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It's illegal in certain states from what I recall. There was a domainer that tried using a similar approach to auctioning off a domain several months ago which caused quite an uproar, though part of the uproar was because it was a "mystery" domain which he was guaranteeing bying off the winner for $10,000 if they wished - ergo he was auctioning off $10,000, and THAT I'm pretty sure is against the law in every state.
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