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Hashrocket execs (not Obie) charged in $425 million mail fraud case

116 points by rmoriz 16y ago

marcusestes 16y ago
This bit from the Atlanta Journal Constitution shares more details on the case: "From June 2004 to December 2008, United Directories deposited about $425 million into bank accounts -- all of the money from businesses submitting payments for ads, Johnson said. The company did in fact publish an advertising directory. In 2008, the company received payments from about 162,000 businesses, yet its directory contained only about 55,000 business names, Johnson said. According to the criminal complaint, United Directories also misled businesses into thinking they were paying to renew advertisements in the actual Yellow Pages directory."
- heresy 16y ago
  Wow. If the association with Hashrocket continues, Hashrocket's name is toast. I feel sorry for Obie. The scale of the operation is impressive, though. If some of those accounts were personal, they made some serious bank.
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washed 16y ago
Mark Smith funded and funds Hashrocket. Hashrocket isn't profitable without Mark Smith. If Obie had no knowledge of this scam then I feel sorry for him and this situation. I guess "The Rails Maturity Model", the Hashrocket Way and BizConf includes taking scam money and pretending to be profitable.
- jackowayed 16y ago
  Hashrocket isn't profitable? Why not? Consulting is a pretty straight-forward business model, and they're pretty well known, so they shouldn't have much trouble charging enough to cover their costs.
  - washed 16y ago
    Pay everyone way more than they're work then buy a beach front office. It's easy to spend money that you do not respect.
    - Poop 16y ago
      How much do rocketeers make?
- rubyrescue 16y ago
  that's totally inappropriate
  - sleight42 16y ago
    I couldn't agree more.
  - foca 16y ago
    indeed. My only regret is not being able to downvote him
- tjogin 16y ago
  How is it you know anything about Hashrocket's profitability?
- duckpunch 16y ago
  You're confusing Hashrocket, the web development company, with United Directories, the company being charged. The people being charged are essentially initial investors. Pointing a finger at Hashrocket in this scenario is not unlike blaming every startup that was invested in by an angel or VC that later ended up involved in fraudulent activity. None of this means that Hashrocket is not at all at fault, but based on the news that we all have, you're drawing unreasonable conclusions. If however you have other sources, please share them here, otherwise you're just trolling.
  - ww520 16y ago
    Aren't those people charged executives of Hashrocket as well?
    - duckpunch 16y ago
      On second look I have to concede that I could be under-rating their authority. To be fair major investors will often sit on boards, but there's no need for me to make further conjecture. A fellow who comments here http://avramc.posterous.com/united-directories-federal-court-indictment-d http://avramc.posterous.com/united-directories-federal-court... makes a similar claim from a much more advantaged position of knowledge.
  - xenopia 16y ago
    The two executives charged seem to be a bit more than passive investors, considering they are right on Hashrocket's site. One is the CFO. That's not good.
- bphogan 16y ago
  Why don't we all wait until after the holiday here, let the dust settle a bit, and see what happens before we start taking sides?
- alnayyir 16y ago
  > I feel sorry for him and this situation. I do too. >I guess "The Rails Maturity Model", the Hashrocket Way and BizConf includes taking scam money and pretending to be profitable. Snarky, unnecessary, and unfounded. This has nothing to do with Rails, and probably just as little with how Obie ran the company.
aresant 16y ago
Wow, busted. Appears their DBA was "Yellow Pages United" - hah! Their fake-directory was called "The Business Book" and members also received submission to https://www.yellowpagesunited.com/ https://www.yellowpagesunited.com/. Compare that logo to the one at http://www.yp.com http://www.yp.com and you can see the beggining of the problem. These guys had a true pump model - they're even a testimonial for a high-volume FAX website - http://www.faxcomanywhere.com/customers/united-directories.html http://www.faxcomanywhere.com/customers/united-directories.h... - which you can be sure was used to fax-spam the country.
- milesf 16y ago
  Some quotes from Wikipedia: http://en.wikipedia.org/wiki/Yellow_Pages http://en.wikipedia.org/wiki/Yellow_Pages "The term YellowPages is not a registered name within the United States and is freely used by many companies." also "In some countries, the familiar "walking fingers" logo is not protected as a trademark and may be used by anyone."
- cookiecaper 16y ago
  yellowpagesunited.com is down now. Anyone with a mirror of the logo?
  - milesf 16y ago
    Take out the https:// https:// and you're redirected to http://www.bizyellow.com/ http://www.bizyellow.com/
    - rmoriz 16y ago
      What's technically interesting: http://www.bizyellow.com/ http://www.bizyellow.com/ looks at first view like a .NET app (.aspx) but after a closer look it's definitly a Ruby on Rails app.
      - milesf 16y ago
        http://isitrails.com/ http://isitrails.com/ says it's "very sure" that bizyellow.com is a Rails app.
btmorex 16y ago
"Hashrocket (Rails) execs (not Obie)" Can someone explain this? What is Hashrocket? Who is Obie? I assume this is related to ruby on rails?
- jackowayed 16y ago
  Hashrocket is a well-known Rails consulting company, and Obie Fernandez is a founder and is pretty well-known as well. http://hashrocket.com/ http://hashrocket.com/
  - sleight42 16y ago
    He's particularly known for writing The Rails Way published by Addison-Wesley (http://www.amazon.com/Rails-Way-Obie-Fernandez/dp/0321445619 http://www.amazon.com/Rails-Way-Obie-Fernandez/dp/0321445619) which he did just prior to founding Hashrocket.
fernyb 16y ago
RIP Hashrocket
- Poop 16y ago
  +1
petercooper 16y ago
This is an extreme demonstration of brand value and why some companies are so quick and determined to cut out trademark misuse. Selling listings in a "directory" at $300 a pop isn't easy. Stick the phrase "Yellow Pages" and a YP logo on it, however, and you can clearly clear millions of dollars over several years.
milesf 16y ago
Obie tweeted about this: "Hashrocket is NOT connected with any wrongdoing. The gov is doing its best to railroad my partners but they are fighting back!! (PLS RT)" http://twitter.com/obie/status/17608288414 http://twitter.com/obie/status/17608288414
- bphogan 16y ago
  And as I said on Twitter... If I were in his situation I would keep my mouth shut and would be directing all questions to my lawyer. Otherwise you run the risk of increasing the guilt by association. This kind of stuff can ruin a company. I understand the desire to publicly defend your biz partners, especially if they're your friends. So if you trust your friends enough to put your name and business on the line for them, then I guess ignore my advice. IAMAL, so what do I know? :)
  - obiefernandez 16y ago
    I talked to my lawyer and he was fine with me publicly commenting on it, especially since the mainstream media is doing its best to turn this into a huge story. AND I do trust my partners enough to my name and business on the line for them. They are innocent.
    - mbpr 16y ago
      while not illegal, the direct marketing online yellow pages biz is shady as hell, comparable to online lotto's, online deals and foreclosures database purveyors, and "punch the monkey"-style advertisers (all legal businesses that employ many people). Not something I'd consider as a value-added business, more sucker-traps than anything else. The fact that "yellow pages" and the logo are up in the air makes that entire industry a massive gray area. I wouldn't want to be associated with that. What would we say if 37signals launched a bargain network service tomorrow? . . . not illegal, but goodwill down the drain.
    - jacquesm 16y ago
      There is a huge difference between innocent according to the letter of the law and innocent in a real-life sense. See the OJ Simpson case for a nice example of the two. Your friends may be 'innocent' according to the letter of the law - when all is said and done. But meanwhile they look guilty as hell in the eyes of the general public of maybe not scamming half a billions worth of dollars but still a significant amount out of the pockets of hardworking people and corporations. It may be 'legal' but it certainly isn't 'right', and by associating yourself so strongly with these people you are not helping yourself or hashrocket. Your lawyer has no stake in your public image but you do, your interests are not aligned and I think you've been given some bad advice.
oldgregg 16y ago
If the claim of HALF A BILLION dollar fraud is true it seems unlikely that Obie would not know something about it. If my buddies and business associates made that kind of money I sure as hell would know everything about it. HOWEVER, this does not diminish HashRocket or Obie's work-- the Rails Way is THE book that taught me Rails. Hashrocket has contributed so much to the ecosystem I sure hope that doesn't change. edit: It seems quite plausable that HashRocket people actually helped developed the "fraud" site... If they can pull off a HALF A BILLION dollar scam just think that they can do for my company! The line between innovation and fraud is often very thin.
- marclove 16y ago
  I believe that's the relevance of the sweep account issue. If you're using the "deposits" into a sweep account as the basis for measuring the supposed & claimed "fraud", its an incredibly overinflated figure.
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ericlavigne 16y ago
I visited Hashrocket's Jacksonville office for a couple days earlier this year, just to watch and learn from the programmers there. They seem like a good group of people, and I'm sorry to see them getting caught up in this. The alleged fraud in this story was by some Hashrocket execs as part of a separate company. If all of this turns out to be true, I still wish the best for the programmers at Hashrocket.
obiefernandez 16y ago
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 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 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.
- oldgregg 16y ago
  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.
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duck 16y ago
I don't really care if a company wants to be "hip" or whatever, but title's like "Chief Morale Officer, in charge of alchohol and fun activities" just make you look like idiots.
- catch23 16y ago
  Eh, not really. Companies like Zappos has titles like this, but nobody thinks the author of "Delivering Happiness" is an idiot.
  - ac132 16y ago
    I dunno about that. They just sold to Amazon because they were running out of money. Exactly how much revenue does a competent CEO need to accumulate before they can turn a profit and become solvent? Tony marketed his way to $1 billion with borrowed money, but it's shameful to have the much revenue and run out of funds. http://seattletimes.nwsource.com/html/businesstechnology/2012109500_btzappos14.html http://seattletimes.nwsource.com/html/businesstechnology/201...
    - catch23 16y ago
      Well, to be fair, most of the borrowed money came from his own pocket, which is why he ended up owning more than 40% of zappos (probably more that 50% if you include venture frogs' 36% involvement). Most boards hate companies who spend extravagantly on their employees. For example, even though Google is doing great, quite a few of their board members hate how Eric Schmidt feeds Google employees so well. According to a few I know at google, they had to pull back a few items on the menu to keep the board happy. Most boards are just after profits and don't really see the connection to employee happiness. In fact, there was a YC company board who rejected the purchase of an expensive espresso machine just because the employees wanted it... that destroyed employee morale for the next 2-3 months, and also caused traffic to go down. Eventually the board gave in and bought the company the espresso machine and it really paid off -- employees were happy, traffic rebounded, and board members actually stated that they wished they knew this earlier. Won't say which YC company, but it was a talk from one of the YC dinners during my round. tl;dr: Boards are always after the cash and rarely see the connection to keeping employees happy, yet time after time they make the same stupid mistakes.
adam_lowe 16y ago
The facts of the case are being skewed far from reality. It is sad that innocent until proven guilty seems to have been lost in the rumor mill. Even in a court room at times today that seemed to be the case. Mark and Marian provided seed money for Hashrocket and founded the company with Obie. They also own a separate company called United Directories that provides a paper and online business listing service. The companies are completely separate entities. None of this has anything to do with or any impact on Hashrocket. Hashrocket is a stand alone, profitable consultancy. That being said, I have always known Marian and Mark to do everything they engage in with the utmost integrity. Hashrocket and United Directories are in the same office building. I was in the conference room next to the United Directories space when the police came to serve their warrants to United Directories. The police officers proceeded to tell the United Directories employees, "You no longer have a job. This company does not exist anymore. You will not be receiving a paycheck." Again, what happened to innocent until proven guilty? Then came the bail hearing today. It lasted 5 hours. I was shocked and disheartened at how few actual facts were presented by the prosecution in order for them to drag someone into court. I was further disturbed when there was almost no basis provided or facts provided to how they were making the jump from what information they did have to trying to accuse Mark, Marian and their employee Chris of the allegations against them. The prosecution then further showed a total lack of ability to understand a basic business banking account or simple math. The judge made the decision at the end of the day to release Mark, Marian and Chris on bond but the prosecution forced his hand with a legal technicality to delay the decision. At the end of a very long and tiring day I have no reason to doubt my friends' character. I am saddened at what I saw transpire in our law enforcement and legal system over this past week. Hashrocket is self-sufficient and will continue to build awesome web applications for our clients. We would appreciate everyone's support in promoting facts over rumors. Thank You, Adam Lowe
- blueag 16y ago
  It's how often people claiming to have the utmost integrity turn out to be crooks. Yes, it's innocent until proven guilty but your words now are already smearing the prosecution. You have already claimed there's no basis for any wrong doing. Do you know the facts? Why don't you wait until the court sorts out the detail? It's funny how all the defenses presented in HN are character witness. Do you know for sure that they didn't send out fake invoice to trick people into paying them money?
xenopia 16y ago
Read for yourself. http://bit.ly/united_dir_filing http://bit.ly/united_dir_filing And while I wish I could say I was a super L33T hacker, I'm afraid these docs are public record if you are set up to look.
- xenopia 16y ago
  So on taking a further look at the court filing I think what we have here is your basic "real world spam" business model. Unfortunately these things are all over the place as they are a proven way to generate money by sending out a firehose of solicitations for an essentially useless "service". Looking at the solicitation it clearly covers it's ass with all sorts of disclaimers, despite looking deceptively like a bill at first glance. I don't think the solicitation itself will hold up in court as being fraudulent alone. What they are alleging is that they did not even bother to put all the names in the book, and they did not send out as many books as they said they would. You might ask yourself how such a mailing could be successful. Well, it is a sad truth that there are many aging business owners in many small towns across this country who are not quite on the ball enough to read the fine print anymore. Who falls for all those Nigerian emails? Obviously someone. Basically what these guys are doing is vacuuming up small checks from old man Higgins who is still running the ole' TV repair shop in downtown Podunk, even if nobody much bothers to fix their VCR anymore and the new Wal-Mart has got em for $49 anyways. At some level this is along the lines of those "Who's Who" books that select you to be in a book of awesome people, and wouldn't you like to buy a copy? That kind of thing is pointless and deceptive, but not illegal. There seems to be more going on here. A few questions: Why get mail at a PO Box in Atlanta if this business is in Florida and it is so legitimate? Illegal or not, do you really think this is the kind of ethics you want in your CFO? Or was it a deal with the dark side that had to be made?
  - marclove 16y ago
    After reading the complaint, I came to a similar conclusion. Was it fraud & money laundering? That's for the court to decide and they have a presumption of innocence. Regardless of that outcome though (and assuming United Directories doesn't dispute that Exhibit A is one of their advertisements), its pretty clearly a shady business in my mind. While technically (probably) legal, its a spammy business model that adds very little value. Its not really fair to Hashrocket employees that this will taint Hashrocket's reputation, but it unfortunately will to some extent. Oh and totally agreed about the whole -- if your brother's already been indicted for the same exact thing and is currently a fugitive you might want to rethink the business model -- thing. That just shows a complete lack of common sense.
gruntruk 16y ago
I think reading any/all headlines with the mindset of "interesting if it's true" is worthwhile here. The facts need to materialize before declaring fraud or any other type of malice. $425 million makes for a wonderful headline.
- ewjordan 16y ago
  Did you see the actual advertisement? Illegal, maybe not...but malicious? Certainly. An advertisement just doesn't come out accidentally looking like it's an invoice from the Yellow Pages (the real ones), that takes effort. The intent is crystal clear, it's not to convince someone that they would gain something from your service, it's to trick them into thinking that they already owe the money. Really, now - can anyone honestly imagine any plausible scenario by which this "business model" could have been devised other than "Hey, I've got a great idea, Yellow Pages is not a trademarked term, let's print up an ad that looks like one of their bills and send it to millions of small businesses, some of them probably won't read the fine print and they'll pay up, thinking that they'll be removed from the Yellow Pages if they don't!" If you really think this was more innocent than that, I've got a bridge to sell you. Even if it's legal, this is some shameful shit, and that Hashrocket is associated with (let alone founded by) these douchebags casts a long dark shadow over its image...
  - lesterbuck 16y ago
    An advertisement just doesn't come out accidentally looking like it's an invoice from the Yellow Pages Of course not. They sent out almost 20 million pieces of email over the years, so what were they doing? Testing all the f*cking time!
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oscardelben 16y ago
Here in Europe there's a company that sends out something similar. For example in Italy it's called "Registro italiano delle imprese in internet". I mistakenly registered with them and they started sending me invoices of more than $1000 dollars each (which I never paid). I did some research and they have been declared illegal in many countries but somehow never got charged. If these guys are doing the same thing, then I don't know if it's illegal or not in the USA but it surely is something unethical with the only goal of spilling money from people.
ruhuvian 16y ago
What is most disturbing is that these weren't far-away investors of Hashrocket. One was the CFO and they were directly funding Hashrocket since its inception. As Obie's business partners, that's pretty shady. And whether its determined that they were within their legal limits or not, we've all been made aware of how sleazy the whole operation is. Hashrocket would do well to distance themselves from this stuff as much as possible, and declare that they will no longer receive money from an operation that survives on scamming people out of their money. The more Obie shouts to the world, "These are my FRIENDS", the worse he looks.
MarkHoffman 16y ago
Obie is probably right and wrong. He's probably right about the prosecutor being a grandstanding twit with little interest in justice, but only concerned about his own political career. I've been involved in (though not a party to) two criminal cases and neither case left me with much admiration for prosecutors. I realize they are just doing their job, but it's clear their own interest are placed far above the needs of justice. But Obie is wrong about the nature of these types of directory businesses. As a business owner, I've come in contact with these type of companies and the most gracious description of them would be "ethically challenged". While they may operate under the letter of the law, they rely upon naivete and/or lack of scrutiny. They are no better than those companies that add a charge to your phone bill and hope you don't see it. I can understand why people are disappointed to learn that Obie has decided to associate himself with people that are involved in these types of shady businesses. I also see why people would be concerned that Obie has partnered with these kind of people in building Hashrocket.
xenopia 16y ago
A summary of how United's "business" works: 1) Design an "order form" that looks deceptively like a renewal form for the regular local yellow pages. The goal is to confuse the recipient that this is a renewal for your local yellow pages that you already subscribe to. Make the return address of your company say "YELLOW PAGES." Take advantage of the fact that the term Yellow Pages and the walking fingers logo are not copyrighted. 2) Have your shady lawyer review your order form and add enough disclaimers to cover your ass and comply with postal regulations. Everything is spelled out in the fine print. This is not a bill. You are ordering a service to be included in our book. We are not affiliated with your local phone company. We are not even going to send this book to anyone except other "subscribers" and a few libraries, etc. We will also put you on a website. 3) Mass mail this "Order Form" to your database of business names across the country. The response rate is small. But as the $300 fee is relatively high and your actual cost is negligible, the payoff is worth it. Note that by ordering you are set up to auto renew your $300 order. The book is published twice a year. 4) Send customers a bill. Charge credit card, get a check. Note that this could be an area where the prosecutor vastly overestimated the dollar amounts involved The total count of incoming mail was for order form replies. A smaller fraction of those recipients would actually have paid the bill which presumably arrived later. -If customer uses a credit card to pay, set up auto renewal, per terms of order form. 5)Have book of names printed. How many to print? Well, you actually aren't obligated to print more than a handful, per the terms of the solicitation. Here is the crucial number to optimize because printing those books actually costs money. You need to print just enough to send to customers to show they got something. Did they send one to each customer? The prosecutor is alleging they did not based on records from the printer. Again though, they never said they would publish any specific amount or that as a subscriber you would get a copy yourself. Assuming they did actually send a book to each subscriber, then the scope of the dollar amounts involved would be much smaller than alleged, though still quite lucrative. So why print and mail books at all? Two reasons. One is to maintain some defensibility to the business in case you ever end up in court (cough.) The second is so you have something to show the smaller subset of your customers who pay but end up complaining. When they try to file a credit card chargeback you can send them a book and prove some service was provided. Now. Up to this point, we could be within the bounds of legality. But the prosecutor seems to be alleging something more. Specifically that the number of names actually printed in the book was far below the number of paid orders. This would clearly be fraud. But maybe they did print every paid customer's name in the book. Maybe the prosecutor indeed has his accounting wrong and maybe United was hyper careful to keep their records in order. This is where the crux of the case will probably lie. To get access to the books though, the prosecutor had to get the indictment, and that's why he filed with the information he had. 6) Test, optimize,repeat. Mailings aren't cheap. You've got to try to keep that response rate up. Which zip codes do you mail to? Which customers can continue to be charged year after year? Are repeat mailings worth it? How many chargebacks can you handle before your credit card processor dumps you? Some database work is required to keep that mailing list optimal. 7) Build a website so you can provide additional "service" to your customers to increase response rates and cut down on the need to pay for all those expensive printed books. Hell, maybe even creating a web directory for small business might actually provide some value. Start looking around for people who can help you build a website. 8) So now you've got this cash cow, but the problem is it is a deceptive business at best. You want to be a respected member of the community, and flash some cash out on the beach. No one can know what these mailings of yours look like. So you put your PO box in one state under one name, and you put your office in another state where you live under a name that sounds impressive. United Directories. You can tell everyone at cocktail parties that you are the premier publisher of B2B directories for specialized verticals, yada yada.. But that's not enough. You want to be part of something really fun and sexy, so you invest in this new software consultancy. Despite having very little to add to the business other than cash, charisma and perhaps innovative bookkeeping skills, you get to be Chairman and CFO. Finally. Respect. http://hashrocket.com/people/view/mark-smith/ http://hashrocket.com/people/view/mark-smith/ http://hashrocket.com/people/view/marian-phelan/ http://hashrocket.com/people/view/marian-phelan/ 9) Everything's cool. Ignore those letters of inquiry from the FTC. You can make this work. Your brother was an idiot and got too sloppy. Maybe it's time for a new Porsche. 10) Somehow despite that fact that you are a total sleazeball, you've managed to fund a great company and stand back enough to avoid destroying it. When the shit hits the fan, it's time to call in some favors. ego can help build empires but it is often their downfall. Just my interpretation. Here's the indictment. Guess I'm good at hacking something. http://bit.ly/united_filing http://bit.ly/united_filing
xenopia 16y ago
No comment. http://twitter.com/li0n/status/17199037259 http://twitter.com/li0n/status/17199037259
Alvie 16y ago
Deceptive marketing is not illegal per se, but intent to deceive (a question of fact, based on the type of marketing used) is illegal. However, this is difficult to prove.

116 points by rmoriz 16y ago

This bit from the Atlanta Journal Constitution shares more details on the case: "From June 2004 to December 2008, United Directories deposited about $425 million into bank accounts -- all of the money from businesses submitting payments for ads, Johnson said. The company did in fact publish an advertising directory. In 2008, the company received payments from about 162,000 businesses, yet its directory contained only about 55,000 business names, Johnson said. According to the criminal complaint, United Directories also misled businesses into thinking they were paying to renew advertisements in the actual Yellow Pages directory."

heresy 16y ago
Wow. If the association with Hashrocket continues, Hashrocket's name is toast. I feel sorry for Obie. The scale of the operation is impressive, though. If some of those accounts were personal, they made some serious bank.

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washed 16y ago

Mark Smith funded and funds Hashrocket. Hashrocket isn't profitable without Mark Smith. If Obie had no knowledge of this scam then I feel sorry for him and this situation. I guess "The Rails Maturity Model", the Hashrocket Way and BizConf includes taking scam money and pretending to be profitable.

jackowayed 16y ago
Hashrocket isn't profitable? Why not? Consulting is a pretty straight-forward business model, and they're pretty well known, so they shouldn't have much trouble charging enough to cover their costs.
- washed 16y ago
  Pay everyone way more than they're work then buy a beach front office. It's easy to spend money that you do not respect.
  - Poop 16y ago
    How much do rocketeers make?
rubyrescue 16y ago
that's totally inappropriate
- sleight42 16y ago
  I couldn't agree more.
- foca 16y ago
  indeed. My only regret is not being able to downvote him
tjogin 16y ago
How is it you know anything about Hashrocket's profitability?
duckpunch 16y ago
You're confusing Hashrocket, the web development company, with United Directories, the company being charged. The people being charged are essentially initial investors. Pointing a finger at Hashrocket in this scenario is not unlike blaming every startup that was invested in by an angel or VC that later ended up involved in fraudulent activity. None of this means that Hashrocket is not at all at fault, but based on the news that we all have, you're drawing unreasonable conclusions. If however you have other sources, please share them here, otherwise you're just trolling.
- ww520 16y ago
  Aren't those people charged executives of Hashrocket as well?
  - duckpunch 16y ago
    On second look I have to concede that I could be under-rating their authority. To be fair major investors will often sit on boards, but there's no need for me to make further conjecture. A fellow who comments here http://avramc.posterous.com/united-directories-federal-court-indictment-d http://avramc.posterous.com/united-directories-federal-court... makes a similar claim from a much more advantaged position of knowledge.
- xenopia 16y ago
  The two executives charged seem to be a bit more than passive investors, considering they are right on Hashrocket's site. One is the CFO. That's not good.
bphogan 16y ago
Why don't we all wait until after the holiday here, let the dust settle a bit, and see what happens before we start taking sides?
alnayyir 16y ago
> I feel sorry for him and this situation. I do too. >I guess "The Rails Maturity Model", the Hashrocket Way and BizConf includes taking scam money and pretending to be profitable. Snarky, unnecessary, and unfounded. This has nothing to do with Rails, and probably just as little with how Obie ran the company.

aresant 16y ago

Wow, busted. Appears their DBA was "Yellow Pages United" - hah! Their fake-directory was called "The Business Book" and members also received submission to https://www.yellowpagesunited.com/ https://www.yellowpagesunited.com/. Compare that logo to the one at http://www.yp.com http://www.yp.com and you can see the beggining of the problem. These guys had a true pump model - they're even a testimonial for a high-volume FAX website - http://www.faxcomanywhere.com/customers/united-directories.html http://www.faxcomanywhere.com/customers/united-directories.h... - which you can be sure was used to fax-spam the country.

milesf 16y ago
Some quotes from Wikipedia: http://en.wikipedia.org/wiki/Yellow_Pages http://en.wikipedia.org/wiki/Yellow_Pages "The term YellowPages is not a registered name within the United States and is freely used by many companies." also "In some countries, the familiar "walking fingers" logo is not protected as a trademark and may be used by anyone."
cookiecaper 16y ago
yellowpagesunited.com is down now. Anyone with a mirror of the logo?
- milesf 16y ago
  Take out the https:// https:// and you're redirected to http://www.bizyellow.com/ http://www.bizyellow.com/
  - rmoriz 16y ago
    What's technically interesting: http://www.bizyellow.com/ http://www.bizyellow.com/ looks at first view like a .NET app (.aspx) but after a closer look it's definitly a Ruby on Rails app.
    - milesf 16y ago
      http://isitrails.com/ http://isitrails.com/ says it's "very sure" that bizyellow.com is a Rails app.

btmorex 16y ago

"Hashrocket (Rails) execs (not Obie)" Can someone explain this? What is Hashrocket? Who is Obie? I assume this is related to ruby on rails?

jackowayed 16y ago
Hashrocket is a well-known Rails consulting company, and Obie Fernandez is a founder and is pretty well-known as well. http://hashrocket.com/ http://hashrocket.com/
- sleight42 16y ago
  He's particularly known for writing The Rails Way published by Addison-Wesley (http://www.amazon.com/Rails-Way-Obie-Fernandez/dp/0321445619 http://www.amazon.com/Rails-Way-Obie-Fernandez/dp/0321445619) which he did just prior to founding Hashrocket.

fernyb 16y ago

RIP Hashrocket

Poop 16y ago
+1

petercooper 16y ago

This is an extreme demonstration of brand value and why some companies are so quick and determined to cut out trademark misuse. Selling listings in a "directory" at $300 a pop isn't easy. Stick the phrase "Yellow Pages" and a YP logo on it, however, and you can clearly clear millions of dollars over several years.

milesf 16y ago

Obie tweeted about this: "Hashrocket is NOT connected with any wrongdoing. The gov is doing its best to railroad my partners but they are fighting back!! (PLS RT)" http://twitter.com/obie/status/17608288414 http://twitter.com/obie/status/17608288414

bphogan 16y ago
And as I said on Twitter... If I were in his situation I would keep my mouth shut and would be directing all questions to my lawyer. Otherwise you run the risk of increasing the guilt by association. This kind of stuff can ruin a company. I understand the desire to publicly defend your biz partners, especially if they're your friends. So if you trust your friends enough to put your name and business on the line for them, then I guess ignore my advice. IAMAL, so what do I know? :)
- obiefernandez 16y ago
  I talked to my lawyer and he was fine with me publicly commenting on it, especially since the mainstream media is doing its best to turn this into a huge story. AND I do trust my partners enough to my name and business on the line for them. They are innocent.
  - mbpr 16y ago
    while not illegal, the direct marketing online yellow pages biz is shady as hell, comparable to online lotto's, online deals and foreclosures database purveyors, and "punch the monkey"-style advertisers (all legal businesses that employ many people). Not something I'd consider as a value-added business, more sucker-traps than anything else. The fact that "yellow pages" and the logo are up in the air makes that entire industry a massive gray area. I wouldn't want to be associated with that. What would we say if 37signals launched a bargain network service tomorrow? . . . not illegal, but goodwill down the drain.
  - jacquesm 16y ago
    There is a huge difference between innocent according to the letter of the law and innocent in a real-life sense. See the OJ Simpson case for a nice example of the two. Your friends may be 'innocent' according to the letter of the law - when all is said and done. But meanwhile they look guilty as hell in the eyes of the general public of maybe not scamming half a billions worth of dollars but still a significant amount out of the pockets of hardworking people and corporations. It may be 'legal' but it certainly isn't 'right', and by associating yourself so strongly with these people you are not helping yourself or hashrocket. Your lawyer has no stake in your public image but you do, your interests are not aligned and I think you've been given some bad advice.

oldgregg 16y ago

If the claim of HALF A BILLION dollar fraud is true it seems unlikely that Obie would not know something about it. If my buddies and business associates made that kind of money I sure as hell would know everything about it. HOWEVER, this does not diminish HashRocket or Obie's work-- the Rails Way is THE book that taught me Rails. Hashrocket has contributed so much to the ecosystem I sure hope that doesn't change. edit: It seems quite plausable that HashRocket people actually helped developed the "fraud" site... If they can pull off a HALF A BILLION dollar scam just think that they can do for my company! The line between innovation and fraud is often very thin.

marclove 16y ago
I believe that's the relevance of the sweep account issue. If you're using the "deposits" into a sweep account as the basis for measuring the supposed & claimed "fraud", its an incredibly overinflated figure.

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ericlavigne 16y ago

I visited Hashrocket's Jacksonville office for a couple days earlier this year, just to watch and learn from the programmers there. They seem like a good group of people, and I'm sorry to see them getting caught up in this. The alleged fraud in this story was by some Hashrocket execs as part of a separate company. If all of this turns out to be true, I still wish the best for the programmers at Hashrocket.

obiefernandez 16y ago

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 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 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.

oldgregg 16y ago
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.

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duck 16y ago

I don't really care if a company wants to be "hip" or whatever, but title's like "Chief Morale Officer, in charge of alchohol and fun activities" just make you look like idiots.

catch23 16y ago
Eh, not really. Companies like Zappos has titles like this, but nobody thinks the author of "Delivering Happiness" is an idiot.
- ac132 16y ago
  I dunno about that. They just sold to Amazon because they were running out of money. Exactly how much revenue does a competent CEO need to accumulate before they can turn a profit and become solvent? Tony marketed his way to $1 billion with borrowed money, but it's shameful to have the much revenue and run out of funds. http://seattletimes.nwsource.com/html/businesstechnology/2012109500_btzappos14.html http://seattletimes.nwsource.com/html/businesstechnology/201...
  - catch23 16y ago
    Well, to be fair, most of the borrowed money came from his own pocket, which is why he ended up owning more than 40% of zappos (probably more that 50% if you include venture frogs' 36% involvement). Most boards hate companies who spend extravagantly on their employees. For example, even though Google is doing great, quite a few of their board members hate how Eric Schmidt feeds Google employees so well. According to a few I know at google, they had to pull back a few items on the menu to keep the board happy. Most boards are just after profits and don't really see the connection to employee happiness. In fact, there was a YC company board who rejected the purchase of an expensive espresso machine just because the employees wanted it... that destroyed employee morale for the next 2-3 months, and also caused traffic to go down. Eventually the board gave in and bought the company the espresso machine and it really paid off -- employees were happy, traffic rebounded, and board members actually stated that they wished they knew this earlier. Won't say which YC company, but it was a talk from one of the YC dinners during my round. tl;dr: Boards are always after the cash and rarely see the connection to keeping employees happy, yet time after time they make the same stupid mistakes.

adam_lowe 16y ago

The facts of the case are being skewed far from reality. It is sad that innocent until proven guilty seems to have been lost in the rumor mill. Even in a court room at times today that seemed to be the case. Mark and Marian provided seed money for Hashrocket and founded the company with Obie. They also own a separate company called United Directories that provides a paper and online business listing service. The companies are completely separate entities. None of this has anything to do with or any impact on Hashrocket. Hashrocket is a stand alone, profitable consultancy. That being said, I have always known Marian and Mark to do everything they engage in with the utmost integrity. Hashrocket and United Directories are in the same office building. I was in the conference room next to the United Directories space when the police came to serve their warrants to United Directories. The police officers proceeded to tell the United Directories employees, "You no longer have a job. This company does not exist anymore. You will not be receiving a paycheck." Again, what happened to innocent until proven guilty? Then came the bail hearing today. It lasted 5 hours. I was shocked and disheartened at how few actual facts were presented by the prosecution in order for them to drag someone into court. I was further disturbed when there was almost no basis provided or facts provided to how they were making the jump from what information they did have to trying to accuse Mark, Marian and their employee Chris of the allegations against them. The prosecution then further showed a total lack of ability to understand a basic business banking account or simple math. The judge made the decision at the end of the day to release Mark, Marian and Chris on bond but the prosecution forced his hand with a legal technicality to delay the decision. At the end of a very long and tiring day I have no reason to doubt my friends' character. I am saddened at what I saw transpire in our law enforcement and legal system over this past week. Hashrocket is self-sufficient and will continue to build awesome web applications for our clients. We would appreciate everyone's support in promoting facts over rumors. Thank You, Adam Lowe

blueag 16y ago
It's how often people claiming to have the utmost integrity turn out to be crooks. Yes, it's innocent until proven guilty but your words now are already smearing the prosecution. You have already claimed there's no basis for any wrong doing. Do you know the facts? Why don't you wait until the court sorts out the detail? It's funny how all the defenses presented in HN are character witness. Do you know for sure that they didn't send out fake invoice to trick people into paying them money?

xenopia 16y ago

Read for yourself. http://bit.ly/united_dir_filing http://bit.ly/united_dir_filing And while I wish I could say I was a super L33T hacker, I'm afraid these docs are public record if you are set up to look.

xenopia 16y ago
So on taking a further look at the court filing I think what we have here is your basic "real world spam" business model. Unfortunately these things are all over the place as they are a proven way to generate money by sending out a firehose of solicitations for an essentially useless "service". Looking at the solicitation it clearly covers it's ass with all sorts of disclaimers, despite looking deceptively like a bill at first glance. I don't think the solicitation itself will hold up in court as being fraudulent alone. What they are alleging is that they did not even bother to put all the names in the book, and they did not send out as many books as they said they would. You might ask yourself how such a mailing could be successful. Well, it is a sad truth that there are many aging business owners in many small towns across this country who are not quite on the ball enough to read the fine print anymore. Who falls for all those Nigerian emails? Obviously someone. Basically what these guys are doing is vacuuming up small checks from old man Higgins who is still running the ole' TV repair shop in downtown Podunk, even if nobody much bothers to fix their VCR anymore and the new Wal-Mart has got em for $49 anyways. At some level this is along the lines of those "Who's Who" books that select you to be in a book of awesome people, and wouldn't you like to buy a copy? That kind of thing is pointless and deceptive, but not illegal. There seems to be more going on here. A few questions: Why get mail at a PO Box in Atlanta if this business is in Florida and it is so legitimate? Illegal or not, do you really think this is the kind of ethics you want in your CFO? Or was it a deal with the dark side that had to be made?
- marclove 16y ago
  After reading the complaint, I came to a similar conclusion. Was it fraud & money laundering? That's for the court to decide and they have a presumption of innocence. Regardless of that outcome though (and assuming United Directories doesn't dispute that Exhibit A is one of their advertisements), its pretty clearly a shady business in my mind. While technically (probably) legal, its a spammy business model that adds very little value. Its not really fair to Hashrocket employees that this will taint Hashrocket's reputation, but it unfortunately will to some extent. Oh and totally agreed about the whole -- if your brother's already been indicted for the same exact thing and is currently a fugitive you might want to rethink the business model -- thing. That just shows a complete lack of common sense.

gruntruk 16y ago

I think reading any/all headlines with the mindset of "interesting if it's true" is worthwhile here. The facts need to materialize before declaring fraud or any other type of malice. $425 million makes for a wonderful headline.

ewjordan 16y ago
Did you see the actual advertisement? Illegal, maybe not...but malicious? Certainly. An advertisement just doesn't come out accidentally looking like it's an invoice from the Yellow Pages (the real ones), that takes effort. The intent is crystal clear, it's not to convince someone that they would gain something from your service, it's to trick them into thinking that they already owe the money. Really, now - can anyone honestly imagine any plausible scenario by which this "business model" could have been devised other than "Hey, I've got a great idea, Yellow Pages is not a trademarked term, let's print up an ad that looks like one of their bills and send it to millions of small businesses, some of them probably won't read the fine print and they'll pay up, thinking that they'll be removed from the Yellow Pages if they don't!" If you really think this was more innocent than that, I've got a bridge to sell you. Even if it's legal, this is some shameful shit, and that Hashrocket is associated with (let alone founded by) these douchebags casts a long dark shadow over its image...
- lesterbuck 16y ago
  An advertisement just doesn't come out accidentally looking like it's an invoice from the Yellow Pages Of course not. They sent out almost 20 million pieces of email over the years, so what were they doing? Testing all the f*cking time!

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oscardelben 16y ago

Here in Europe there's a company that sends out something similar. For example in Italy it's called "Registro italiano delle imprese in internet". I mistakenly registered with them and they started sending me invoices of more than $1000 dollars each (which I never paid). I did some research and they have been declared illegal in many countries but somehow never got charged. If these guys are doing the same thing, then I don't know if it's illegal or not in the USA but it surely is something unethical with the only goal of spilling money from people.

ruhuvian 16y ago

What is most disturbing is that these weren't far-away investors of Hashrocket. One was the CFO and they were directly funding Hashrocket since its inception. As Obie's business partners, that's pretty shady. And whether its determined that they were within their legal limits or not, we've all been made aware of how sleazy the whole operation is. Hashrocket would do well to distance themselves from this stuff as much as possible, and declare that they will no longer receive money from an operation that survives on scamming people out of their money. The more Obie shouts to the world, "These are my FRIENDS", the worse he looks.

MarkHoffman 16y ago

Obie is probably right and wrong. He's probably right about the prosecutor being a grandstanding twit with little interest in justice, but only concerned about his own political career. I've been involved in (though not a party to) two criminal cases and neither case left me with much admiration for prosecutors. I realize they are just doing their job, but it's clear their own interest are placed far above the needs of justice. But Obie is wrong about the nature of these types of directory businesses. As a business owner, I've come in contact with these type of companies and the most gracious description of them would be "ethically challenged". While they may operate under the letter of the law, they rely upon naivete and/or lack of scrutiny. They are no better than those companies that add a charge to your phone bill and hope you don't see it. I can understand why people are disappointed to learn that Obie has decided to associate himself with people that are involved in these types of shady businesses. I also see why people would be concerned that Obie has partnered with these kind of people in building Hashrocket.

xenopia 16y ago

A summary of how United's "business" works: 1) Design an "order form" that looks deceptively like a renewal form for the regular local yellow pages. The goal is to confuse the recipient that this is a renewal for your local yellow pages that you already subscribe to. Make the return address of your company say "YELLOW PAGES." Take advantage of the fact that the term Yellow Pages and the walking fingers logo are not copyrighted. 2) Have your shady lawyer review your order form and add enough disclaimers to cover your ass and comply with postal regulations. Everything is spelled out in the fine print. This is not a bill. You are ordering a service to be included in our book. We are not affiliated with your local phone company. We are not even going to send this book to anyone except other "subscribers" and a few libraries, etc. We will also put you on a website. 3) Mass mail this "Order Form" to your database of business names across the country. The response rate is small. But as the $300 fee is relatively high and your actual cost is negligible, the payoff is worth it. Note that by ordering you are set up to auto renew your $300 order. The book is published twice a year. 4) Send customers a bill. Charge credit card, get a check. Note that this could be an area where the prosecutor vastly overestimated the dollar amounts involved The total count of incoming mail was for order form replies. A smaller fraction of those recipients would actually have paid the bill which presumably arrived later. -If customer uses a credit card to pay, set up auto renewal, per terms of order form. 5)Have book of names printed. How many to print? Well, you actually aren't obligated to print more than a handful, per the terms of the solicitation. Here is the crucial number to optimize because printing those books actually costs money. You need to print just enough to send to customers to show they got something. Did they send one to each customer? The prosecutor is alleging they did not based on records from the printer. Again though, they never said they would publish any specific amount or that as a subscriber you would get a copy yourself. Assuming they did actually send a book to each subscriber, then the scope of the dollar amounts involved would be much smaller than alleged, though still quite lucrative. So why print and mail books at all? Two reasons. One is to maintain some defensibility to the business in case you ever end up in court (cough.) The second is so you have something to show the smaller subset of your customers who pay but end up complaining. When they try to file a credit card chargeback you can send them a book and prove some service was provided. Now. Up to this point, we could be within the bounds of legality. But the prosecutor seems to be alleging something more. Specifically that the number of names actually printed in the book was far below the number of paid orders. This would clearly be fraud. But maybe they did print every paid customer's name in the book. Maybe the prosecutor indeed has his accounting wrong and maybe United was hyper careful to keep their records in order. This is where the crux of the case will probably lie. To get access to the books though, the prosecutor had to get the indictment, and that's why he filed with the information he had. 6) Test, optimize,repeat. Mailings aren't cheap. You've got to try to keep that response rate up. Which zip codes do you mail to? Which customers can continue to be charged year after year? Are repeat mailings worth it? How many chargebacks can you handle before your credit card processor dumps you? Some database work is required to keep that mailing list optimal. 7) Build a website so you can provide additional "service" to your customers to increase response rates and cut down on the need to pay for all those expensive printed books. Hell, maybe even creating a web directory for small business might actually provide some value. Start looking around for people who can help you build a website. 8) So now you've got this cash cow, but the problem is it is a deceptive business at best. You want to be a respected member of the community, and flash some cash out on the beach. No one can know what these mailings of yours look like. So you put your PO box in one state under one name, and you put your office in another state where you live under a name that sounds impressive. United Directories. You can tell everyone at cocktail parties that you are the premier publisher of B2B directories for specialized verticals, yada yada.. But that's not enough. You want to be part of something really fun and sexy, so you invest in this new software consultancy. Despite having very little to add to the business other than cash, charisma and perhaps innovative bookkeeping skills, you get to be Chairman and CFO. Finally. Respect. http://hashrocket.com/people/view/mark-smith/ http://hashrocket.com/people/view/mark-smith/ http://hashrocket.com/people/view/marian-phelan/ http://hashrocket.com/people/view/marian-phelan/ 9) Everything's cool. Ignore those letters of inquiry from the FTC. You can make this work. Your brother was an idiot and got too sloppy. Maybe it's time for a new Porsche. 10) Somehow despite that fact that you are a total sleazeball, you've managed to fund a great company and stand back enough to avoid destroying it. When the shit hits the fan, it's time to call in some favors. ego can help build empires but it is often their downfall. Just my interpretation. Here's the indictment. Guess I'm good at hacking something. http://bit.ly/united_filing http://bit.ly/united_filing

xenopia 16y ago

No comment. http://twitter.com/li0n/status/17199037259 http://twitter.com/li0n/status/17199037259

Alvie 16y ago

Deceptive marketing is not illegal per se, but intent to deceive (a question of fact, based on the type of marketing used) is illegal. However, this is difficult to prove.