charles has been estranged from the family for 20 years or more. I have known the family which is very close knit and court was the first time I ever heard of the existence of Charles.


The way you phrase this, it seems more of a trade mark violation than anything else.


Just to clarify per what was presented by both the prosecution and the defense in the case the walking fingers logo and yellow pages name are public domain. The various local phone companies engaged in the exact same business model have no more claim to them than anyone else. The only difference being that most of them were given the advantage of government subsidies and a bureaucratic pseudo monopoly blessing.


True, although I'm betting the local phone companies' distribution model more accurately fits the traditional definition of "the Yellow Pages". When people think "Yellow Pages" they think of a free telephone directory distributed to all residences and businesses in the area being advertised in.

According to the complaint, United Directories published 27,626 copies of the book in 2009. Exhibit A of the complaint is an advertisement they sent to a small business in North Las Vegas for the "National Business Edition" of the "Yellow Pages". I don't see how, with 27,626 copies printed, the United Directories' Yellow Pages could possibly meet the traditional definition of "the Yellow Pages" in a "National Business Edition".

So yes, while probably not illegal, its deceptive to use the term "Yellow Pages" when you're just publishing a lower circulation business to business directory.


1) Hashrocket has absolutely nothing to do with the criminal complaint

If the people named in the complaint are executives of Hashrocket, then it has something to do with Hashrocket, however indirectly.

2) In the USA people are innocent until proven guilty

In the US criminal justice system, there is a presumption of innocence. That doesn't have much to do with whether one is actually guilty or innocent, in the USA or anywhere else.


If the people named in the complaint are executives of Hashrocket, then it has something to do with Hashrocket, however indirectly.

This seems pretty pedantic. If a VP at Google gets arrested for domestic violence, that hardly means that it "has something to do with Google".


It is, only if you make up an example quite unlike the one at hand. If an exec of a firm gets charged with fraud, it's not a piece of information you'd ignore when doing business with that firm, even if the fraud charges are regarding another venture. Suppose you're negotiating a deal with some company and in the process they tell you 'Oh, a couple of our key executives were just charged with fraud. But, really, this has nothing to do with us'. Your business partner mumbles 'Hmm, I'm not so sure about this...'. Do you reply 'Oh, quit being pedantic!'? Probably not.


I concede the point :)


If your Chief Financial Officer is indicted for money laundering, it is a bit of a problem. Even if the charges are related to a completely separate company.


It even is a problem if the charges do not stick.

If these guys are as upstanding as Obie suggests they should resign as officers of Hashrocket immediately to avoid tainting hashrocket further.

The damage that has already been done can't be avoided but no need to risk further damage.

Distance is key here. Silent investor, maybe. Officer of the company, no way.

The bad bit here is that bankrolling legit companies like hashrocket from cash made with this scammy 'service' makes the money laundering claims more believable.


In the US criminal justice system, there is a presumption of innocence. That doesn't have much to do with whether one is actually guilty or innocent, in the USA or anywhere else.

Nor does this have much to do with whether the public (your paying customers and/or neighbors) believe you are actually guilty or innocent, unfortunately.


I think it's pretty foolish of Obie to defend his friends here so publicly. Even if this is all legal and they are eventually vindicated, most folks know of these sorts of "businesses" and very few people find them upstanding ventures. It makes me question what completely legal, but of questionable value, business practices Hashrocket themselves conducts?


Hey Obie,

I've read the complaint and had a look at a sample 'not an invoice' and I find it commendable that you stand by your friends in times of trouble but really, don't you think that their business model is more than just a little shady ?

It reminds me of people preying on old folks by overcharging them for washing their windows or mowing their lawn because they 'agreed' to being overcharged.

Hiding behind 'the fine print' is not usually the mark of a great business.


I don't know the details but what the article is reporting seems pretty bad. Why did that person receive an invoice from your partners' business book, if he was not signed up for it?

Or are going to say that it was not really an invoice, but an advertisement? In my opinion small business owners do not usually confuse an advertisement with an invoice, or otherwise they would not stay in business for long.

So if that person says it was an invoice, it probably looked like one.


The prosecution was asked to provide evidence that people received an invoice that had not signed up for the service. They were asked to provide a list of the businesses that complained and/or claimed fraud. They did not produce either. They just kept throwing out the same few numbers but never provided anything of substance to back up the numbers they claimed.


Obie,

Totally understand your distraughtness. And loyalty to friends is a bfd in my book. That being said, it's probably in the best interests of you and hashrocket to not comment, to not talk about it, to have a conversation with your lawyer about it, and let the courts be the courts.


I think that it would be wise of you to stay publicly silent and to only state your position after the legal system has done its job and to take action then if necessary. I am a neutral third party, I think that you would be wise to heed my advice.


I've personally known them for almost 4 years and they're not crooks. They are important figures in the community and employ a few dozen people here.

How is this relevant?


Yeah, Bernie Madoff was respected "in the community" as well. Usually the interface between the dark side and the shiny respectable businesses are folks just like these two. They want the respect and have the charisma and flexible ethics it takes to pull off the double life.

If I were Obie, I would cut the cord with these clowns and work on salvaging hashrocket, even if it means shutting it down and starting again free of financial entanglements with these two.


Indeed. Money laundering, for example, usually has to go through people that fit this description.


Accusations stain, opinions leave scar's and acquittal does not completely clean or heal.

Chose to remember, on this 4th of July, all the people who have given their lives so that the laws of our land can be properly exacted between the guilty and the innocent.

Chose to allow the courts to decide if United Directories crossed the line between legal and not.

Chose to wait. Chose to trust. Chose to say good things or nothing at all.

Because in the end, accusations stain, opinions leave scar's and acquittal does not completely clean or heal.

Chose to never abandon a relationship unless you can accuse them from first-hand knowledge and then do it face to face in private.

I have no first hand knowledge. Do you?


Not really related to the story, but can someone explain to me why Americans put '$425MM', where does the second M come from? Here in the UK we'd just put '£425m'? Just curious because I saw DHH use MM too.


In a lot of banking and finance, they use "M" to abbreviate thousands and "MM" to abbreviate millions. It's based on the roman numeral "M", so "MM" is meant to represent "a thousand thousands". Of course if you know anything about Roman numerals, "MM" is in fact = 2,000.

I believe the appropriate abbreviation is "$425M", not "$425m". The AP Stylebook avoids the issue altogether and dictates that million, billion, etc. should all be spelled out and in all lowercase.


See http://news.ycombinator.com/item?id=1583135; not surprisingly based on your and adam_lowe accounts the Feds have filled a motion to drop all charges (I hope with prejudice). See the link for a bit more editorializing by various people including me, but when you compare this to their usual behavior it's very clear the Feds never had a case.


Having absorbed the idea of 'sweep account' from Wikipedia, I'm not sure I understand why that matters to the tale. Summing up deposits sounds like bad practice, for sure, but I'm not having any luck understanding why the fact that it's a sweep account matters.

Sounds like a sweep account is just an umbrella for a day-to-day account and an investment vehicle.


It's in this sentence at the end of the wiki article:

"Some companies choose to have all of their funds swept into a sweep account..."

Some sweep accounts go back and forth in total every night, some only go back and forth according to funds being over or under a certain threshold.

Let's say your business on average has $10k in an account that doesn't earn interest, because legally the bank can't pay you interest on a business checking account. But, they want to pay you interest, because they want your business.

Every night, the bank "sweeps" the money from the checking account into an investment account that earns interest, then "sweeps" it back into the checking account. That way, they follow the law and you get interest on your funds. It's a completely legit paper trade, nothing more.

However, if this happens every night, and you have $10k in your account on average, then in a week the sweep account shows $70k in deposits, though you're true balance is only $10k.

If you have an Etrade stock account, you see the exact same thing happening between the cash in your account and a money market fund, all transactions marked with the word "sweep" in one form or another.

If prosecution merely added up the deposits in a back-and-forth sweep account to get the $425mil number, then it is a bit ridiculous to call it a "$425mil fraud".


I can't wait for Obie's next book, "The Jails Way"

seriously though, if you associate and start businesses with people who send fake invoices for deceptive services like this, you are probably a sleazeball.

even if you do have glamour shots of yourself all over your webpage.


Upvoted for funny book name.

Oh, wait, this isn't reddit. Damn.


I can't wait for the next book to be titled, "The Rails Three Way"




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