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Internet Auction Fraud Targeted by Law Enforcers [04/30/2003]

April 30, 2003

The Federal Trade Commission and 29 state Attorneys General have launched a law enforcement crackdown targeting Internet auction scams that bilked thousands of consumers out of their money and merchandise. The crackdown, "Operation Bidder Beware," coordinated by the FTC in conjunction with the National Association of Attorneys General, resulted in 57 criminal and civil law enforcement actions and a related consumer education campaign. Auction fraud is the single largest category of Internet related complaints in the FTC's Consumer Sentinel database, which logged more than 51,000 auction complaints in 2002.

"The most effective way to fight Internet auction fraud involves a team approach among law enforcers," said Howard Beales, Director of the FTC's Bureau of Consumer Protection. "We're working with partners virtually coast to coast to stop scammers in the virtual world.

These kinds of cooperative law enforcement actions will help ensure that online auction fraud is going, going, gone from the scene."

"Law enforcement will do what it can, and responsible auction sites are trying to police their own market," said Washington State Attorney General Christine Gregoire. "But the single most powerful tool to protect consumers is education."

Many of the cases involve straightforward scams where consumers allegedly "won" the bid for merchandise through an Internet auction Web site, sent in their money, but never received the merchandise. The FTC alleges that in one case, the defendants combined auction fraud with serial identity theft to conceal their identities and divert the blame to the identity theft victim. In that case, the FTC charges that, since early 1999, one operator constantly changed his Internet auction account name to conceal the fact that although he accepted payment, he did not deliver the promised merchandise. According to the FTC, in 2001, he added a new wrinkle. While he allegedly continued to advertise and accept payment for merchandise he never delivered, he embarked on serial identity theft. The FTC alleges that he set up bank accounts and post office boxes in other people's names, and directed that payment be sent to them. Consumers and law enforcers believed the identity theft victims were the ones who had bilked the consumers out of their money. According to the FTC, his identity theft victims were people with whom he had feuded, people whose identity information he and an accomplice had taken from the records of a suburban Chicago hotel, and even a dead man. A U.S. district court in Chicago has ordered a halt to the scam and frozen the defendant's assets to preserve them for consumer redress.

In a separate FTC case, the defendants set up a fraudulent online escrow service. Escrow services are used in Internet auction transactions to prevent fraud by acting as independent third party after a transaction has taken place, receiving buyers' money, assuring sellers that they can safely ship the goods, and holding the payment until the consumers have had the opportunity to receive and inspect the merchandise. Once the consumers are satisfied with their purchases, the escrow service funds are then turned over to the seller. In this FTC case, the scammers allegedly acted as both buyers and sellers of merchandise. Whether they "bought" or "sold," they allegedly insisted the transaction be processed by their own bogus firm, premier-escrow.com. Consumers who were scammed had no reason to suspect that premier-escrow.com was just a shell. According to the FTC, when consumers sold merchandise - such as computers or cameras - premier-escrow.com assured the sellers that the money was in hand and the sellers should ship the merchandise. These sellers allegedly shipped their merchandise to the scammers and never heard from them or premier-escrow.com again. The FTC alleges that when consumers bought merchandise - in one instance an automobile - premier-escrow.com collected the funds from the purchasers but those purchasers never received their merchandise. A U.S. district Court in Virginia has ordered a halt to the scam, dismantled the scammers' Web site, and frozen the defendants' assets, pending trial.

The FTC shut down the operations and obtained asset freezes against two other Internet auction fraud scammers, pending trial. In addition, 33 state and local law enforcers have announced 53 law enforcement actions including lawsuits, cease and desist orders, consent agreements, assurances of voluntary compliance, warning letters, and criminal prosecutions.

In addition to the law enforcement, the FTC, 29 Attorneys General and four local law enforcers are launching a consumer education campaign to alert consumers about Internet auction fraud, and provide tips on how to avoid falling prey to it. Consumer tips include:

bulletBecome familiar with the auction site. Find out what protections the auction site offers buyers. Don't assume one site's rules are the same as another's.
bulletBefore bidding, find out all you can about the seller. Avoid doing business with sellers you can't identify, especially those who try to lure you off the auction site with promises of a better deal.
 
bulletIf the seller insists on using a particular escrow or online payment service you've never heard of, check it out. Visit its Web site and call its customer service line. If there isn't one, or you call and can't reach someone, don's use that service.
 
bulletProtect your privacy. Never provide your Social Security number, driver's license number, credit card number, or bank account information until you have checked out the seller and the online payment or escrow service, if you're using one, to ensure legitimacy.
 
bulletSave all transaction information.
 
bulletIf you have problems during a transaction, try to work them out with the seller, buyer or site operator. If that doesn't work, file a complaint with your state attorney general's office and the FTC at www.ftc.gov or call toll-free 1-877-FTC-HELP (1-877-382-4357).
 
bulletCheck out the FTC's Internet Auctions: A Guide for Buyers and Sellers, available at the FTC's Online Shopping Web site at www.ftc.gov/onlineshopping for other tips on how to avoid Internet auction fraud.

Participants in Operation Bidder Beware include the attorneys general of Alaska, Arizona, Arkansas, California, Connecticut, Delaware, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Rhode Island, South Dakota, Tennessee, Washington, West Virginia and Wisconsin and members of California's Computer and Technology Crime High Tech Response team, including the San Diego District Attorney, San Diego City Attorney, Orange County District Attorney and Orange Police Department.

Related Documents:

Federal Trade Commission v. James D. Thompson and Susan B. Germek (Northern District of Illinois, Eastern Division), Case No. 0C3 2541

Complaint for Injunctive and Other Equitable Relief [PDF 292K]

Memorandum Supporting Plaintiff's Ex Parte Motion for Temporary Restraining Order, Other Equitable Relief, and Order to Show Cause Why A Preliminary Injunction Should Not Issue [PDF 635K]

Temporary Restraining Order With Asset Freeze, Other Equitable Relief and Order Setting Preliminary Injunction Hearing [PDF 422K]

Federal Trade Commission v. Morgan Engle (Northern District of Georgia, Atlanta Division), Case No. 1:03-CV-1072

Complaint for Injunctive and Other Equitable Relief [PDF 420K]

Temporary Restraining Order and Order to Show Cause Why a Preliminary Injunction Should Not Issue [PDF 674K]

Federal Trade Commission v. Eric Stetzel (District of Nevada), Case No. CV-S-03-0396-KJD-LRL

Complaint for Permanent Injunction and Other Equitable Relief [PDF 421K]

Temporary Restraining Order With Asset Freeze and Other Equitable Relief and Order to Show Cause Why a Preliminary Injunction Should Not Issue [PDF 741K]

Federal Trade Commission v. One or More Unknown Parties Deceiving Consumers While Doing Business as or Using Premier-escrow.com (Eastern District of Virginia, Alexandria Division), Case No. 03-488-A

Complaint for Injunctive and Other Equitable Relief [PDF 454K]

Temporary Restraining Order and Order to Show Cause Why a Preliminary Injunction Should Not Issue [PDF 903K]

Operation Bidder Beware: Case Chart [PDF 62KB]

Online Shopping Web Site

Internet Auctions: A Guide for Buyers and Sellers

Consumer Feature: Going, Going, Gone... When Online Auction Users Lose Out to Phony Payment and Escrow Services

Consumer Alert: Online Auctions: Bidders Be Wary

The above article was reprinted from an announcement on the Federal Trade Commission web site dated April 30, 2003.  Check the FTC web site for any changes to the article


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