A lawsuit was filed on September 29th, 2011 in CT against penny auction site BidCactus.com by a bidder from Arizona, Steven M. Mendelsohn.
Mr. Mendelsohn wishes to bring a class action on behalf of himself and other penny auction bidders who lost money on BidCactus, based on allegations that the penny auction site is illegal gambling under Connecticut law and because not everyone can/will win.
He lost more than he spent.
The complaint tells of the obvious difference between a traditional auction site, such as eBay, and a penny auction:
“That difference is critical because while the transactions are disguised as bids in an auction, BidCactus is in reality receiving wagers and entering into wagering contracts inviolation of Connecticut law.”
The complaint asserts that bids are bets (valuable consideration), that provide the consumer with the chance to win.
Bids = Wagers?
The complaint asserts that BidCactus’ bids are wagering contract, and “BidCactus’ failures to disclose that it accepts wagers and wagering contracts in the form of bids, that its operation constitutes professional gambling, including a lottery, that the overwhelming majority of customers will lose money by using the Site, and the percentage of money returned to customers as merchandise constitute violations of the Connecticut Unfair Trade Practices Act (“CUTPA”).”
Further, the complaint claims that because BidCactus shows won auctions “won by real people like you” misleads bidders for three reasons:
- First, these auctions are not typical of the auctions on BidCactus, especially as to high-ticket items, which typically sell for significantly higher prices.
- Second, it does not reveal that many of these winners placed so many of the bids on an item that they end up paying more than the stated retail value of the item between the cost of the bids used, the purchase price and shipping costs.
- Third, it does not reveal the large numbers of bidders who bid on those items and lost, losing the money they spent on the bids in the unsuccessful attempts to win gift cards and merchandise at significant discounts. Thus, the display of the number of auctions won in the history of the Site and of supposedly recent and typical auctions won is intended to and doescreate the false impression and constitutes false representations that users of the Site will routinely win the right to purchase valuable merchandise at significant discounts and that theoverwhelming majority of users will financially benefit from using the Site.
The complaint also alleges that by showing bidder testimonials, without providing more information (i.e. how many bids were purchased to win, how much time was spent trying to win, and the number of other bidders) is incredibly misleading.
Additionally, the complaint states that their site uses seals, i.e. PayPal, McAffee, E&Y audit, BBB Accredited seals to mislead people, and that Ernest & Young ‘audits’ are merely statements of opinions based on information selectively told to the firm, and “The BBB symbol constitutes a false express or implied representation that BidCactus is an honest, legal business that will financially benefit those who use it.”
Furthermore, the complaint alleges that BidCactus (if ruled on – all other penny auction sites would also essentially be declared gambling) engages in preying on the sunk cost fallacy, loss aversion (where one’s urge to avoid a loss is typically much more powerful than one’s urge to seek a gain,) and anchoring (“where one focuses on a particular number and loses track of the larger picture,and (c) the irrational impulse to believe there is always a strategy to beat the system. It is, inpart, its exploitation of these factors that make the Site deceptive and likely to deceive.”)
Now, in my opinion, penny auctions that don’t provide clear-stated buy-it-now options do pose a bit of a risk to the consumer, it is true IMO that sunk cost fallacy, loss aversion and irrational impulse are all part of the process.
However – after reading the section of the complaint that provides facts about the plaintiff, I can’t help but think that plaintiff was fiscally irresponsible, became addicted and got carried away, and fails to accept that his loss could have actually been his own fault.
In my nearly 3 year penny auction bidding experience I have also personally lost thousands of dollars bidding, and I’ve also won thousands of dollars in merchandise – sometimes barely breaking even (and I know others have had better outcomes than I have).
At times I’ve had to distance myself and I’ve had to quit and walk away.
Would it still be wise to bid on penny auctions even after you lost a lot of money? Probably not!
Who is the one at blame if you are the only person purchasing bids and clicking bid?
When I lose (on sites that have not actually scammed me by shill bidding or even timer glitches) I only blame myself for getting carried away and spending more than I should have to try to win in the first place. It happens.
You can get carried away.
You can lose.
If you don’t have money to spend bidding and will not feel OK about spending the money, because you could lose it, penny auctions are NOT for you.
Mr. Mendelsohn is said to have spent $705.51, on the first day he registered to win $279.99 worth of items (4). He then went on to spend approximately $15,219.56 over the next 30 days, with a net loss of $9,187.59.
“Thus, on the first day of bidding, Plaintiff paid more than twice the retail value for the prizes he won — a figure nowhere near the 90% savings he was led to believe he could achieve. Plaintiff failed to realize the actual costs he was expending for the prizes he won and those he did not.”
How can anyone fail to realize how much they actually spent in bids and the costs of the items that were and were not won?
Is it the site’s fault for showing that other’s have won items at a discount, but you can’t?
I don’t think a site should falsely advertise that you will indeed win x % of retail, but I also think that after a bidder bids for even a day they would have already understood how a penny auction works and would not be misled by anyone but themselves.
The lawsuit against BidCactus, if won, being as it includes questions of law and alleges that it operates an illegal gambling site could eventually indeed deem all other penny auctions illegal gambling, at least that’s what I think.
But I have to ask, if Mendelsohn would have won say, $50,000 worth of merchandise after only spending $15k would he have brought this lawsuit to help the others that lost money bidding against him?
Case 3:11-cv-01500-CFD – Click here to read the complaint.
I wholeheartedly believe that there have been and still are penny auction sites that shill bid and also rip off consumers by not shipping items.
If a user chooses to spend their money on a penny auction they need to realize that they can get carried away and end up losing a lot of money, they should not shift the blame on to the site.
Consumers need to not only understand how a penny auction works; which is why I started Penny Auction Watch (the first blog/forum for the penny auction industry) after I both won and lost, and became blatantly scammed by a penny auction site that had their shill/ bidding bots bid against me.
Penny auctions are unpredictable. I could spend thousands of dollars bidding on one item and still lose, and if I lose, all while bidding against real bidders, it’s my fault and I’d take responsibility. I wouldn’t turn around, file a chargeback or lawsuit.
It’s one thing for a penny auction site to blatantly steal from consumers, it’s a totally different story to lose against real bidders knowing full well that a bid pack purchase will not guarantee a win.
So since penny auctions are an outlet where consumers could very well lose, while others will win, do you think penny auctions should be illegal?
Would you sue if you lost money on a penny auction site?
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james thompson November 21, 2011, 6:51 am
i’ve lost tons of money playing these penny auctions