Bitten bidders
Online auction fraud turns complex--and expensive
Last month, Michael Snyder, an artistic director at a record label in San Francisco, spotted an incredible deal on eBay for a laptop computer--50 percent below retail. A savvy shopper, Snyder reasoned that failing dot coms all over the Bay Area were liquidating their equipment at bargain prices. He reviewed the seller's "feedback," a record of comments from other customers, and checked the product's specifications and warranty. "It was certainly a glamorous offer, A+ across the board," he recalls.
The seller said he was on assignment in Spain, but Snyder was hungry to get the deal. So he arranged to wire money to a Spanish friend who could buy the computer in person, as a precaution. But the seller insisted on having the wire transfer tracking number. Hours later, the seller arrived in a Western Union office with the number, posing as Snyder's friend. "I've taken your money," he later E-mailed Snyder. And he attached this after-the-fact warning: "You should be more careful buying things on the Internet."
Indeed, he should. According to the Federal Trade Commission, auction scams are now the most prevalent type of Internet fraud. In 2002, the agency received 51,000 online auction complaints, up from roughly 20,000 the previous year. Authorities say even these figures fail to capture the enormity of the problem. Not only is the occurrence of auction fraud greater than the number of cases reported, but the types of fraud committed have grown increasingly complicated.
Convoluted. "While we used to see stories about people who would not send an item as described, send broken items, or not deliver at all, frauds are just getting much more sophisticated than that," says Ina Steiner, editor of AuctionBytes.com, an online resource for Internet auction buyers and sellers. Con artists have turned to online auction sites as a hunting ground for new victims, luring people off the sites, posting illegitimate ads, or sending spoof E-mails to trick them. They have even used identity theft to avoid detection.
The vast majority of online auction fraud occurs on eBay, simply because it is the biggest auction site, says Shawn Hutton, research associate at the National White Collar Crime Center. EBay, based in San Jose, Calif., boasted roughly 69 million registered users worldwide through March 31 this year and $1.2 billion of net revenue in 2002. Nearly 8 million bids are placed every day. Spokesperson Kevin Pursglove says that fraud is minimal but concedes it is hard to track.
Still, officials say the dollar amounts of the scams are growing in tandem with their complexity. In April, the U.S. attorney in Massachusetts announced the sentencing of Teresa Smith, 25, the perpetrator of the largest Internet auction scheme ever prosecuted: Approximately 300 bidders were defrauded of $857,776 in computer equipment purchases. "I still get a sick feeling in my stomach every time I think about the money I lost to her," says Dave Curry, a Doylestown, Pa., schoolteacher who lost $2,335. Curry was luckier than some. Earlier this year, Robert Jaramillo and Alexander Sajid Hipkins, posing as BMW sellers, lured bidders to New Mexico. The two were indicted for conspiring to take the money by force once the victim arrived. They have entered plea agreements and one has already been sentenced.
Online auction fraud is difficult for authorities to investigate, and victims rarely recover the money they have lost. "It's not like hopping in a police car and questioning witnesses, and zero to none would be my estimation of how often people recover their losses," says Hutton. Frequently, victims believe the online auction site should solve their problems and fail to report crimes to the correct authorities. In reality, online auction sites are fairly powerless once a crime has occurred.
Often, customers are the ones bringing fraud to investigators' attention. That happened in Nevada, where Orlando Zamora allegedly posed as a jewelry buyer, contacting eBay sellers whose auctions had not been successful. Zamora offered to buy the baubles if the sellers would remove the items from eBay and use a particular escrow service. Orlando's wife, says Nevada Deputy Attorney General Robert Griffy, then masqueraded as an escrow service employee, contacting the seller and pretending that money had been deposited in the account so it was OK to send the jewelry. "We only found out about this when one customer did some research and discovered that the escrow service didn't have any offices in the United States," says Griffy.
The FTC is hoping to crack down harder on such scams, and in April launched "Operation Bidder Beware." But Delores Gardner Thompson, an attorney in the FTC's Division of Marketing Practices, cautions that consumers are still often in the best position to protect themselves. She recommends that online auction-goers act like gumshoes before placing a bid. They should confirm the seller's address, telephone number, and perhaps even match phone numbers with addresses on reverse directories.
The same Internet that provides fraudsters with anonymity, also provides users with tools for tracking down people. Some victims are forming their own "rings" to help others on the Internet fight fraud. After trying to buy a laptop computer, Dale Peterson, an architect and construction manager in New York, discovered an online forum devoted to the seller who took his money and ran. The forum participants--victims like Peterson--tracked the seller to North Carolina, not Atlanta where the seller had purported to operate a company. Another victim used an online reverse directory to determine the seller's true identity. Armed with a name, Peterson then downloaded court documents about the seller--turns out this wasn't his first go-round with cheating--and posted them on the Internet to help other victims.
On May 13, the perpetrator was arrested and charged with wire and mail fraud. Several members of the online forum plan to attend the sentencing hearing in Asheville, N.C., where they will meet in person for the first time. "We wanted to see justice done for the person who stole from us," says Peterson.
DETECTIVE WORK
Trouble Ahead
Before bidding, learn the signs of an online auction scam:
LOCATION, LOCATION. Be wary of an item listed for sale in the United States but later revealed to be from overseas. Dealing with overseas sellers is risky, as it can be tough for U.S. law enforcement to prosecute international cases. Don't send money to addresses not listed in the original ad.
ESCROW WATCH. Avoid online escrow services that require users to set up accounts with online payment services. Escrow services are in the business of taking money and should be equipped to do so themselves. Online escrow services should also not claim to comply with the "U.S. Financial and Business Code." No such code exists.
NOTHING'S THAT CHEAP. Too-low prices can be a sign something's amiss. Check stores and price comparison sites for realistic prices.
AVOID STRANGERS. Be wary of buyers and sellers who try to lure customers away from auction sites with promises of better deals.
DON'T TELL. Auctions are not confessionals. Don't disclose sensitive information without knowing why it's being collected, how it will be used, and how it will be protected. Don't respond to threats that accounts will be terminated unless such details are provided.
PUSH PLASTIC. The safest way to pay is by credit card, as your issuer provides charge-back protections. Beware of sellers who say they accept credit cards but reveal later that the buyer must use his credit card to do a wire transfer; such transfers have no safeguards.
For more information, consult the following online resources:
FEDERAL TRADE COMMISSION
www.ftc.gov
Get more tips on avoiding a bad auctioneer.
INTERNET FRAUD COMPLAINT CENTER
www.ifccfbi.gov
Your complaint will be forwarded to the appropriate law enforcement authorities.
This story appears in the June 16, 2003 print edition of U.S. News & World Report.