When bids go bad, the FBI listens

Summary:The FTC and the FBI agree that online auctions generate more consumer fraud complaints than all other Internet enterprises.

Online auctions are generating roughly 1,000 fraud complaints monthly, far more than any other Internet sector, according to an FBI clearinghouse that has been fielding complaints since May.

The agency, known as the Internet Fraud Complaint Center, has so far referred 4,000 fraud cases to local law enforcement agencies. Nearly half, an FBI spokesman said, had something to do with online auctions.

Based on preliminary figures, complaints about securities and commodities were a distant second, and even further behind were identity theft and credit card fraud complaints, the FBI said.

Jonathan Gaw, research manager with International Data Corp. (IDC), said the findings have been expected -- and, in fact, have been trumpeted by the Federal Trade Commission -- for at least two years.

It is also a byproduct of a young industry still learning how to deal with its customers, he said.

"These auctions are person-to-person auctions and a lot of those participating haven't done it before," Gaw said. "So, of course there will be complaints."

"You have to cut eBay some slack because a lot of the fraud is not done by the merchant, but by the buyer as well," including using stolen credit cards, he said.

eBay, the Web's biggest online auction house, acknowledged that fraud exists, but only in one out of 40,000 transactions.

"We understand where the FBI is coming from, but this is a new industry that has been created on the Internet in the past two years," said eBay spokesman Kevin Pursglove.

In the first quarter of 1998, eBay sold $104 million worth of goods, he said. In the first six months of 2000, there was $700 million in merchandise available on the site.

"A great majority of our users play by the rules, but you will unfortunately come across a small percentage of those who don't," Pursglove said.

The site does have a laundry list of anti-fraud programs: New users have to provide a credit card; an escrow service holds payments until the goods are received and inspected; and an insurance program covers up to $200 per purchase, Pursglove said.

The FBI is not the first to make such an observation. The Federal Trade Commission believes that online auction fraud has increased along with the popularity of eBay and other sites.

According to FTC statistics, there were 11,123 Internet-related consumer complaints in the first six months of 2000, compared to 18,000 for all of 1999.

During both years, complaints about online auctions led all others. So far this year, the FTC has received 5,547 complaints. In 1999, there were a total of 10,700 complaints.

Delores Gardner, an FTC attorney specializing in Internet auction fraud, said it appears that online auction complaints may remain at the same level at 1999.

"I'm happy to say it looks like the numbers are on par with what they were last year," she said.

Topics: Tech Industry

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