Government Report

Online Auction Fraud "Epidemic"

June 28, 2001
A recent government report uncovered the hardly shocking news that there is quite a bit of fraud in online auctions. The Internet Fraud Complaint Center reported that complaints about auctions amounted to 64% of the 30,000 complaints it has received since it began taking reports last year. It estimated that consumers lost $4 million in bogus auction transactions in 2000.

Key Findings

• Most complaints are against individuals (84%) rather than businesses.
• About 1% of the 1.3 million daily transactions involve fraud.
• Victims know little about the perpetrator. 25% do not know the perpetrator's physical address. 14% have only a P.O. box.
• Money orders or personal checks are the form of payment used by 80% of complainants.

Common Categories

Most complaints fall into six major merchandise categories

• Small stuffed animals (27%);
• Video consoles, games and tapes (25%);
• Laptop computers (18%);
• Cameras and camcorders (14%);
• Desktop computers (9%);
• Jewelry (8%).

Common Scams

• Non-delivery The buyer never receives the merchandise. Additionally, if the buyer used a credit card, the perpetrator now has the buyer's name and credit card number.
• Misrepresentation The seller misleads the buyer about the value of an item, often using bogus or doctored pictures.
• Triangulation The perpetrator buys merchandise from an online merchant using stolen identities and credit card numbers, then sells it through an online auction. The buyer wires the money to the perpetrator, who ships the stolen merchandise to the buyer. Later, the police show up and seize the merchandise. The buyer may fall under a cloud of suspicion. Both the buyer and the merchant are victims.
• Fee stacking The seller adds hidden charges after the auction is over, including previously undisclosed charges for shipping, handling and containers.
• Sale of black-market goods These often include illegally pirated software, CDs, videos, etc. Tip-off: no box, warranty or instructions.
• Shill bidding The seller uses false identities to drive up the bidding on items he has for sale.
• Multiple bidding In this case, the buyer is the perpetrator. The buyer places multiple bids on the same item using different identities, driving up the bidding and scaring off other buyers. In the last minutes of the auction, the buyer withdraws the high bids, leaving the seller stuck with an artifically low bid.

Questions to Ask

Before you even think of bidding on an Internet auction, here are some questions to ask:

• Do you understand it? Be sure you know the rules, the risks and the safeguards (such as they are).
• Will the auction site assist you? Read the site carefully to find out what the site will do to help you if you have a problem. The answer is usually: not much. However, most sites do offer insurance, which may be worthwhile, depending on the price.
• Do you know who the seller is? Insist that the seller furnish you with name, street address, city, state and phone number, not just an email address. Verify the information.
• Check the seller's feedback But don't put much credence into this. Scam artists have no problem creating positive feedback about themselves.
• What method of payment does the seller want? Find this out before you bid. If the seller wants cash, money order or certified check or if payment is to go to a P.O. box, be very, very skeptical. Remember, paying by credit card gives you a chance to dispute the charge.
• Is there a warranty? When will the merchandise be shipped? Find out before you bid.
• Does the price including shipping? Find out before you bid.
• Is the seller asking for personal information? You should never give your Social Security number or driver's license number to an auction seller. Some auction sellers are really in the identity-theft business.

The report was issued by the Internet Fraud Complaint Center (IFCC), a partnership between the Federal Bureau of Investigation (FBI) and the National White Collar Crime Center (NW3C).

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