How to avoid online auction fraud

• Plenty of other scams circulate in cyberspace

By John Yaukey
Gannett News Service

Greg Harrington is on a mission, the kind people undertake after they've been burned. It all began last summer when the 34-year-old Houston-area security consultant won an online auction for some camera equipment. After sending in almost $500, he never received any merchandise or heard from the seller — reportedly in Romania — again.

Harrington realized he had been taken in what is now among the fastest growing crimes online — auction fraud.

"It's very easy to be ripped off this way," said Susan Grant, director of Internet Fraud Watch at the Washington, D.C.-based National Consumers League. "We're hearing stories of consumers mailing thousands of dollars to sellers and never hearing anything back."

But instead of merely smarting from his mistake and writing it off to experience, Harrington decided to take action. Several nights a week, he trolls online auctions for signs of fraudulent sales, then notifies the host sites.

"On any typical night, I'll find 20 or 25 really suspicious sellers, and more than 90 percent of the time the site removes the seller, which means I was probably on to something." he said. "Once you know what to look for, these fraudulent auctions are usually not that difficult to spot."

Fraud typically involves big-ticket items like laptop computers or high-definition TVs, but not exclusively. A case prosecuted last year involved a couple who almost made off with $20,000 selling nonexistent Beanie Babies.

Most complaints to authorities stem from products that never arrive, arrive damaged or are worth far less than promised. And the complaints are growing at an explosive rate.

Surging Numbers

Online scams of all kinds are on the rise, but auction fraud has been surging.

Internet auctions, which first appeared seven years ago, now account for almost 90 percent of fraud complaints made to Internet Fraud Watch.

In 2001, the Federal Trade Commission received more than 20,000 auction fraud complaints in just six months, up from several hundred complaints three years ago. Auction fraud now accounts for more than half the organization's total number of Internet-related complaints.

No one authority has solid figures on how much fraud occurs on the major auction sites such as Yahoo! Auctions and eBay, as some of it undoubtedly goes unreported.

Auction site operators are quick to point out that fraud as a percentage of legitimate activity is miniscule, occurring only in a small fraction of otherwise successful transactions.

"We have 210 million registered users here at Yahoo! and the overwhelming — overwhelming — majority are fraud-free,'' said Yahoo!'s Brian Fitzgerald. "We're certainly mindful of the possibilities, and we do everything we can to educate our customers. But if you look at the numbers, it's clear that Yahoo! auctions are reliable.''

Of course, that's cold comfort for people like Harrington.

Consumer advocates attribute the rise in online auction fraud to the surging popularity of such auctions and the ease with which fraud often can be perpetrated.

It typically merely requires posting nonexistent items for sale under a false identity and then waiting for naive buyers.

Some thieves are more sophisticated, holding several legitimate auctions to build confidence among buyers, who are encouraged to post comments at auction sites, before initiating a fraudulent sale.

Others will try to steal identities and set up fraudulent sites under real names or hijack legitimate existing auction accounts by obtaining passwords through fake solicitations to registered sellers (please verify your password for our records").

Typically, fraudulent auctions last only a few days.

Once fraudulent sellers have their payment — often requested as a money order to a P.O. box (never pay this) — they typically vanish, at which point they are extremely difficult to catch. Many work from foreign countries where law enforcement has not kept pace with the rapid growth of online crime.

Some of the auction sites are taking extra steps to make sure sellers are legitimate such as requiring that they register with valid credit cards. But many of these measures can be circumvented by experienced con artists using fake identities.

"Once you've lost your money in a fraudulent auction, more often than not, it's gone for good," said Grant. "But there are some things you can do to avoid being taken."

Buyer beware

So what's a shopper to do?

To avoid auction fraud:

• Ask sellers for a phone number, and then verify it.
• Use an online escrow service that will hold the payment until you can inspect the merchandise. Auction sites such as Yahoo! maintain lists of these services.
• Check the seller's feedback at the auction site. Be wary of feedback from buyers dated only a few days following a sale — it may be fake. Delivery usually takes at least several days, and most buyers typically use their merchandise for several days before responding with comments to the seller.
• Be wary of sellers outside the United States. In fact, it's a good idea to avoid them altogether.
• Use a credit card. Credit card payment protects the buyer because you can dispute the charges if the goods are misrepresented or never delivered. Cancel the card immediately if you suspect fraud.
• Never buy anything from a seller who asks for payment to be mailed to a P.O. box.
• Look for suspicious signs such as sellers looking to get rid of a few expensive items quickly through opening-bid prices that seem unnaturally low or sellers who offer to pay for shipping.
• Tell the seller you live nearby and would prefer come by to pick up the merchandise rather than have it delivered.

A firm "no" from the seller should raise a red flag.

To report Internet fraud:

• Federal Trade Commission: (877) FTC-HELP (877-382-4357 or www.ftc.gov).
• Internet Fraud Watch (www.fraud.org).

Plenty of other scams circulate in cyberspace

Although online auction fraud has become a popular ploy among con artists, there are plenty of other scams to look out for:

• Con artists are exploiting the terrorist attacks of Sept. 11. Computer experts who were supposedly attempting to track Osama bin Laden were spamming for donations, providing recipients of their mass e-mailing with a bank account number for making donations. The experts turned out to be from Estonia.

• Financial services fraud is bilking thousands of people out of millions of dollars.

  Maine resident Galen O'Kane, who testified before a Senate panel investigating Internet stock fraud, lost $20,000 investing in a nonexistent electronics company touted in a fraudulent online investment newsletter backed up by a fabricated news release

  When O'Kane happened to drive past the Boston-area company, he noticed that it consisted of nothing more than an empty building and a security guard.

  "I would consider myself a seasoned investor," the 10-year market veteran told the Senate Permanent Subcommittee on Investigations. So were many of the other investors bilked for a total of $15 million in that scheme before regulators broke it up.

• Cramming, or surreptitiously billing, can cost you money without you knowing it. In a recent case cited by the Federal Trade Commission, crammers mailed a $3.50 "rebate" check to consumers. When consumers cashed the check, they unwittingly agreed to use the crammers as their Internet service provider, and long-distance charges soon began to appear on their phone bills.

To avoid scams

• Be skeptical of Web sites. It's easy to slap together a professional-looking Web site that claims to represent a brokerage or a stock picker. Be especially skeptical of Web sites that don't list an address, phone number or convenient way to make contact.
• Never respond to spam. Reputable brokers don't spam, so investment pitches via e-mail are likely to be spurious if not fraudulent. Don't respond to them —even to vent — you'll only end up confirming your e-mail address, which will result in more spam.
• Be wary of work-at-home schemes. These schemes are a lot older than the Internet, but the Web has provided a fertile ground for a resurgence. The key to a scam is pay that seems too high for simple work, or work that could be done cheaply by machine.
• Never give out personal information such as your Social Security number, credit card number or bank account number unless you can verify the legitimacy of the recipient through a phone call or an address.