Three Men Indicted For Ebay Fraud

IMG SRC=””/>
SAN FRANCISCO — Three men were indicted by a federal grand jury for allegedly participating in a ring of fraudulent bidding in hundreds of art auctions on eBay Inc.’s Internet auction site, including a high-profile case involving a fake painting by artist Richard Diebenkorn, the U.S. attorney’s office in Sacramento said.

The 16-count indictment against Kenneth Fetterman of Placerville, Calif., Kenneth A. Walton of Sacramento and Scott Beach of Lakewood, Colo., includes charges of wire and mail fraud related to alleged “shill” bidding — a scheme in which users, in collusion with a seller, post phony bids to drive the auction price of an item higher. Shill bidding has become a vexing problem for Sane Jose, Calif.-based eBay (EBAY), though the company has stressed that the overall incidence of bogus bids is low on the site.

The indictment includes details about one of the most notorious instances of shill bidding on eBay, in which a frenzy of bidding last May for a painting believed to be by Mr. Diebenkorn reached $135,805. According to the indictment, Mr. Walton allegedly forged the initials “RD 52” — apparently an abbreviation for Richard Diebenkorn 1952 — in the corner of an unsigned painting that Messrs. Walton and Fetterman bought from an antique store in California. The indictment says Mr. Walton listed the painting for sale on eBay and included digital photos with a close-up of the initials.

In a description of the painting, Mr. Walton allegedly said it had been purchased in Berkeley, Calif., to give the impression that the painting originated from the same area in which Mr. Diebenkorn was based in the 1950s, the indictment says. The defendants then allegedly used various eBay aliases to make more than 50 shill bids, ranging between 30 cents and $135,505, on the auction of the painting. An eBay user in the Netherlands eventually placed a winning bid of $135,805.

The indictment also alleges that the defendants placed shill bids on paintings sold on eBay that appeared to bear the signatures of other famous painters, including William Wendt, Percy Gray, Alberto Giacometti, Clyfford Still and Maurice Utrillo. The indictment alleges that the signatures of Messrs. Still and Wendt paintings were forged. It also alleges that Messrs. Fetterman and Walton created eBay user names with the names Giacometti and Still in them to give the appearance that family members of the artists were bidding in the auctions.

Using various online aliases, the indictment alleges that the three defendants hosted more than 1,100 auctions on eBay from late 1998 until May, and that they placed shill bids on more than half of those auctions. The total value of the winning bids in all of the auctions hosted by Messrs. Walton, Fetterman and Beach in which they allegedly placed shill bids was more than $450,000.

Robert Chesnut, deputy general counsel at eBay, said his company worked with law-enforcement agents to investigate the case. “The message in this case is not only can you get thrown off eBay, you can get indicted” for shill bidding, he added. “The consequences can be severe.”

Copyright (c) 2001 Dow Jones & Company, Inc.