The Lost Omidyar Chapter: Part I

How eBay, a libertarian hobby auction site, grew into an arm of the U.S. National Security State.

Mar 27, 2021

A few months ago, I promised to reprint the unfinished chapter on Pierre Omidyar that I ended up cutting from Surveillance Valley, my book about the forgotten counterinsurgency history of the Internet.

I’ve mentioned Pierre on here recently. These days, he’s best known as the “good” billionaire who set up and funded The Intercept. He been a darling of the progressive world and he’s still praised by the biggest, most adversarial names in media as an honorable and trustworthy man. And as I recently found out, Pierre’s influence on progressive and left-leaning politics continues to expand. Turns out the Omidyar Network, Pierre’s massive investment apparatus, has been bankrolling things like tech worker organizing and tech anti-trust initiatives. (I’ll write more on that later).

So it’s important not to let this guy out of our sight. I’d say he’s one of the scariest tech billionaires out there, and yet few people know much about him.

When I was writing Surveillance Valley, I wanted to include Pierre’s story because it fit so perfectly into the larger thesis of my book. But for some reason I couldn’t make it work, and I abandoned the chapter half-written back in 2017. But the story is still interesting and important enough to publish, even if the chapter is not fully complete.

Below I’m publishing part one of what will probably be three or four segments.

—Yasha Levine

PS: Mark Ames did the best — and pretty much the only — reporting on Pierre Omidyar. Some of my own work is inspired and informed by his reporting, which I think everyone should read. Here are some of his most important stories:

Part I: The Beginning

It was November 7, 2013 in New York. United Nations Ambassador Samantha Power took the stage at the Waldorf Astoria Hotel in midtown Manhattan. Tall and skinny with a gaunt face, she addressed a high-value crowd.

President Bill Clinton was there, as was Madeleine Albright, the former U.S. Secretary of State — infamous for her cynical death calculus. But the star of the night was oligarch investor George Soros. He was there to accept his second Freedom Award, one of the top honors given by in America’s foreign policy establishment. It was the first time in history that the same person was honored with two Freedom Awards. Winston Churchill only got a single award, while Presidents George H. W. Bush and Bill Clinton were embarrassingly forced to split one between then.

Samantha explained to the A-listers eating their dinners, the reason why George Soros was being honored like this was his Open Society Institute and the role it played in pioneering a new privatized way of doing foreign policy.

“After the Cold War ended, beginning in Central Europe, his Open Society Institute assisted countries in making the difficult transition from authoritarian to democratic rule. Today, the Foundations are active on every continent, striving to promote vibrant and tolerant democracies with strong civic institutions and justice and health systems that work. It is rare that a week goes by, in my new incarnation — and I mean this — where I don’t meet an ambassador to the United Nations, a head of state or minister, a journalist or civil society advocate who didn’t either graduate from the Central European University, receive an Open Society grant, or once run an Open Society office. That’s how much George has populated the planet with his dedication to human rights and human dignity,” Samantha explained to the crowd. She added that she owned George Soros a personal career debt. “I myself would not have been able to spend years working on a long book on genocide if not for George Soros and the Open Society Foundation’s generous support.”

George had indeed made a global impact. More than a decade earlier, he had built and perfected a hybrid private-public foreign policy model that melded corporate foundations and private investment initiatives — backed up government power — to project American imperial interests abroad. It was a method perfectly suited for America’s neoliberal age.

On stage, Samantha gushed about George’s Open Society Foundation and his pioneering work in melding corporate power and private investments with American public diplomacy, and she pointed out that all sorts of private foundations that were were emulating the Open Society model. These were the heirs of George Soros philanthropic vision, she said. Among them: eBay founder Pierre Omidyar and his wife Pam.

"The new philanthropists—the Soros-modeled philanthropists—donate money, but they do so while they’re still in the prime of their lives. And alongside money, they contribute knowledge, entrepreneurial savvy, technological knowledge,” she said. “All the skills that they’ve brought to bear in the private sector, they’re able to apply to a world that really needs it. And through his example, George has given definition to what it means to be a modern philanthropist, to be a doer, paving the way for Bill and Melinda Gates, Warren Buffet, Pam and Pierre Omidyar, and others. George was first.”

Samantha Power was right. George Soros’s tenure was indeed impressive.

George — who in his prime looked like a less attractive, off-Hollywood version of Michael Douglas — was born in Hungary, survived the Holocaust, immigrated to England after the war, and rose up to be one of the most powerful and cutthroat financiers in the world — a man who could shake down entire countries and extract billions from risky speculation. At the same time, he built one of the most influential private foundations of the world. In the United States, where he lived, he and his fund cultivated a progressive image. He funded news outlets like The Nation magazine and DemocracyNow. He sunk millions into criminal justice reform and bankrolled a failed effort to oust Republican President George Bush from the White House. The Republican right painted him as some sort of crypto-communist extremist whose goal was to enslave America with “Cultural Marxism” aka Judeo-Bolshevism. Abroad, his philanthropy showed its true colors. Put simply: it was neoliberal.

Set up in the early 1990s to promote “democracy” in the former Soviet Union, the Open Society Institute built a powerful influence-peddling network all across the former empire. It cultivated future politicians and trained budding businessmen and post-Soviet oligarchs. It bankrolled opposition activists and political parties and had programs for journalists and academics and all sorts of scholarships and education programs for a generation of ambitious young people growing up in the rubble of the communist world. His philanthropic machine churned out a diverse range of types — from Prime Minister Viktor Orban in Hungary to Evgeny Morozov, the public intellectual who got plucked out of Belarus to promote cyber democracy and Internet Freedom.

At its heart, the foundation worked towards unified ideological goal: making neoliberalism the religion of the land and making sure that the former Soviet Union transitioned to a privatized, deregulated economy as quickly as possible — and stayed that way. This was in line with George’s personal beliefs. But it also fit with his investment priorities. He was one of the first and biggest investors in the former Soviet Union, and had swooped up to buy up Russia’s newly-privatized state assets for kopeks. So it was in his interest to keep this market — rich with public and natural wealth — as privatized and open to international capital as possible.

Talking to reporters, George was frequently candid about his interventionist ambitions to shape the politics in the former Soviet Union, including a big push to elect a crop of pro-western leaders in Ukraine. “If this isn’t meddling in the affairs of a foreign nation, I don’t know what is!”

But the Open Society wasn’t just the private initiative of a single ambitious oligarch speculator. The organization was tightly integrated into an overlapping network of imperial American government agencies: the State Department, World Bank, National Endowment for Democracy, and USAID. In that sense, Open Society functioned as a privatized arm of the American Empire. And as a private initiative, it had a big advantage over its government peers: a lot more freedom to work abroad without requiring tricky diplomacy or political wrangling. Best of all, it was free of any public oversight or scrutiny — and couldn’t be directly died to the U.S. government.

That’s why United Nations Ambassador Samantha Power was praising George that night. It was also why she named Pierre Omidyar, the founder of eBay, as one of George’s heirs. She saw Pierre as continuing his successful Open Society model — but with a new Silicon Valley cybernetic-utopian twist.

So who was this Pierre?

The Perfect Market

Pierre Omidyar — a young programmer with a small round head and a neat black ponytail and who had an uncanny resemblance to Goofy — was born in France to Iranian parents. He moved to the United States as a kid and grew up in Hawaii, where he attended the same elite private school as future president Barack Obama. After studying computer science at Tufts University, he moved to Silicon Valley and went to work at General Magic, a company started by several founding engineers of Apple Computer who were trying to develop an early version of a tablet they called a “personal communicator.”

Pierre was in Silicon Valley at the start of the dot-com boom, so it was only natural that he try his hand at investing and playing the IPO investment game. But he ran into something that all small-time investors had to deal with: a rigged Wall Street system. When firms like Goldman Sachs or Lehman Brothers took a company public, they structured the deal in a way that allowed privileged insiders — usually other investment banks and high-worth individuals — to buy shares at an exclusive low sale price unavailable to regular investors. The practice was called “spinning” and took all the risk out of investing, guaranteeing huge profits to a small clique of insiders. And it made Pierre very upset.

He was a libertarian idealist. He believed in the ideals of a fully transparent marketplace, where no one could operate from a position of privilege and everyone had the same fair shot at making money as everybody else. So he set out to create a solution: eBay Incorporated, an auction-based sales platform built to work like Friedrich von Hayek’s textbook version of a libertarian marketplace: totally flat, transparent and self-regulating.

He launched eBay on Labor Day in 1995. The auction site started small, but quickly grew into one of the most successful Internet businesses on the planet. Strangely enough, he started eBay because of a grudge.

eBay was more than just about creating a fairer market. To Pierre, it was about individual empowerment and the creation of a new way of doing business: an ecosystem where people would manage their own affairs, carrying out commerce and making money without the need for hierarchical power structures, official moderators, law enforcement or any oversight whatsoever. He wanted to create a digital business version of Stewart Brand’s old hippy self-regulating cybernetic commune system — a place where people dealt with one another on an individual level, sorted out their differences one-on-one, worked through conflicts, educated one another, policed their own community and kept out scammers and fraudsters. eBay rolled out a few simple tools to help its community manage and police its own affairs. A simple reputation system was set up that allowed sellers and buyers to rate each other while a feedback forum provided a public community space where users could meet and hash things out amongst themselves.

“I founded the company on the notion that people were basically good, and that if you give them the benefit of the doubt you’re rarely disappointed,” he said not long after launching the company.

It was a great idealistic cyber-libertarian vision. Turned out that things didn’t really work that way in the real world.

eBay Police

eBay Inc. had its initial public offering on September 24, 1998. By the time the market closing bell rang, Pierre Omidyar was a billionaire. He was only 31 years old.

The company simply took off. There was no other way of putting it. This was the late 1990s, a time when people were just beginning to discover the Internet. Buying things online was still a scary novelty, but that didn’t stop eBay doubling its user base every few months. Antique junk, electronics, stuffed animals, old magazines and books, boats, motorcycles and even cars — whatever strange fringe product you sought, chances are you’d find it on eBay.

eBay’s auction service was a truly runaway success. But the more it grew, the faster Pierre’s cybernetic utopia fell apart. It was brought down by same exact thing that destroyed the old hippy communes of the 1960s: scoundrels and unchecked power. Back then, the New Communalists created cybernetic societies that were supposed to banish authority from their midst and create freer decentralized systems based on self-organization and relations between individuals. Instead, as hippy communes based on cybernetic ideas like Synergia showed, they ultimately built micro-societies that freed power to run unchecked, allowing charlatans and domineering members of the commune to exploit those that were meeker and weaker.

And that’s sorta what happened at eBay.

The vast majority of eBay’s sellers were real and honest, but with no internal mechanisms to regulate the marketplace or enforce trust, eBay attracted scammers and fraudsters of all kinds — from petty criminals to organized international crime rings. Fraud grew at an exponential pace. By 2001, almost half of all Internet fraud complaints submitted to the FBI came from Internet auctions — and eBay was the largest auction site on the net.

“On a scale of one to ten, I’d give eBay a two for dealing with fraud. I got nothing from eBay—no support, nothing. I couldn’t even submit a fraud claim because it was past the allotted time to file,” a woman who lost $1,400 in an eBay scam told Fortune Magazine. A man who lost $10,000 trying to buy a 1981 DeLorean said that he’d never trust the company with large purchase ever again. “I’d only buy something small, like under $50.”

The scams proliferated and grabbed headlines. More and more buyers complained to the media about the company not doing anything to help them. There were so many stories of fraud that eBay’s trust levels plummeted. It was an existential issue for eBay. Without trust, users would be too skittish to shop. And if they didn’t shop, eBay’s revenue would drop and so would it’s share price.

The lack of trust threatened to sink the entire business, and it forced Pierre to reconsider his cybernetic-hippy-libertarian approach to business. The self-regulating system sounded good on paper and was in the short term good for eBay’s bottom line, but in the end it seemed incapable of dealing with problems in the real world. “Our role at eBay has become more political. The community really is no longer the way it was in the early days. My philosophy then was, let the community govern itself. That philosophy didn’t really scale up,” Pierre admitted in 2001.

It wasn’t just that eBay’s self-regulating model did not scale up — it had to be replaced with the polar opposite: a gargantuan corporate police apparatus that functioned as a privatized arm of the U.S. National Security State.

Harvard Law professor Jack Goldsmith and Columbia Law professor Tim Wu investigated eBay’s transformation in their book, Who Controls the Internet. What they found shocked them. “Our peek below the surface of eBay’s self-governing facade revealed a far different story — a story of heavy reliance on the iron fist of coercive governmental power. Perpetually threatened by cheaters and fraudsters, eBay established an elaborate hand-in-glove relationship with the police and other governmental officials who can arrest, prosecute, incapacitate, and effectively deter these threats to its business model.”

This transformation — from cybernetic dream into a police-backed big money machine — started in 1999, not long after eBay’s IPO. That year, the company hired a law-enforcement power couple to run its new policing division: Angela Malacari and her husband Rob Chestnut.

Angela was poached from the Drug Enforcement Agency and the Immigration and Naturalization Services, where she spent her time “kicking down doors of New York tenements and brothels.” Her husband Rob came to eBay after serving as a U.S. Assistant Attorney General in the eastern Virginia District, where he handled high profile cases, including the trial of double agent Aldrich Ames who spied for the Russians while working at the CIA. The two had deep ties to America’s intelligence and law enforcement apparatus and they assembled an internal policing team that looked like it had come straight from some kind of private spook mail-order catalogue. They also began to play around with special software developed by a law-enforcement contractor called InfoGlide, which could scan eBay’s internal data and match it up with information available on the Internet in order to trace fraudulent seller accounts back to the real people who were creating them.

But that was just the beginning.

In 2002, eBay acquired PayPal, the most popular electronic payment provider on the Internet, and along with it the company laid their hands on a suite of sophisticated surveillance tools developed to catch fraud. Over time it built up incredibly sophisticated surveillance and behavioral tracking technology, allowing the company to scrutinized every single one of its users in real-time: watching bank activity and financial transactions, and monitoring purchases, browsing activity and even…

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