Evidence undercuts eBay’s tough talk on fraud

No hint law enforcement notified
There was nothing to indicate that law enforcement was notified in any of the cases, although phantom bidding and the sale of altered stamps would violate state and federal criminal fraud statutes and constitute fraud under civil law, in the opinion of Steve Proffitt, a Virginia attorney who specializes in auction law.

MSNBC.com’s review also calls into question the validity of eBay’s oft-reported fraud rate of 0.01 of all transactions, an internal measurement based on insurance claims filed with the company. None of the four cases in question would be included in that figure because no claims were filed.

Company officials said Chestnut, the head of eBay’s anti-fraud team, was too busy for an interview to discuss the cases.

But eBay spokesman Kevin Pursglove said that company investigators had reviewed the complaints and “are comfortable that they were handled correctly.” He did not dispute the facts of the cases as presented by the complainants.

While declining to comment on the specifics of the cases because of privacy concerns, Pursglove said that fraud complaints are considered on a “case-by-case basis” and do not always result in punishment, depending on whether investigators find a pattern of misconduct.

He also said that decisions on whether to notify buyers who purchased items in fraud-tainted auctions or to alert law enforcement to potentially criminal misconduct are made only after studying the circumstances. Among the factors that are weighed, he said, are whether the bidder demonstrated that he or she “valued that item at a particular price” by continuing to bid in the face of phony counterbids and whether law enforcement would be likely to pursue the case.

Authorities would be ‘annoyed’
“We’ve been doing this for a long time and have developed a lot of relationships with both state and federal law enforcement agencies, and I think we’ve got a pretty good idea what cases are going to be prosecuted,” Pursglove said. “I think some law enforcement officials would be annoyed with eBay if we passed on every shill that we came across.”

That contention was supported by a Justice Department official who has been involved in numerous investigations of online auction fraud. The official, who spoke with MSNBC.com on condition of anonymity, indicated that eBay has been “very responsive” in cooperating with federal authorities and has approached law enforcement agencies to request that criminal investigations be initiated.

“EBay would be happy if every instance where they thought fraud was involved would be picked up by law enforcement,” the official said.

That view draws a derisive laugh from “Ron,” a former eBay Safe Harbor employee, who said that the fraud reports often are subjected to only a cursory check. He said the odds that a report will be ignored are especially high if the culprits are power sellers, who in recent years have assumed an increasingly important role in fueling eBay’s amazing financial growth.

“Power sellers get their hands slapped, other users get suspended,” said Ron, who spoke with MSNBC.com on condition he not be identified by his real name.

Part of the problem is that members of the Safe Harbor team are overwhelmed by the volume of complaints, he said.

‘I wasn't allowed to do that'
But he also said that the company makes it clear that power sellers are not to be trifled with.

“I suspended (a power seller) who had over 1,200 auctions going on … after I found over 47 emails the guy was using to shill his auctions,” he said. “To put it bluntly, the s—- hit the fan. I got a call … saying I wasn’t allowed to do that anymore.”

Pursglove said he could not comment on the allegation without knowing the details of the incident — which could not be provided without identifying the former employee — but he vigorously denied that power sellers receive preferential treatment.

“The process we use (in investigating fraud complaints) is exactly the same,” he said. “If the fraud complaint is confirmed, we will kick them out of the power seller program immediately as well as suspend their account. … And if the act was intentional, that suspension will be permanent.”

But eBay’s critics say that the exceptions to that policy are too numerous to count.

“One would think that most companies would favor their best customers — that’s a normal thing to do,” said Baldwin, the editor of the The Auction Guild newsletter. “But they shouldn’t be allowing them to get away with things that others can’t.”

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