Online-Auction Users: Beware

NEW YORK -- Scott Slowiak, a Las Vegas resident who collects "classic" video games, recently won an auction on eBay Inc. He sent a $25 money order to the seller and waited for eight vintage games by Nintendo and Atari to arrive as promised.Two months later, he was still waiting and appeared to be a victim of the most common form of Internet fraud. Auction ripoffs represented 64% of more than 30,000 reported complaints made last year to the Internet Fraud Complaint Center. That ranks it ahead of online securities fraud, credit-card fraud and identity theft combined, according to the center, a partnership between the Federal Bureau of Investigation and the National White Collar Crime Center. In most cases, auction users aren't defrauded out of substantial sums. Prudential Securities says the average sale price is $39 for all goods on eBay (EBAY), and $42 on Yahoo! Inc. (YHOO) auction pages. And much of the rise in fraud is merely a reflection of the tremendous popularity of online auctions. More than 35 million people regularly visit eBay, Amazon.com Inc. (AMZN), Yahoo and other big Web marketplaces, and fewer than 1% of the 1.3 million online auctions that take place daily result in fraudulent activity, according to the fraud center. "It's pretty well known that fraud is out there," says Shawn Milne, an analyst who follows online auctions for Wit SoundView in New York. "But it's not at levels that worry me. I think the sites are doing a good job of minimizing it." But for the most part, online-auction operators say customers must police the sites themselves. They disavow any legal liability for fraudulent transactions, and they urge customers to take advantage of online-feedback features to rate their shopping experiences. This is the best way, the say, to endorse reputable dealers and weed out bad apples."Ultimately, that's the best way to discourage fraud," agrees Goldman Sachs analyst Anthony Noto. "Don't do business with someone who you don't know or can't find out anything about," says Glen Gainer, chairman of the National White Collar Crime Center. "It's no different than how you would buying some in astore." Law-enforcement officials and antifraud experts suggest other steps that can minimize the chance of being hit by auction fraud: * Insist on getting the other party's street address and telephone number. * Be particularly careful when dealing with private individuals, as opposed to businesses. * Be especially careful of parties residing in another country. * Use an online payment service or a credit card that let users dispute fraudulent charges rather than checks or money orders. * Use an online escrow account for high-priced auction items. * After a high-profile incident last year, when two people admitted offering phony, or "shill," bids to inflate auction prices, eBay is using "more proactive, time-sensitive approach" to monitor its site, says spokesman Kevin Pursglove. Officials at Amazon.com and Yahoo also say they have hired staff to monitor fraud. The auction sites say they are trying to minimize fraud by hiring surveillance staff and working with law enforcers to root out dishonest vendors. But they decline to say how they monitor the sites. The sites also offer their customers limited insurance against loss. For example, Amazon.com offers coverage of as much as $2,500 per item for people who use Amazon.com proprietary online payment system, but only $250 for those who don't. Yahoo offers as much as $3,000 for customers using its own payment system, and $250 for those who don't. Offering just $200 of coverage after a $25 deductible, eBay has less generous insurance. Slowiak, the eBay customer who struggled to receive his video games, says he checked the site's customer-feedback area only after placing his order. He saw that many customers had reported difficulties getting items shipping from the seller. He says he notified eBay and the National Fraud Information Center. Unable to reach the seller by phone, he started sending certified letters. After half a dozen letters, his package arrived two months after he ordered it. Despite the headaches, Slowiak says he will still shop on eBay. "It was definitely a hassle getting this order done," he said. "But it won't stop me from going back."

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Online-Auction Users: Beware

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