Our Chapter was contacted last week by an apparent victim of an on-line auction fraud scheme called shilling. Our victim bought an item on the auction and subsequently received independent verification that the seller had multiple ID’s which he used to artificially increase the high bid on the item ultimately purchased by our victim. On-line consumer auctions have been a ubiquitous feature of the on-line landscape for the last two decades and, according the ACFE, the number of scams involving them is ever increasing.
The Internet allows con artists to trade in an environment of anonymity, which makes fraud easier to perpetrate. So every buyer of items from online auctions not only has to worry about the item being in good condition and every seller has to be concerned about being paid, they must both also worry about whether the other party to the transaction is even legitimate. Common internet auction fraud complaints include products that never arrive, arrive damaged, or are valued less than originally promised. Many complaints also stem from sellers who deliver the product but never receive payment. Almost all auction sites have responded over the years by instituting policies to prevent these types of fraud and have suspended people who break the rules. eBay, for example, has implemented buyer protection and fraudulent website protection programs, as well as several other safeguards to prevent fraudsters from abusing their auction services but the abuses just seem to go on and on.
What apparently happened to our victim is called shilling. Shilling occurs when sellers arrange to have fictitious bids placed on their item to drive up the price. This is accomplished either by their own use of multiple user IDs (as our victim suspects of her seller) or by having other partners in crime artificially increase the high bid on their item; typically, these individuals are friends or family members of the seller. If the shiller sees a legitimately high bid that does not measure up to his or her expectations, s/he might burst in to give it a boost by raising the bid. This auction activity is one of the worst auction offenses and is cause for immediate and indefinite site suspension for any seller caught in its performance by any legitimate auction.
A related ploy that also raises lots of complaints is called sniping. Sniping is a bid manipulation process in which an unscrupulous bidder bids during the last few seconds of an auction to gain the high bid just as the time runs out, thus negating the ability of another bidder to answer with a still higher bid. Most bidders who successfully engage in this practice do so with the aid of sniping technology. In general, sniping is legal; however, most online auctions sites have instituted no-sniping policies, as the practice is devious and may harm legitimate, honest bidders.
Then there’s bid shielding. Bid shielding is a scam in which a group of dishonest bidders target an item and inflate the high bid value to discourage other real bidders. At the last moment, the highest bidder or other bidders will retract their bids, thereby shielding the lower bidder and allowing him to run away with the item at a desirable, and deceitful, price.
In the relentless drive for more customers, some sellers resort to bid siphoning which occurs when fraudulent sellers lure bidders off legitimate sites by offering to sell the “same” item at a lower price. They intend to trick consumers into sending money without delivering the item. By going off-site, buyers lose any protections the original site may provide, such as insurance, feedback forms, or guarantees. This practice is often accompanied by sellers embellishing or distorting the descriptions of their wares. Borrowed images, ambiguous descriptions, and falsified facts are some of the tactics a seller will utilize in misleading a buyer with the end of guiding her to participation in a siphoning scheme.
The second chance scammer offers losing bidders of a closed auction a second chance to purchase the item that they lost in the auction. As with siphoning victims, second chance buyers lose any protections the original site may provide once they go off-site.
One of the most common complaints associated with on-line auctions is price manipulation. To avoid price manipulation, consumers need to understand the auction format before bidding. Sellers may set up the auction with questionable bidding rules that leave the winning buyer in an adverse situation. For example, say you are a winner in an auction. You bid $50, but the lowest successful bid is only $45. The seller congratulates you on your win, and requests your high bid of $50 plus postage. As another example, let’s say the highest bidder retracts his bid or the seller cancels it, which leaves you the highest bidder. The seller then wants you to pay the maximum bid amount, citing that the previous high bidder had outbid you. Finally, let’s say you win a straight auction with a high bid of $85. The seller contacts you and instructs you to send your high bid, plus shipping, packaging, listing fee costs, and numerous other charges.
Our last example relates to the practice of fee stacking which refers to the addition of hidden charges to the total amount due from the winning bidder after the auction has concluded. Shipping and handling fees can vary greatly; therefore, the buyer should inquire before bidding to avoid unexpected costs. Typically, postage and handling fees are charged at a flat rate. However, some scheming sellers add separate charges for postage, packaging, handling, and shipping, and often devise other fees to tack on as well, leaving the buyer with a much higher purchase price than anticipated.
Then there’s the flat failure to ship the purchased merchandise. This is the one type of on-line auction fraud that most people have heard of even if they don’t themselves participate in on-line auctions and involves a seller receiving payment for the item sold, but not shipping the merchandise. If the merchandise does not arrive, the buyer should contact the seller for the item or request a refund, hopefully having kept a receipt of payment for the purchase. If the purchaser made the purchase with a credit card, s/he can contact the credit card company to deny the charges. If the buyer gets nowhere with the seller, the buyer should contact the U.S. Postal Inspection Service, as the failure to ship constitutes mail fraud.
On the other hand fraudulent buyer claims of lost or damaged items are also considered mail fraud. Some buyers falsely claim the item arrived damaged or did not arrive at all, and thus refuse payment. Sellers should insure the item during shipping and send it via certified mail, which requires a signature verifying receipt.
A related buyer scam is switch and return. Let’s say you have successfully auctioned a vintage item. You, the seller, package it with care and ship it to the anxious buyer. But when the buyer receives it, he is not satisfied. You offer a refund. However, when the buyer returns the item, you get back an item that does not resemble the high-quality item that you shipped. The buyer has switched the high-quality item with a low-quality item and returned it to you. The buyer ends up with both the item and the refund.
The on-line market is awash in fakes. The seller “thinks” it is an original; but the buyer should think again. With the use of readily attainable computer graphics and imaging technology, a reproduction can be made to look almost identical to an original. Many fraudsters take full advantage of these capabilities to dupe unsuspecting or uninformed buyers into purchasing worthless items for high prices.
If you are a fraud examiner working with clients involved in the on-line auction market or a buyer or seller in those markets …
— Become familiar with the chosen auction site;
— Understand as much as possible about how internet auctions work, what the site obligations are toward a buyer or seller, and what the buyer’s or seller’s obligations are before bidding or selling;
— Find out what protections the auction site offers buyers;
— Try to determine the relative value of an item before bidding;
— Find out all you can about the seller, especially if the only information you have is an e-mail address. If the seller is a business, check with the Better Business Bureau where the seller/buyer is located;
— Examine the feedback on the seller and use common sense. If a seller has a history of negative feedback, then do not deal with that seller;
— Consider whether the item comes with a warranty, and whether follow-up service is available if it is needed;
— Do not allow the seller or buyer to convince you to ignore the rules of a legitimate internet auction.