FTC Settles Online Auction Fraud Case
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The Federal Trade Commission (FTC) settled its fraud case against a group that hawked computers on several online auction sites, but then failed to deliver them to buyers. The settlement fines the defendants $10,000, and bars them from selling goods online.
The case against Auctionsaver, and those running the company, arose out of the FTC's concerted effort to cut down on Internet fraud, which the agency began in 2000. The FTC alleged that in 1999 Auctionsaver advertised computers and related equipment on a variety of online auction sites, including eBay, Amazon, and Yahoo.
"Initially, they were fulfilling orders then, for whatever reason, they ran into trouble filling orders, but continued to take orders," said John Jacobs, an FTC lawyer on the case.
The FTC charged Auctionsaver with failing to ship merchandise or refund customers' money for computers it could not ship. The FTC said customers' were bilked out of $90,000.
The $10,000 fine against Auctionsaver is based on their financial records, but the FTC said it could go up to the $90,000 customers lost if the records are inaccurate.
The Commission accepted the settlement with a 5-0 vote.
The unruly, and mostly unregulated world of online auctions has led to a flood of fraud complaints. In a report issued last month by the Internet Fraud Complaint Center (IFCC), a taskforce of the Federal Bureau of Investigation and National White Collar Crime Center, Internet auction fraud was the top consumer complaint last year. The FTC doesn't go as far, ranking Internet auction fraud the No. 2 customer complaint, far behind identity fraud.
Despite the alarming figures, Jacobs pointed out that most of the fraud was for small amounts -- the IFCC pegged total Internet auction fraud at $17.8 million, or $435 per complaint -- and rarely warranted FTC action.
Kevin Pursglove, an eBay spokesman, said eBay encourages users buying big-ticket items, like computers, to use an escrow service, which ensures they receive their merchandise before the payment goes through.
"When you consider the volume of activity on eBay, so far we've been very fortunate that fraud is a very minor activity," Pursglove said.
Criminal cases have emerged, however. Last year, two men pleaded guilty in California federal court to multiple counts of mail fraud for using eBay to hawk fraudulent artwork, including a fake Richard Diebenkorn painting that garnered a $135,805 bid. Three persons were arrested in February for conspiring to inflate the prices for collectible glasswork sold on eBay. In March, a Miami man was sentenced to five months in prison for defrauding buyers on eBay of what he advertised were rare baseball cards.
Yet courts have consistently ruled that eBay is not liable for chicanery that takes place through its site. In January 2001, a California judge threw out a case brought against eBay by a group of sports memorabilia collectors defrauded through the online auction site.
For popular Internet auction sites, the watchwords are caveat emptor. Ebay, for example, doesn't actually describe itself as an auction site, preferring the term "online marketplace" to skirt liabilities that come with being an auctioneer.
Instead, the company encourages buyers to head off fraud by using its feedback program, which allows a consumer to check a seller's reputation within the eBay community. Also, the company does have a fraud protection program, in place since 1999, which will partially reimburse defrauded users (up to $200) in cases where merchandise is not received or the item received is not what was advertised. Pursglove said the company does not release figures relating to the number of fraud claims it receives.