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Wiseguys face the music for trying to play it smart in online ticketing

By Mary Pat Flaherty
Washington Post Staff Writer
Friday, April 9, 2010; C01

In the increasingly sophisticated world of ticket brokering, the Wiseguys have grabbed attention.

Whether they are crooked or merely clever will be up to a jury.

Federal investigators charge that a ring of hackers working for Wiseguy Tickets Inc. cracked security measures at Ticketmaster and other major vendors. They gained control of 1.5 million tickets to popular and coveted concerts and sporting events nationwide between 2002 and 2009. Operating mainly out of Los Angeles and San Francisco, the Wiseguys earned $25 million, as prosecutors tally it, selling premium seats at inflated prices to brokers who resold them at even higher markups to the public.

While thousands of adoring fans perched patiently at computers hoping to score good seats to everything from the Hannah Montana tour to Wrestlemania, the Wiseguys hired cheap Bulgarian programmers and began registering as many as 100,000 Internet addresses to jump the cyber-line at electronic ticket booths and make a fortune, federal prosecutors say.

Legions who tried, but failed, to get face-value tickets for the July 2007 appearance of televangelist Joel Osteen at Verizon Center or the October 2008 Redskins-Eagles game in Philadelphia or the three-day Phish reunion in March 2009 in Hampton, Va., can blame the Wiseguys, say prosecutors in Newark, who contend that the company flourished due to criminal fraud and conspiracy.

If only for the audacious corporate name, the Wiseguys case was bound to stand out. Yet the sweep and speed of its buying jags sets the Wiseguys operation apart from other court disputes and fan protests over the past three years. As Internet ticket sales have grown -- in some cases, the Web is the only place to get tickets to the most popular shows -- so, too, have struggles to control them. Ticket companies haven't been able to thwart every programmer who would pluck them clean, and the regular guy is left without tickets to his favorite band's one local appearance.

As prosecutors tell it, the Wiseguys knew exactly what they were doing:

They used the Bulgarian hackers hired at $1,000 a month to create automated programs known as bots that flood vendor sites and buy hundreds of choice tickets in split-second transactions.

They targeted seats set aside for patrons with limited vision because those spots were closest to a stage.

They posed as tweens in a Miley Cyrus fan club to draw a bead on pre-sales.

Major vendors, including Ticketmaster, the world's largest ticketing company, spent more than $1 million to combat automated attacks. But they were bested by a company with 15 employees, according to federal agents.

On gross annual revenues, the Wiseguys were turning a 20 percent profit, court records show.

Ticketmaster, now known as Live Nation Entertainment, declined to be interviewed about the federal case.

'I never stood a chance'

The Wiseguys never exceeded the ticket limit set per credit card purchase, the government acknowledges, but their programs and web of computers all hit an event's sales booth the moment it opened, impersonating single buyers and automatically deciphering those squiggly word codes and filling in credit card information. A person typing in a purchase didn't stand a chance of getting to the tickets first.

The swarming meant that vendors were deprived of the ability to sell tickets on a first-come, first-served basis -- one of the conditions they agree to with artists and promoters in exchange for the exclusive right to sell an event, according to an indictment handed up in federal court in New Jersey against four Wiseguy Tickets managers.

To throw off suspicion, the Wiseguys dumbed down aspects of their software by adding what appeared to be keystroke errors of the kind that a mere mortal might make, say prosecutors, who also cited the company's plans to build a voice-mail system for as many as 1,000 seemingly unrelated phone numbers to help mask its centralized operation.

Choice seats for the 2009 Sugar Bowl, the 2008 U.S. Open, Hannah Montana, Bruce Springsteen, the New York Yankees playoffs in 2007, ringside at Wrestlemania in Houston, AC/DC in Tampa, Tim McGraw in West Palm Beach, Broadway runs of "Wicked" and "The Producers," tours of "Dancing With the Stars" all came under the Wiseguys control, prosecutors contend.

"I felt like I never stood a chance on some of these shows, and if this is true, I guess I didn't," said Paul Mangano, a 38-year-old in Alexandria who goes to a large-venue show or sporting event about once a month. During the past year, he recalls being shut out early online for AC/DC, the Dave Matthews Band and the Boss.

Being boxed out -- and having to hunt for reasonably priced tickets from secondary brokers or at a venue on the day of a show -- is annoying, said Mangano, "to people like me who want to get in and buy a few good seats. I didn't want thousands."

Mark Rush, a Pittsburgh attorney, represents the company and its founder, Kenneth Lowson, 40, of Los Angeles. To Rush, his client's business was the online equivalent of sleeping overnight outside a box office to be first in line. "It's a free market and everyone got what they paid for," Rush said.

To prosecutors, however, the Wiseguys did more than position themselves for VIP seating: They breached companies' security and squeezed out regular fans when "tenths of a second could mean the difference between purchasing seats in the first 10 rows of an Event or not being able to see the Event at all," according to the indictment.

Four men are accused of conspiracy, wire fraud and computer crimes in a case focused more on how they bought the tickets than on the reselling, because there is no federal law governing ticket brokering. Three of the men have pleaded not guilty and the fourth is awaiting a court appearance.

The Wiseguys boasted of their successes. They "pigged out" in 2009 on tickets for the New York Giants-Philadelphia Eagles playoff game and "dominated" tickets for a "Dancing With the Stars" show in 2008, e-mails filed in court show. Their Bulgarian programmer cautioned in a 2007 e-mail that by closing out average buyers and jacking up prices, the Wiseguys risked alienating so many people that "the general public may snap."

Rush, the defense lawyer, said the indictment took the e-mails out of context.

Who's the bad guy?

Shrieks over markups during the 2007 Hannah Montana tour were a clear tipping point for fans and regulators, interviews show.

And the Hannah history makes it hard for some fans to know who to root for now in the Wiseguys case.

Many fans who loathe Ticketmaster's service charges already mock its corporate name. Indeed, Ticketmaster cited those hard feelings as one reason it brought a federal civil case in 2007 against RMG Technologies, accusing it of rushing Ticketmaster via a bot. Ticketmaster won an $18 million judgment in the case, in which it said it was suffering "a loss of goodwill" over face-value seats being gobbled up and was battling consumer "suspicions that Ticketmaster is colluding with ticket brokers to deny consumers tickets."

If the Wiseguys indictment is correct in its timeline, however, during a period when Ticketmaster fell victim to the Wiseguys, Ticketmaster itself was using misleading resale practices.

Seven weeks ago, the Federal Trade Commission and Ticketmaster settled civil charges in one of those investigations. The FTC concluded that Ticketmaster had flashed a "no tickets found" message to customers searching for 2009 Bruce Springsteen concerts -- including the May appearance at Verizon Center in the District -- and "many other" events in 2008 and 2009 and then directed customers to Ticketmaster's own resale Web site without alerting buyers that they could be paying quadruple the face price of tickets. The FTC called the practice "deceptive bait-and-switch."

The FTC is reviewing sales records in that case and expects customer refunds should be available in six months.

Julie Pinero was a 15-year-old National Cathedral School freshman when she protested Hannah Montana ticket prices in 2008 in the District. Pinero of Layhill is 18 now and a senior, and the Wiseguys case, she said, "sounds like more of the same. I don't take it all so personally anymore." But she won't buy from scalpers or at huge markups. "But that means I don't get tickets I'd like to have."

To try to eliminate inflated resales, some events have gone to paperless ticketing that requires the buyer to present the credit card used to purchase the ticket to be admitted. In another shift, the Eagles are testing dynamic ticketing for their April 27 show in Sacramento, a process that can adjust price levels based on demand. Like paperless ticketing, it harks back to innovations begun by airlines.

As Internet sales grow, so does the importance of protecting their integrity, said Gary Adler, attorney for the 200-member National Association of Ticket Brokers in Washington.

The association's code of ethics states that members should not use bots to buy tickets. "We provide a good customer service," said Adler, "but we also realize the Achilles' heel in this industry if the public perception is that brokers use insidious means to obtain tickets."

The government views Wiseguys as a formidable enterprise they aim to dismantle. But the indictment also makes clear that taking down the Wiseguys would still leave the international hackers, low-level sellers and high-end buyers who made their success possible. That includes other brokers who helped the conspiracy by sharing customers' credit card numbers, account names and addresses.

Stephen Happel, a free-market economist at Arizona State University, has studied scalping and views the Wiseguys case as "one more example that tickets are mispriced -- too low -- from the beginning."

High prices could hurt public relations or reduce the chance of a sellout, two reasons for keeping the costs low, Happel said. But artists, promoters and venues also regularly hold back as much as half of an event's tickets for the velvet-rope set, creating an instant expensive resale market for whatever tickets are released to the general public, he notes.

Who, Happel asks, "was hurt in this? The public? No. The public got seats, but it happens to be the part of the public who was willing to pay more to get in. Hire the Bulgarian, don't prosecute him."

Happel's ASU colleague Marianne Jennings counters that "just because you can do something in business, doesn't mean you should."

A flaw in the "modern-day box office" comparison, she said, "is that in a real line you can see where you are and yell at anyone who tries to cut in. "

Jennings teaches legal and ethical studies in the business school at ASU -- the university where a pair of college students created Ticketmaster in the 1970s.

The Wiseguys indictment was unsealed in March and the case likely will not have major action before June.

Rush, the defense attorney, said if the case goes forward, he predicts that prosecutors will appeal to "jurors who couldn't get those tickets. But there is also a set of people who can't get online at 10 a.m. when tickets open up and that is who uses a broker's services."

Said Jennings: "I don't know how either side would find a juror who doesn't have an opinion on scalping. That's going to be rugged."

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