Online auction powerhouse eBay has confirmed that it is cooperating with Los Angeles police and postal authorities to investigate claims that some 150 consumers were defrauded by a single eBay member.
After the complaints were received, eBay suspended the privileges of the alleged offender, a highly unusual move on the part of the San Jose-based auction site.
eBay’s first contact with the Los Angeles authorities came earlier this month, after winning bidders complained of not receiving promised merchandise, said company spokesperson Kevin Pursglove. Some bidders had paid for items, but received something other than what they ordered.
The suspect evidently also bid on his own merchandise to drive up the prices. “That’s generally grounds for immediate suspension,” Pursglove said.
Although the company has chosen not to identify the individual involved, it is known that he had several accounts at the auction site that have received positive reviews from users in the past.
Insurance Minimizes Complaints
eBay reports that it gets complaints involving about one in every 25,000 transactions. Yesterday, with approximately 4.2 million items for sale in 4300 categories, the company would have expected about 168 cases of fraud.
Last year, one member was sentenced to 14 months in prison for bilking users out of more than $36,000 (US$).
Although there is no dollar estimate yet on the merchandise lost in the most recent alleged scam, all eBay users are covered by Lloyd’s of London and can recover up to $175 by filing insurance and fraud complaints, Pursglove said.
eBay instituted anti-fraud measures last year following a settlement with New York City’s consumer agency over complaints about phony sports collectors’ items on the site. The company’s new tactics include better verification of the identities of frequent sellers, and company-sponsored third party mediation in disputes between buyers and sellers.
eBay has also put a system in place that allows buyers and sellers to comment on and rate their transactions.
Consumer Fraud Complaints Increase
The increase in online auction purchasing has been accompanied by an overall increase in consumer complaints. The Federal Trade Commission (FTC) reports that consumers filed nearly 11,000 complaints about Internet auctions in 1999, as compared to just 107 in 1997.
According to the National Consumers League, online auctions accounted for 87 percent of Internet fraud complaints last year, an increase of 20 percent over the previous year.
The FTC has already launched its own effort, Project Safebid, to help federal and state authorities better track and prosecute people who commit fraud on the Internet.
Other U.S. Agencies Target Fraud
Meanwhile, another U.S. government agency, the Securities and Exchange Commission (SEC), has also moved to strengthen its policing of Web stock scams. After auction fraud, securities fraud is emerging as the next great headache for Internet watchdog groups and government agencies.
The SEC recently has started to use “sweeps,” clusters of cases filed at the same time, to draw maximum publicity against Internet operators.
In the past 16 months, the enforcement division has made three sweeps, charging 83 people and companies with fraud.
Yesterday, the SEC announced that it is also targeting “get rich quick” scams with an automated surveillance system that searches Web sites and message boards for investment fraud.
Privacy Issues Raised
Some industry observers have been quick to criticize the new technology. Larry Ponemon, a privacy expert at PricewaterhouseCoopers, said the program “is the equivalent of planting a bug.”
In response, SEC spokesman Chris Ullman said, “Privacy issues are of long-standing importance to the commission and we pay close attention to the letter and spirit of the law.”