1 Held, 1 Sought in Internet Fraud Cases

Warning that the Internet is a growing haven for con artists, federal authorities arrested one man Tuesday and were searching for another suspected of ripping off buyers on the EBay online auction site.

Assistant U.S. Atty. Dorothy L. Shubin said the two unrelated cases were among the first criminal prosecutions in the booming online auction business.

George Arthur Cruz of Artesia and Hen Ben Haim are accused of offering to auction dozens of expensive computers and other electronic goods on EBay, the largest Internet auction service. When winning bidders sent in their money--a total of more than $110,000--they received nothing, according to federal indictments made public Tuesday.

“It’s an old-fashioned fraud using new technology: promising products and not delivering,” said Shubin. “But using the Internet gives the defendants the ability to reach victims all across the country.”

More than 240 alleged victims mailed checks or money orders to the Los Angeles area after submitting winning bids for laptop and desktop computers, camera equipment, musical instruments, Nintendo games and replicas of football helmets.

U.S. postal inspectors were able to intercept checks and money orders from 18 victims totaling $34,000, Shubin said.

Cruz, 31, and Haim, 27, of Encino, were indicted last week by a federal grand jury. But those indictments were sealed until their arrests.

Authorities arrested Cruz, also known as Richard Cortez, early Tuesday at his workplace in Norwalk. They declined to say what Cruz did for a living.

Cruz, who could not be reached for comment, posted $70,000 bail at an afternoon hearing and is set to be arraigned next week on 13 felony counts of mail fraud and one felony count of money laundering.

Cruz faces a maximum sentence of 75 years in federal prison if convicted on all counts.

If found guilty, Haim could serve up to 40 years. Since his indictment, authorities have been unable to locate Haim, also known as Shay Albaz. The grand jury has formally accused him of eight counts of mail fraud.

Cruz and Haim used aliases, the indictments allege. Cruz registered on EBay in September 1999 under such names as John Reese, Oscar Gamboa, Robert Dennis, Jon Wolf, Dean Liu and Thomas K. Connors.

When he posted the fraudulent auction listings, Cruz “concealed the fact that he either did not possess the merchandise he was offering for sale, or that he did not intend to deliver the merchandise to the purchasers,” said the indictment.

After notifying bidders they had won, Cruz told them to send checks or money orders to a Tustin mail drop he had rented under the name Richard Cortez.

An EBay representative said fraud is rare on the Internet auction site, especially if buyers take advantage of precautions offered by the San Jose-based firm.

“Fraud is going to occur in any environment in which people are buying and selling goods,” said EBay spokesman Kevin Pursglove. “It is not new or unique to the online world.”

Among the safeguards EBay has set up, bidders can read evaluations of sellers by previous buyers, and an escrow account can be used to hold payments until the goods are delivered. The company also offers dispute resolution and up to $200 in free insurance to repay fraudulent losses.

Shubin said fraud opportunities will increase dramatically as the use of such Internet auction sites grows. Market research studies have estimated that online auction sales will total about $25 billion by 2005.

EBay commands as much as 90% of the online auction business, but it faces competition from hundreds of other Internet sites.

Some buyers also are accused of fraud. Last year, Newport Beach police arrested a Stockton man on suspicion of using phony bank checks to buy a Rolex watch and dozens of laptop computers on EBay.

Shubin said federal prosecutors, along with the Postal Service and the FBI, are investigating several other Internet auction fraud cases, calling such auction sites a fraud “growth area.”