Evidence undercuts eBay’s tough talk on fraud

Mike Brunker Writer • Profile • E-mail

Oct. 9, 2002 - EBay officials say they are aggressively fighting fraud in the massive online marketplace, but an investigation by MSNBC.com shows that the company doesn’t routinely inform customers when they have been ripped off or regularly notify law enforcement about apparently illegal activity on its site — even when presented with solid evidence of wrongdoing. The review of two-dozen cases also raises questions about how eBay measures fraud and lends credence to accusations that the company has adopted an especially laissez-faire attitude toward sins by profit-driving “power sellers,” whose fees are crucial to its bottom line.

The investigation grew out of a series of complaints from disgruntled eBay users who wrote to MSNBC.com in response to previous articles on fraud on the No. 1 online auction site. The specifics varied widely, but the underlying charge was remarkably constistent: Fraud complaints filed with eBay rarely trigger any disciplinary action against sellers, even when accompanied by extensive documentation of wrongdoing.

Many of the complaints were directed at “power sellers” - vendors who do at least $2,000 of business on eBay each month - and suggested that the company was looking the other way while the big fish violated its rules and the law.

Rosalinda Baldwin, editor of TAG Notes, an online newsletter published by the watchdog group The Auction Guild, said she regularly hears the same refrain from her readers.

‘Ebay doesn't care'
“The only ones getting hurt are the buyers, and eBay doesn’t care,” she said.

EBay acknowledges that it doesn’t automatically suspend the cheating sellers it catches, saying the punishment depends on its assessment of whether there is a pattern of misconduct as well as other factors. But at the same time, senior company officials insist that it is taking a more aggressive stance in combating fraud.

“We are more actively involved in preventing fraud on the eBay site and cancel a number of auctions proactively, and even contact bidders after an auction to warn them if we suspect a problem,” Rob Chestnut, a former federal prosecutor who is now the company’s point man on fraud, assured customers in a recent email chat.

With eBay declining to make public whatever evidence that might prove or disprove the charges, citing privacy concerns, MSNBC.com turned to eBay’s critics and asked them to provide a substantial sampling of alleged fraud cases for independent review.

To test the perception that the company is more likely to ignore complaints directed at power sellers, the review focused on fraud claims leveled against peddlers who either are members of the rewards program or sellers who meet the sales requirement and could join if they wanted.

Many complaints merely suspicious
Most of the complaints alleging shill or phantom bidding, misrepresentation of items, non-delivery of purchases and “feedback building” - manipulation of eBay’s unique system for measuring reputation - detailed suspicious behavior but lacked the hard evidence necessary to conclude that eBay was ignoring misconduct.

But in four of the cases that were submitted, the evidence that illicit or criminal activity had occurred appeared particularly strong.

Three of the cases alleged phantom bidding - identical to shill bidding, but perpetrated by an individual rather than co-conspirators. The fourth was more elaborate: an alleged philatelic fraud ring in which collectible postage stamps were being altered and resold at a substantial profit.

EBay’s response in each instance was apparently inconsistent with its repeated statements that fraud will not be tolerated in the “safe and happy trading place”:

In the case of a Florida power seller who used identical contact information on both the eBay user ID he was using to peddle sports memorabilia and the ID he was using for phantom bidding, a member of eBay’s “Safe Harbor” fraud-fighting team found there was “insufficient evidence” to take action. After a second complaint was filed, a representative of eBay’s power seller program phoned the seller and warned him not to do it again, but did not suspend his account or notify a buyer who paid at least $200 more for an item than he would have if the phantom bidding hadn’t occurred.

In the other two phantom bidding cases, eBay suspended the sellers, but only for 24 hours and 48 hours, respectively, according to the complainants. One of those who was suspended, a high-volume ticket broker who wasn’t a power seller at the time, joined the program shortly after the suspension ended, one of the complainants charged.

In a case in which postage stamps were allegedly being altered to increase their value and then resold “as is,” eBay took no action to halt the auctions despite receiving a litany of complaints from a group of stamp experts who assembled detailed evidence on the purported scam.

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