Ebay illustration
By Mike Brunker Projects editor
MSNBC

EBay officials say they are aggressively fighting fraud in the massive online marketplace, but an investigation by MSNBC.com shows that the company doesn’t routinely inform customers when they have been ripped off or regularly notify law enforcement about apparently illegal activity on its site — even when presented with solid evidence of wrongdoing. The review of two-dozen cases also raises questions about how eBay measures fraud and lends credence to accusations that the company has adopted an especially laissez-faire attitude toward sins by profit-driving “power sellers,” whose fees are crucial to its bottom line.

The investigation grew out of a series of complaints from disgruntled eBay users who wrote to MSNBC.com in response to previous articles on fraud on the No. 1 online auction site. The specifics varied widely, but the underlying charge was remarkably constistent: Fraud complaints filed with eBay rarely trigger any disciplinary action against sellers, even when accompanied by extensive documentation of wrongdoing.

Many of the complaints were directed at “power sellers” - vendors who do at least $2,000 of business on eBay each month - and suggested that the company was looking the other way while the big fish violated its rules and the law.

Rosalinda Baldwin, editor of TAG Notes, an online newsletter published by the watchdog group The Auction Guild, said she regularly hears the same refrain from her readers.

‘Ebay doesn't care'
“The only ones getting hurt are the buyers, and eBay doesn’t care,” she said.

EBay acknowledges that it doesn’t automatically suspend the cheating sellers it catches, saying the punishment depends on its assessment of whether there is a pattern of misconduct as well as other factors. But at the same time, senior company officials insist that it is taking a more aggressive stance in combating fraud.

“We are more actively involved in preventing fraud on the eBay site and cancel a number of auctions proactively, and even contact bidders after an auction to warn them if we suspect a problem,” Rob Chestnut, a former federal prosecutor who is now the company’s point man on fraud, assured customers in a recent email chat.

With eBay declining to make public whatever evidence that might prove or disprove the charges, citing privacy concerns, MSNBC.com turned to eBay’s critics and asked them to provide a substantial sampling of alleged fraud cases for independent review.

To test the perception that the company is more likely to ignore complaints directed at power sellers, the review focused on fraud claims leveled against peddlers who either are members of the rewards program or sellers who meet the sales requirement and could join if they wanted.

Many complaints merely suspicious
Most of the complaints alleging shill or phantom bidding, misrepresentation of items, non-delivery of purchases and “feedback building” - manipulation of eBay’s unique system for measuring reputation - detailed suspicious behavior but lacked the hard evidence necessary to conclude that eBay was ignoring misconduct.

But in four of the cases that were submitted, the evidence that illicit or criminal activity had occurred appeared particularly strong.

Three of the cases alleged phantom bidding - identical to shill bidding, but perpetrated by an individual rather than co-conspirators. The fourth was more elaborate: an alleged philatelic fraud ring in which collectible postage stamps were being altered and resold at a substantial profit.

EBay’s response in each instance was apparently inconsistent with its repeated statements that fraud will not be tolerated in the “safe and happy trading place”:

In the case of a Florida power seller who used identical contact information on both the eBay user ID he was using to peddle sports memorabilia and the ID he was using for phantom bidding, a member of eBay’s “Safe Harbor” fraud-fighting team found there was “insufficient evidence” to take action. After a second complaint was filed, a representative of eBay’s power seller program phoned the seller and warned him not to do it again, but did not suspend his account or notify a buyer who paid at least $200 more for an item than he would have if the phantom bidding hadn’t occurred.

In the other two phantom bidding cases, eBay suspended the sellers, but only for 24 hours and 48 hours, respectively, according to the complainants. One of those who was suspended, a high-volume ticket broker who wasn’t a power seller at the time, joined the program shortly after the suspension ended, one of the complainants charged.

In a case in which postage stamps were allegedly being altered to increase their value and then resold “as is,” eBay took no action to halt the auctions despite receiving a litany of complaints from a group of stamp experts who assembled detailed evidence on the purported scam.

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.”

© 2013 MSNBC Interactive. Reprints.

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