Thursday, February 11, 2010

In the IC3′s Annual Report for 2008,  Internet auction fraud accounted for 25.5 percent of all 275,284 referred reports, which in total amount to $265 million reported.  With the addition of the increasing number of online penny bidding auctions over the past year and non-receipt of items in these particular auctions as well, we think that we might just see a spike in online auction fraud reports.  Read the IC3′s full report here.

It seems that penny auctions are an easy outlet for con artists to promulgate fraud.*

Shilling in Penny Auctions, Defined:

1. Shill Bidding:

The act of bidding against paying bidders in an attempt to not only artificially bid up the price of an auction item, but to obtain more money from users. This is done by either manual bidding or with the help of automated bot bidding scripts.

2. Shill Promoting:

The act of creating fake user testimonials and uploading them on the penny auction site, YouTube and other popular outlets. Shill reviewing: The act of joining the Penny Auction Watch forum (we watch for this, so don’t try it here) and other sites with the intent on promoting your penny auction site, while pretending to have no association with the owner/seller to give penny auction aficionados the impression that the site is legit. Oftentimes they tell us how great the site is, when let’s just face it, it’s really not. This also includes shill blogging.

Some penny auction site owners may not even have the intention to ever deliver an item or let users win. There is no accountability.

Is Shill Bidding Illegal?

While this has been said here many times before I must say it again…

Shill bidding, whether legal or not, is dishonest and deplorable and needs to stop.

Some people are quick to point out that a penny auction site has shill bidders without any evidence, on some sites the traffic stats can seemingly match up and some shill bidding patterns are easier to detect than others. We have no desire to falsely accuse anyone.

A tip for users:

Though not a perfect indicator of shill bidding, users should watch a penny auction before they purchase bids and also take a look at traffic stats from sites like Alexa, Compete, QuantCast, WebsiteOutlook, and the like to get a rough estimate of a penny auction site’s popularity.

PennyAuctionTraffic.com presents us with a nice compilation of penny auction traffic stats, “One of the things we have found is that if a site has a lot of activity, you have to check it’s traffic rankings to see if it seems reasonable. If you see an auction with heavy bidding, but the major traffic sites report that they have little traffic, you should be suspicious.” While 3rd party traffic statistics are not always a perfect indicator of this there are other factors that can be considered when looking for shill bidders. We all know that this is a grey area, and even after we post what seems to be substantive evidence that a particular site is acting unethically this does not stop them.

Penny auction sites can sometimes easily shill bid, even unsuspected, and continue with this unethical behavior for many months, racking up a large amount of money swindling users in the process. Like we’ve said before, this is not a very transparent or regulated industry. Many of us strongly believe in the principles of free enterprise and limited government, but we do not believe this right should be allowed to be abused by the proliferation of dishonest business practices, and I think that you might agree that shill bidding in penny auctions is just another Internet fraud scheme* that has seemingly been flying under the radar of the FTC and other governing bodies.

Not only are penny auction sites shill bidding, they are also not delivering won items to auction winners.

Recent examples of this are the now defunct penny auction sites TidBidz.com, AnnieUp.com and Bidwants.com. These auction sites have offered items for sale, have let paying users win them and even allowed them to pay the final price for the auctions, but then refused to deliver.

The mainstream media is already beginning to take notice and we thank them for this.

Judging by how the FBI has taken action against individuals committing auction fraud in the past, I believe that they will (and if not they really should) take notice of penny auctions.

Take this particular case of an eBay seller collecting money for items and not delivering:

“Michelle Brown, a New Hampshire resident, was arrested by members of the Manchester Police Department for allegedly committing fraud via the eBay auction site. The investigation began when police received a complaint description of fraud via IC3 concerning a non-delivery of merchandise scam. Brown is accused of collecting over $1,000 from a bidder for the sale of a big-screen plasma television that was listed on the auction site. Brown, however, did not have the television in her possession nor did she intend to produce a television to honor her contract. Subsequently, detectives learned that Brown may have perpetrated this type of fraud multiple times; further charges are possible if more victims do come forward. In addition to the auction fraud(s), Brown was also charged with two counts of felony identity theft for allegedly opening credit card accounts in her mother’s name. Warrants were obtained for Brown’s arrest following a tip to police that she was planning to flee the country.”

Where is PayPal in Any of This?

Has PayPal done anything? It looks like they are beginning to. Some site owners have told me that PayPal views penny auctions as a high-risk business and are freezing accounts,  revoking and disallowing their right to use PayPal as their payment processor.   Can you blame them? I can’t.

What about PayPal’s Buyer Protection?

A few months ago I personally reported a penny auction site that, after taking payment for won items, refused to deliver and even respond to my e-mails. I reported the particular site to PayPal and they consequently decided in my favor, however there was no way to get back the few hundred dollars invested because the seller did not have the funds available in his PayPal account.

There has been absolutely no accountability, yet those who have been exposed here have attempted to malign and belittle me and this site just because they were exposed here.

As of right now there has been no recourse or any course of action taken to put an end or to even punish the individuals/companies that are defrauding people. And unfortunately, if you consider just how widespread auction fraud is, it doesn’t look like this very real problem is going away soon.

We are dedicated to further put an end to shill bidding and phony penny auction sites,  and will continue to expose this unfortunate reality.

As you may know, we’ve posted instances of unethical and unprofessional practices in penny auctions in the past, after all the purpose of Penny Auction Watch is to watch the penny auction world and to expose the unethical practices that we find, but we cannot know about all of it. And yes, we do offer some extra content for you in this blog beyond exposing penny auction sites, this includes posting interviews with penny auction site owners as well as promoting a number of penny auction sites that we, as a community here on Penny Auction Watch believe to be legitimate. This by no means will detract from our original purpose. With that said, we are  open to feedback from penny auction bidders.

What do you think should be done about the penny auction sites that shill bid & fail to deliver items?

Discuss this with us!

* I am not a lawyer nor do I know for a fact that shill bidding constitutes fraud, this is my own personal opinion.

{ 18 comments }