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eBay, Feds Investigate Auction Fraud

A series of fraudulent auctions perpetrated by an alleged group of scam artists has prompted eBay Inc. to call in federal authorities to investigate.

The U.S. Postal Service and the Los Angeles Police Department were contacted earlier this month to probe a seller or group of sellers who reportedly built up positive feedback with valid auctions, then defrauded buyers by not delivering many electronic items that were placed for bid. The operations are believed to be based in the vicinity of Van Nuys, Calif.

eBay (EBAY) spokesman Kevin Pursglove told InternetNews.com that the company has closed the member accounts in question while the investigation takes place.

After building up a reputation as a reliable seller with a list of positive feedback, Pursglove said the company received approximately 150 complaints in regard to the seller delivering incorrect items, and in some cases, not delivering items at all. Because some of the items were shipped via the U.S. mail, eBay contact the USPS to investigate mail fraud, a federal offense that carries a penalty of up to five years in prison.

"Law enforcement officials may bring criminal charges up on the alleged sellers, and eBay will cooperate in any way we can," Pursglove said.

eBay has a number of security features in place, including an insurance option by Lloyd's of London and an escrow service provided by i-Escrow.com Inc.

The increase in online purchases, especially auctions like eBay, have also led to an increase in complaints. The Federal Trade Commission reported that consumers filed nearly 11,000 complaints about Internet auctions in 1999, compared to 107 in 1997.