FTC cracks down on Internet auction fraud

The U.S. Federal Trade Commission (FTC) along with 29 state attorneys general have completed an operation netting 57 criminal and civil actions against perpetrators of Internet auction fraud, and the agency promised more criminal and civil investigations are on the way.

The FTC and Washington State Attorney General Christine Gregoire announced the results Wednesday of Operation Bidder Beware, which resulted in 17 criminal cases being filed. In most of the 57 total actions the agency or law enforcement groups took, the seller took payment for a product and didn't deliver, or delivered a product different than was promised in the auction.

Three Washington state cases were among the 57 listed, and one involved sales of DVDs to a number of customers for as little as US$50, said Gregoire. Internet auction fraud is the biggest single complaint her office gets about Internet fraud overall, she said. Other cases across the U.S. included the failure to deliver computers, gaming consoles, demonic toys and dolls, designer handbags and more than $50,000 worth of dental equipment. In another case, a seller promised vintage baseball cards and delivered bubble-gum quality cards, Gregoire said.

"It's not an area that (attorneys general) can afford to look the other way on," Gregoire added. "I guess the message here today is despite the amount of money, we are no longer going to tolerate this type of activity on the Internet."

The 51,000 Internet auctions to the FTC in 2002 generated claims of US$37 million in lost money, and those complaints are likely just the tip of the iceberg, said Howard Beales, director of the FTC's Bureau of Consumer Protection. In two of the 57 cases announced Wednesday, the sellers were allegedly using stolen identification to auction products online, and in one case, a group of people set up an online escrow service, called Premier-Escrow.com, that allegedly tricked others into sending them money or merchandise.

But Beales didn't blame the Internet for the problem. "I think fraud in whatever medium is perpetually inventive," he said. "Fraudsters will look for ways to use new technology to their advantage. We are continually alert for that ... and when we see those kinds of problems, we'll go after them."

Premier-Escrow.com is no longer online. Existing fraud laws are sufficient for prosecuting online auction fraud, Beales said. The Internet does complicate the prosecutions in that it can be difficult for law enforcement officers to find the criminals, he added.

Rick Skinner, of Norfolk, Virginia, said he lost about US$1,300 by selling a laptop through the escrow service, which looked legitimate. He had offered the computer through eBay Inc., but the buyer talked him into taking the auction off eBay and using the bogus escrow service. After he sent the laptop, he wasn't able to collect the money from the fake escrow service, he said.

Beales praised eBay for its assistance in Operation Buyer Beware and declined to rap the auction service when asked if it shared some responsibility for fraudulent auctions. "Scam artists ... always seem to follow the money," he said, explaining why eBay attracts complaints of auction fraud.

An eBay representative said the company supported the FTC crackdown and helped law enforcement officers find several of the suspects. "We encourage the FTC to continue to do its good work, and the attorneys general to do the same thing," said Kevin Pursglove, an eBay spokesman. "We applaud the effort of anyone to work with eBay to educate consumers."

A big part of Operation Bidder Beware is consumer education, and Beales advised that online auction users should know the auction site they're using, find out as much as they can about the seller, and use a credit card to pay for merchandise, making the payment easier to track than some other forms of payment. Complaints about online auctions can be reported at the FTC's Web site, http://www.ftc.gov/bcp/conline/edcams/onlineshopping/.

"Do not be afraid to browse in these new and exciting global marketplaces," Gregoire added. "But when you buy, be extra careful and take extra steps to protect yourself."

Don't use cash for online auctions, she said. "Use your credit card, use your credit card, use your credit card."