Fighting fraud on eBay

he white poodle should have been a tip-off. Antiques dealer Thomas Perry had taken a picture of a giant antique teakwood ship's wheel outside his gallery in Chester, Conn., and offered it for sale on his One of a Kind Antiques Web site. It added to the charm of the photo that Buffalo, his poodle, had wandered into the shot.

But then Perry's photo popped up on eBay, the online auction site. Someone was offering his ship's wheel for sale, using his written description -- and his poodle.

Perry had been a seller on the Internet auction site, but he was about to be dragged into the increasingly murky world of Internet auction fraud.

As eBay has grown rapidly into the world's largest marketplace -- with 69 million registered users and 16 million items up for auction or sale at any given moment -- it also has attracted cyberversions of the con artists, shoplifters and pickpockets who populate any teeming bazaar.

While most cases of online fraud involve failure to deliver advertised goods, online auction fraud is growing steadily more complex and sophisticated, with twists that make it harder to figure out what happened, much less track down the scam artists. Identity theft is rampant in online fraud, usually involving sellers posing as other people. And one of the newer twists is fake Web sites, including elaborate ones that appear to be legitimate escrow services, just waiting for an unscrupulous "seller" to suggest that his buyer deposit his payment with the escrow service for safety. Another involves bogus eBay "password verification" forms inviting victims to fork over their passwords.

Federal and state prosecutors are worried enough about what they call a "significant" problem with Internet auction fraud that they announced a major crackdown April 30. Federal Trade Commission and state prosecutors detailed legal actions they'd taken in 57 recent cases in which online auction sellers had bilked thousands of consumers.

Most did involve nondelivery of goods -- and not just luxury items. The non-deliverables included dental equipment, athletic clothing, musical instruments, candles, sunglasses and "demonic toys."

While a few involved Yahoo auctions, the vast majority took place at eBay Inc., the Web's top auction destination, where goods valued at $5.3 billion swapped hands in the first quarter. For its part, the San Jose, Calif., company contends it has the multi-headed fraud monster under control, with no more crime occurring in its virtual community than you'd encounter in a conventional store. Its managers say fraud touches a tiny fraction of its transactions, partly thanks to the elaborate "feedback" system that helps build trust among strangers. In each eBay transaction, the buyer and seller can rate one another; results are tallied and displayed in a system of points and color-coded stars.

EBay fraud fighter

EBay's chief fraud fighter, former federal prosecutor Rob Chesnut, acknowledged in an interview last month that fraud is tough to prove and track, especially since eBay doesn't consider itself a party to its transactions but rather lets buyers and sellers handle all payment and shipping on their own. But he said eBay has grown steadily more aggressive in trying to thwart fraud and soon will roll out another round of security measures.

Already, eBay runs sophisticated software analysis against its millions of auction listings, looking for fraud patterns it declines to discuss. It has a bunch of former prosecutors and police officers on its fraud-fighting team, including a former Scotland Yard inspector and a police officer from Australia. This month eBay hired President's Bush outgoing cybersecurity czar, Howard Schmidt, to be its new vice president of security. And hundreds of the estimated 800 people who work in eBay's Salt Lake City customer service operation focus on fraud.

Last year eBay tightened its registration system, instituting electronic address and credit card verifications that run in the background when new users sign up. Chesnut said those changes marked a turning point.

"Up until early last year, eBay's position toward fraud had been that we would react if the community let us know about a problem," he said. "We did not take proactive steps on our own to go out and find the problem and prevent it. What I think is really significant about those announcements last year is that it really marks a shift in an approach from being reactive to being proactive."

It's getting more proactive. Just last week, eBay announced it will make a number of changes to procedures at the end of the eBay transaction emails sent by eBay at the close of listing. Now those emails will include the first initial, last name, city and region of the member's trading partner.

By giving members more information about the location and identity of buyers and sellers, eBay hopes some scams may be avoided. For example, some scammers have "hijacked" transactions and ask buyers to send money to them instead of the real seller.

EBay also said it will hold a live chat featuring Chestnut on Tuesday, June 10. Chestnut will discuss and field questions about site policies and the steps that eBay is taking to combat fraud and maintain a safe online marketplace.

Counting victims

FTC lawyer Tara Flynn said investigators have found that for every victim who steps forward, there can be five to 10 more the investigators run across who were bilked by the same person but kept quiet. "The thing I have found shocking is how few people do complain," she said.

Partly for that reason, FTC officials say they are trying to get a better handle on how big the auction rip-off problem is. Already, the FBI has pegged it as the No. 1 fraud complaint on the Internet, with more than 50,000 cases reported to the FTC last year, up dramatically over previous years.

Chesnut nonetheless said the trend line at eBay is encouraging: Fraud doesn't appear to be on the upswing, at least not as fast as listings: "If anything, the percentage is going down," he said. "As we have rolled out greater fraud detection and prevention measures over the last year, the numbers are declining, not rising."

That, of course, is of little comfort to victims, some of whom think eBay could do more to police its site, educate users about safe payment methods and help them when they do fall prey to scoundrels. In the case of Thomas Perry's poodle picture, it seemed clear, at least to Perry, that whoever listed the wheel on eBay didn't really have it in his possession. So Perry sent eBay's fraud division links to both Web pages, expecting the auction to be halted.

Instead, Perry got back what appeared to be a form e-mail from eBay saying it had failed to detect enough similarities between the two photographs to prove they were the same.

"Not the same?" Perry recalled. "That was my poodle peering out from behind the wheel in both! They obviously didn't look at them."

EBay said it can't talk about specific complaints because of privacy concerns.

Another frustrated bystander is Jana Kraus, a human resources professional in Manhattan who buys and sells first-edition books on eBay in her spare time.

Someone hacked her eBay account last month and, posing as her, sold plasma TV sets for several thousand dollars each. The scam artists relied on her 771 positive feedback points to lure unsuspecting buyers, she said. After the victims failed to get their televisions, a few posted negative feedback for her.

"I can't sell on eBay with feedback saying 'She is a scam artist,' " Kraus said. "I am a very nice person. I send free, very nice postcards of New York with everything I sell."

To add injury to insult, for each of those fraudulent TV "sales," Kraus was charged eBay's listing fee and seller commission. Kraus said she spent more than 10 hours trying to communicate with eBay to get the bogus commissions removed from her credit card. Eventually, eBay returned the money and removed her negative feedback.

New Jersey antiques dealer Michael Lehr took a harder hit. He said he bought a painted Rookwood vase on eBay for $1,125 and wired the money to Indonesia -- and then never heard from the seller. But Lehr figured there was little point to filing a claim or law enforcement report, because he doubted American prosecutors could recover funds from a bank in Indonesia, much less arrest a resident there.

"I took the different approach, of being aggressive," he said. Acting like a digital posse, he searched for other fake auctions on eBay and reported what he found to eBay's fraud division. When eBay didn't yank some of the listings, he occasionally took matters into his own hands, entering phony bids to ward off unsuspecting bidders. He ran into other self-styled auction vigilantes doing the same thing, bidding under names such as "Don't bid dummy."

Successful prosecution of online crimes is tough but on the rise. FTC lawyer Steven Wernikoff led a team that investigated a tangled web of deception in Chicago, which led to legal action being filed against a man and a woman who allegedly fleeced buyers of more than $90,000 on eBay. The woman was accused of stealing people's identities from a hotel where she worked to set up bogus accounts. The man was accused of assuming the identities of people he disliked, including one woman who had kicked him out of her house.

"This case involves an amazing array of accounts and identities being used," Wernikoff said. "Eventually we were able to piece it together. But when sellers use stolen IDs, they are using technology to their advantage, because it is more difficult to find them."

Prosecuting scam artists overseas is tougher, obviously. Consider the bogus escrow service called Premier-Escrow.com, which federal regulators shut down and still have under investigation. The FTC said the Web site posed as an escrow service that promised to hold money for auction winners until they got their goods. But in reality, its operators often posed as buyers and scammed sellers out of expensive computers and other goods, the FTC alleged.

The FTC obtained a restraining order against the elusive site operators but, according to Flynn, hasn't been able to find them. Investigators are probing a connection to Romania and talking to law enforcement authorities there.

The recent FTC crackdown was intended to be the opening shot in an aggressive government war against auction fraud, according to FTC lawyers.

"The truth is I think everybody could do more," Flynn said. "Auction houses could do more, consumers can do more, and we can do more."