Will We See a Spike in Auction Fraud with Penny Auctions?

The IC3 2008 Annual Report - http://www.ic3.gov/media/2009/090331.aspx

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.


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18 comments… add one

  • 613Bid February 11, 2010, 9:50 am

    Great article. Dishonest site owners need to be exposed. In due time they will be punished.

    Reply
  • Someone from somewhe February 12, 2010, 10:54 am

    The 25.5 % mentioned in the IC3 report is most probably for Ebay and similar style websites and not penny auction type websites.. Please take into account the date the article was published '2008'. Swoopo did not even exist then, and they basically invented this scheme and yes trend.

    It is undeniable that there are individuals that want to surf the penny auction trend as a means to earn a quick buck, yet in the same time omit to calculate the real cost of running a business and the consequences that can occur if the finances and/or targets are not reached. Which can result in a Penny Auction site with little if not any capital to sustain business in the long run, and be forced to go bankrupt and shut down, hence not dispatching products to winners of auctions. In the last year the number of sites that closed is evidence of this, basically because their owners omitted to grasp the real implications required to run a site/business properly. To earn money you have to spend money.

    With regards to PayPal. PayPal belongs to Ebay – Ebay most probably being the online auction website with a high rate of fraud, abuse, and scams, as evidenced with the 25.5% figure above, and PayPal not being able to do much to prevent it, or refusing to… if PayPal does very little effort to fight against fraud with its sister website, then why would PayPal do an effort to reimburse users that have issues with a penny auction website?

    Reply
  • auctionwatcher February 13, 2010, 9:09 am

    Yes, the figure is most definitely from eBay and other online auctions. 2008 is the most recent published report from the IC3, it will be interesting to see what happens with penny auctions in the months to come. PayPal does not need to reimburse users, we are not saying that they should either…

    Thanks for your comments!

    Reply
  • Liz Gray April 4, 2010, 12:33 pm

    Perhaps the auction web site could post notarized proof of ownership, with an ecsrow company. Item could be held for delivery by independent shipping company.

    Attention: This "problem" could be a fabulous opportunity. similar to the "secure" on the http, the guardian company would insure compliance, by verifying ownership of object being offered, insuring &/or retaining object until it is sold and shipping it to winning bidder. I'm thinking that the insurance fee would be paid by seller. I actuality, the buyer pays as the insurance, like shipping, is overhead, factored into the price the buyer pays.

    Focus on finding solutions. If some very ambitious person decides to put my idea into practice, I will exchange my markrting skills for 5%. After all every successful business is 80% WORK including "skull sweat" plus financing. The finance part could be provided by the shippers and insurers who would profit from new business. in the case of cars, the auction site could easily prove their apparent integrity by allowing an escrow company tohold the title, with instruction to deliver the title and keys to the new owner. The auction site would be responsible for storage fee, or the dealer could hold the car, truck, RV etc.

    Requiring a photo of each bidder could eliminate unpaid bids, as the bidders themselves could "see" their competition. Photo of winner with prize delivered could be posted. Major Las Vegas casinos post their big winners, with photo, to encourage other gamblers. Bidding photo might be of pet or whatever, for privacy. Photo of winner with pet at delivery might help. Even at a local auction, I've had another haul off thebox of books I bought.

    Reply
  • Steve Jonson April 16, 2010, 4:00 pm

    I appreciate what you are doing here, thank you. Could you look into swipebids, they are fairly new, opened April 25 2010 and seem to have a lot of complaints already. Looks like they are using bots and denying wins because of tech problems and are using false tacking numbers to promote theyre so called winners.

    Reply
  • thatsme August 15, 2010, 5:49 pm

    It is possible fraud is going on in some penny auctions no dispute about that. But it is fair to say that fraud could be going on in this penny auction blog as well. I mean some of these reports could be make believed or hyped up because the person who owns this blogs gets commissions from Google Ads. And most of the profit comes from the highly profitable websites such as penny auctions. Just look beside your web browser whomever reads this message. Who is policing the police here? It is good to try to be an honest reporter, but getting paid for it could lead you as a suspect of fraud. When you stop collecting from Google Ads I start listening.

    Reply
  • Michelle August 21, 2010, 6:29 am

    We are a brand new REVERSE penny auction website….should be launching any day now….. Our site is completely different than any other site…our auctions go BACKWARDS….meaning we start at the auction at a price, let's say $2.99 as each person bids (with pre-purchased bids) the price GOES DOWN a penny…there is also another way to win, that's the timer which also goes backward…..like our motto says "when the price reaches zero or the time runs out, YOU WIN!!!" There aren't any "bid ticks" which add time as each person bids…we don't need them! We are a completely legitimate site, and do not put the items up for auction unless we have it in our possession. We are so excited to be something new, fun and DIFFERENT! Honest, moral and ethical. Check us out again and again and again….you will not be disappointed.

    Reply
  • Michelle August 21, 2010, 6:29 am

    The site is Complooter.com….home of the reverse 69 cent penny auction.

    Reply
  • Andrew September 14, 2010, 10:19 am

    Someone really needs to do something about the shill bidding on Swoopo. It is very obvious if you do a little searching around. First look at all the auctions that have ended and look at the big ticket items. Identify the items that sold at a loss to Swoopo – something that did not collect enough 69 cent bids to cover the retail price. Then take the name of that winning bidder and type it into Google. It will probably have a name like Dery50 or Shekhs76. If you take a look at the Google search you will see that Dery50 is either extremely lucky or it is an automated program that is run by Swoopo to drive up the price of an item and then purchase it back if the price does not go over a certain limit. Dery50 has won dozens of televisions, computers, Iphones, Wii consoles, you name it and all at a supposed loss to Swoopo. The program is placing multiple bids in multiple countries at the same time. This is shill bidding and it is illegal.
    Aside from the illegal shill bidding that Swoopo is conducting I also feel that this site should not be classified as an auction site. It should be classified as a gambling site and subject to the federal and state laws that dictate the rules similar to a lottery or a Vegas casino. Because that is what this is.

    Reply
  • Dina September 22, 2010, 1:20 am

    Eyipee.com is a new penny auction, promises to return 100% of the placed bids if you win and 30% if you don’t win. The winner would not have to pay the auction price either! It sounds to good to be true, well it is! They don’t let anybody win anything! After I signed up and purchased 100 bids, I realized that the site is full of bots and shill bidders using bid butlers only. I lost my money and my time. Really…it’s not a legitimate company, DON’T WASTE your money there!

    Reply
  • Laura September 25, 2010, 8:41 am

    I purchased bids and was shocked that I was in on the last second and the timer started again. This website is the biggest SCAM I have ever seen I will fight with pay pal for my money back and never look into this type of scam bidding. They only have 4 items on there website 3 bid cards and a shell gift card. Total Scam…… Do not bid on this webstie.

    Reply
  • John Goldberg February 9, 2011, 9:57 pm

    Have you seen this website:
    I thought they were a scam, but in the end I won a bose system. You had to verify alot of information about yourself before they will send the item, I think they are a marketing company that acquires information but i won. Check out these videos I found:
    http://www.youtube.com/watch?v=LKFqM3xEnU8
    http://www.youtube.com/watch?v=lJnu5c2HOks&NR=1
    This is funny, they have a song about the auction site lol
    http://www.youtube.com/watch?v=gDGlKtLLzFA&feature=mfu_in_order&list=UL

    Reply
  • doobs110 April 6, 2011, 10:45 pm

    Hi, I am a new owner of a penny bids website.. I’m not trying to get you to come to my website or anything like that (because after this article I probably wouldn’t either.. :\ ) but I would like to say that I don’t understand how a person could live with this kind of fraud.. It’s like stealing the money directly from another person. it’s sick, and not in my Boston slang for good, no it’s bad. Very bad. I and going to try to make my site as transparent as possible and hopefully I will be able to compete with the larger sites for that reason. My friend who knows of my site wants me to use him as a shill bidder (he just wants some of the money I hope to make :P) but I will never let that happen. Just trying to get the word out that there are some honest penny auction merchants out there xD Thanks for reading if you didn’t TL;DR me :P

    Reply
    • Sarah August 1, 2011, 4:31 pm

      Keep it up, that is excellent.

      Reply
  • Lisa August 5, 2011, 8:32 pm

    I won a Motorola Xoom on http://www.eYipee.com, It took 623 Bids to Win but I got it all back. They need to speed up the delivery process, it took 8 days to get my item.

    Reply
    • Amanda August 6, 2011, 6:33 pm

      Really, it took a full 8 days?

      Reply
    • Amanda August 6, 2011, 6:34 pm

      What’s your username?

      Reply

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