Some E-Auction Users Get Less Than They Bargain For

By ROBIN FIELDS

March 16, 2000 12 AM PT

TIMES STAFF WRITER

As Doug Smith can testify, auction fraud is becoming an all-too-common part of the online shopping experience.

Three times in the last 18 months, the Maryland man won merchandise through EBay bid-offs--a digital camera and collections of “Star Wars” toys and Barbie dolls--or so he thought. He sent $2,300 to the sellers in money orders, including one to a Brea mail drop, but got nothing in return.

Though Smith has made scores of other auction purchases that went smoothly, he said his losses have undermined his trust in the format. “There’s really no way to protect yourself fully,” he said.

Regulators call Smith’s story an example of an alarming escalation in online auction scams, a trend that has prompted a national law enforcement crackdown and more consumer protection measures at leading auction Web sites.

Though auction sites argue that fraud is rare, the sudden explosion of online auction complaints--federal regulators say they have jumped more than a hundredfold since 1997 to 10,700 last year--has raised worrisome questions. In the world of fast-growing electronic commerce, such buyer safeguards as insurance are limited.

Because the average consumer loss in an online auction hoax is only about $300, investigators don’t have the resources to pursue most complaints. Yet scam artists have become more sophisticated in outsmarting auction site consumer-safety features. To get around seller ratings and suspension lists, for example, they establish multiple identities and use shills to achieve positive evaluations.

At least one state, North Carolina, already has considered regulating the industry by requiring sellers to pass a written test and pay license fees. After intense lobbying by EBay, the state’s auctioneer licensing board delayed its ruling on the issue indefinitely. Analysts say such barriers could be the death knell for online auctions.

“Because auctions have been wildly successful, politicians have been reluctant to step in,” said Martin DeBono, auctions analyst for Gomez Advisors, a Lincoln, Mass.-based market research firm. But if problems persist, he said, that could change. And companies such as EBay, which has been operating since 1995, and Yahoo have the most to lose.

EBay, the largest Internet auction operator, says troubled transactions remain relatively rare--one in 25,000, by the company’s count. Even so, concerned that a groundswell of gripes could scare off auction participants, the San Jose-based company agreed last month to forward complaints directly to the Federal Trade Commission, helping authorities create a central database to track fraud.

“We think cooperation is essential,” company spokesman Kevin Pursglove said. “We’ve said all along that if we don’t do right by our community, then the issue of regulation arises.”

Yahoo, EBay’s main competitor, has declined to follow suit so far, saying it receives just one or two complaints a day, too few to warrant compromising the easy-access nature of the auction format.

“It’s an open forum,” a company spokeswoman said. “They don’t want to be policing it.”

Regulators, however, clearly think otherwise.

Last month the FTC launched a multi-agency effort, Project Safebid, aimed at intensifying auction-fraud enforcement. The program includes training for investigators on how to track and prosecute such crimes, as well as consumer education.

In announcing the plan, the FTC said auction rip-offs have become the most frequently reported form of Internet fraud--10 times as common as the second- and third-most-reported schemes put together. And that doesn’t factor in the thousands of complaints filed with local and state consumer agencies.

“We get as many as 50 complaints a week on auctions,” said Lona Luckett, senior trade practice consultant at the Better Business Bureau of the Southland.

Although a few flamboyant auction hoaxes have grabbed headlines--multimillion-dollar fake bids for a human kidney or domain names, for example--most online auction frauds involve small dollar amounts and are bare-bones simple. Sellers don’t send the promised goods on time or at all, or deliver goods that do not live up to their billing. Buyers occasionally traffic in fake checks or money orders.

Individually, the problems are largely nickel-and-dime affairs, but they add up. And experts see their volume burgeoning dramatically.

“This problem is exploding,” said Christopher Painter, an assistant U.S. attorney in Los Angeles. “Anonymity creates the problem--you don’t see the seller, you don’t see the merchandise and, unlike a real-world auction, the Internet allows con artists to reach a limitless audience.”

California authorities already have charged or convicted six people of online auction fraud in the last nine months. Los Angeles prosecutors say they are investigating at least five more cases.

In one recent case, authorities said, former Anaheim resident Robert Guest used a stolen credit card number to open his EBay account. He established a positive auction resume by conducting several legitimate sales for small amounts of money. Guest, 31, then used his track record to reel in about 30 buyers, who thought they had “won” $37,000 worth of nonexistent digital cameras and computers.

The ruse took in Doug Smith, as well as a Northern California man named Joe who paid $1,500 for one of the 300-series IBM laptops Guest auctioned off on EBay. He says he sent a money order to Guest at a Brea address, but received nothing back.

“I felt kind of stupid,” he said, declining to give his last name. He moved the debt to his credit card and is still paying it off. “I should have been more careful.”

Guest pleaded guilty recently to criminal fraud charges and was sentenced to 14 months in prison. His customers are still waiting for refunds, but that’s not unusual--most of the 35 state and federal auction-fraud cases filed so far have cost more than they yielded financially, regulators said.

Jay and Krista Nelson fled to New Hampshire before Illinois regulators filed fraud charges against them last month in a case involving the auctioning of software that was never delivered.

The cost of transporting the couple and their buyers to Illinois for trial, plus normal investigative expenses, will far outweigh what the Nelsons were paid, said Deborah Hagan, chief of the Illinois attorney general’s consumer fraud bureau.

The real benefit is in the deterrence factor, prosecutors say. “We need to create a sense of risk for the perpetrators,” said Painter, the assistant U.S. attorney.

Regulators and auction operators recommend consumers follow several guidelines to reduce risks against auction fraud: paying by credit card whenever possible; choosing sites such as EBay, Amazon.com or Go.com that offer at least some automatic insurance; and using escrow services for large purchases. But they acknowledge that the safety net remains imperfect.

“Ultimately, consumers are always going to have to protect themselves,” said auctions analyst DeBono.

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Www.Fraud

As online auctions have grown, so has the fraud. Although Web site safeguards vary, consumers can reduce their risk with these guidelines:

FOR BUYERS:

* Check the seller’s feedback rating from previous buyers.

* Do your homework. Understand what you’re bidding on, its value and terms of the sale, including return policies.

* Establish your top price and stick to it.

* If possible, use a credit card to pay. It offers the most protection in case of problems.

* Find out if the auction site offers insurance and under what terms and conditions.

* Consider using an escrow service for more expensive transactions if the seller will not accept credit.

FOR SELLERS: