FTC Settles Online Auction Fraud Case

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

“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.

Along with the corporate entity, the FTC complaint charged Richard Phim,
Carman Lee Caldwell, Shade Delmer, and Naomi Ruth Anderson. A default
judgement was entered against Auctionsaver, Delmer and Anderson on March 15.

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

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

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.

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