U.S. Authorities Reveal Auction Fraud Crackdown

Federal and state law enforcement agencies say they have quietly begun a massive campaign to reduce rates of online auction fraud. The Federal Trade Commission (FTC) has been working with attorneys general in 29 states to enforce existing fraud laws against auction scammers. Known as “Operation Bidder Beware,” the effort already has resulted in 57 criminal and civil actions.

FTC spokesperson Claudia Bourne Farrell told the E-Commerce Times that the initiative has been in planning stages for some time, reflecting the fact that auction fraud has consistently been the largest source of consumer complaints related to the Internet. In 2002, the FTC received 51,000 complaints related to auctions, the vast majority stemming from sales in which promised merchandise was never delivered.

“This approach tackles the problem from a number of angles,” Farrell said. “Having state and federal agencies cooperate means there’s much less chance a scammer can escape prosecution.”

Down and Dirty

The FTC detailed several of the cases it has pursued against auction scammers to date.

In one, a scammer who has been the source of non-delivery of goods complaints since 1999 tried to complicate law enforcement efforts by combining auction fraud with identity theft. In doing so, the scammer made it appear that the victims of identity theft, including acquaintances and in one case a dead person, had been responsible for the auctions.

A federal judge has frozen the defendant’s assets, the FTC said.

The Invisible Middle Man

Another case the FTC is pursuing involves fraudulent online escrow services, which ironically are designed to prevent fraud by holding payments until goods are delivered to the satisfaction of the customer.

One scammer set up a fake escrow firm and then directed buyers and sellers of merchandise to use that firm, called Premier-Escrow.com. Scammed sellers would ship merchandise to the buyer but never receive payment, while buyers would make payments to the fake firm but never receive their goods.

That scam also has been halted, and a defendant’s assets have been frozen while he awaits trial in Virginia.

Two other alleged frauds also have been shut down by the FTC, and various states have taken 53 actions, ranging from civil lawsuits to voluntary agreements to cease and desist the fraudulent activity.

Smarter Shoppers

Farrell said law enforcement is pleased that “responsible auction sites” are working to root out fraud — an apparent reference to eBay, which has long pledged to work with authorities when fraud is suspected on its site.

EBay spokesman Kevin Pursglove told the E-Commerce Times that the auction giant vigorously investigates all internal auction complaints and that its seller- and buyer-rating system are a good protection against repeat scammers. Still, eBay accounts for an estimated 90 percent of online auction sales in the United States, and has seen its share of incidents. “We take the steps we can, but a concerted effort is what’s needed,” Pursglove said.

Meanwhile, the FTC said the most powerful tool against online fraud remains consumer education, an effort it will continue to spearhead with states’ cooperation. An online consumer education campaign began late last year. Consumers are being told to learn the rules of an auction site before placing an order, research a seller’s background extensively, and independently verify the legitimacy of third-party escrow services.