Sep. 23, 2011 at 6:11 AM ET
Craigslist bargain hunters around the country are being thrust into the middle of an elaborate scheme involving some of the Internet's darkest corners: Penny auctions, spam, and affiliate marketing. And many are finding their bank accounts are $89 lighter for their troubles.
Shoppers who respond to “for sale” ads on the site are being sent "Sorry, but..." emails that appear to come from real sellers. They follow a consistent pattern.
"Sorry it took a while to respond, someone already picked it up, but I’ve been telling people where I got it. I just picked up four for under 80$ at THIS SITE and I’ve been re-selling them on Craigslist or eBay for some extra cash," read one email received by msnbc.com after a response to an ad selling an Amazon Kindle. "Since that site is fairly new there’s almost nobody online, nobody is bidding, it's like an early Christmas."
More like an early April Fool's Day.
Such links typically take recipients to relatively new entrant in the troubled world of penny auctions, BouncyBids.com, where visitors are confronted with flashing ads offering iPads for under $10 and $50 gift cards for pennies. After creating a user name and password, users this week were presented an even longer page full of blinking icons and expiring auctions, with the words, "finish registration below." Tucked at the bottom of the page was a form that requested a shipping address for winnings. A message reading "Hurry and receive special offers" appeared, as did countdown clocks running towards 0:00.
Amid the visual noise, users were also asked for a credit card number.
Apparently, many missed the small, light grey print to the left indicating they would be charged $89 immediately for a "bid pack" of 165 bids. A lightly trafficked Facebook page operated by the company was littered with complaints about the charges this week.
"I thought I would check this site out and signed up for the trial, 30 minutes later they took $89 from my bank account and I did not authorize it," wrote one. "I have tried several ways to contact them and (received) no response to resolve this issue."
Said another, more bluntly, "What’s up with the 89 dollar charge. … You guys ripped me off!!"
In penny auctions, users bid the price of items up one penny at a time. Each bid costs money, however, and the sites have been dogged by controversy because their aggressive “Win an iPad for $2.04” ads do not reflect the true costs for bidders, which can far exceed the value of the item. There are perhaps 100 or more penny auction sites, and many have been accused of much worse than a confusing business model. On Thursday, the Federal Trade Commission obtained a court order shutting down online operations run by Canadian Jesse Willms. The agency accuses him of bilking $450 million from U.S. consumers by signing them up for $79 “negative option” services, such as teeth whitener, that were advertised as free. Willms took some of that money running deceptive penny auction sites named SwipeBids.com and SwipeAuctions.com, the agency alleges.
Angry users who visit a site devoted to consumer complaints called HissingKitty.com began logging complaints about BouncyBids.com in June, soon after it appeared.
"They post fake listings on Craigslist. … They get people to email inquiries for that item, then they respond to the emails," wrote one.
Chris Risenhoover, CEO of BouncyBids, acknowledged there have been some complaints about his new site, but blamed the Craigslist spam on a rogue affiliate marketing company, and the unauthorized $89 charges on a design issue with his website. The design of the page was changed within minutes of a reporter's phone call and now includes prominent disclosure of the $89 charge just a few pixels away from the shipping address form.
"If you look at our Facebook page, you'll see there is a balance of people happy using the site, and people confused about it," he said, before the change was made. "We're trying to make it as clear as possible."
Several users who complained on the site's Facebook page indicated they'd been contacted by the firm's customer support team and promised a refund.
But how did they get caught in the first place?
Because a lot of money is at stake. Fake Craigslist posters can earn $44 for each consumer they trick into signing up at BouncyBids. The story of how that money is split among various unseemly characters online offers a rare glimpse into the murky world of affiliate marketing.
It begins with the fake ads, which currently can be found across the country. Ads placed in Seattle offer electronics for sale, posted by a person claiming to be Tom Robinson. A user with that name has posted similar ads for electronics in Milwaukee, Columbia., S.C., and Houston.
Once potential victims respond to the posts, would-be spammers have two valuable things -- live email addresses, and Web users they know are actively shopping for electronics. The spamming comes next.
"(We) have seen variants of this," said Craig Newmark, founder of Craigslist. He said his firm would investigate.
The spam received by Craigslist users appears uniform, and in the messages examined by msnbc.com, the embedded email links were routed through a domain name server called PennyWinz.info. That domain was listed for sale in January on an industry site called PennyAuctionWatch.com. The registration information for the site is anonymized, and there is no contact information on the Web site, preventing contact with its current owner.
But sitting on that server are dozens of links allegedly offering pirated copies of the popular p90X exercise program. The links did not work this week.
Affiliate pay-for-clicks arrangements have been around as long as the Web itself, and they often lead to unsavory tactics. Affiliate networks have been tarnished by links to porn sites, computer hacking, identity theft and plenty of other below-the-belt tactics designed to split $5 or $10 commissions. A $44-bounty per lead -- half the cost for consumers who sign up with BouncyBid -- is bound to bring out the worst in affiliate tactics.
“Advertisers often look the other way because they want the traffic," said E.J. Hilbert, a former FBI cybercrime investigator who now runs Online Intelligence, an Internet advertising consulting business. "And you have networks that are going to push the envelope on everything they do."
'Huge amount of fraud'
Pace Lattin, executive director of the Executive Council of Performance Marketing LLC, said he knows of affiliate companies that hire small armies of programmers in China and Thailand to post fake ads on Craigslist, then spam users who respond.
"Some of them are paid $2 a day to sit in Internet cafes all day and do this," he said. "There is a huge amount of fraud."
It's unclear what affiliate network is behind the Craigslist spam that's tied to BouncyBids, but a firm named YeahCPA has placed an advertisement on Offervault.com promising $44 commissions to members who get new signups to BouncyBids.
Peter Zou, who is listed as a contact for YeahCPA, did not respond to emailed questions. It's common for websites to work with multiple affiliate partners, so the advertisement doesn't indicate YeahCPA is behind the fake Craigslist ads.
Risenhoover said his firm has no direct relationship with YeahCPA, and suggested that firm purchased the chance to acquire BouncyBids bounties from another network.
Amanda Lee, who runs PennyAuctionWatch.com, said she was not surprised to hear about the Craigslist spam and penny auction site affiliate commissions.
"I've seen at least three other sites involved in that," she said. She blamed the affiliates, not the auction firms. "They're just trying to make their commissions. It frustrates me, though, because in some cases (penny auction sites) are giving affiliates control over the (design of the landing page), and they have users put in their credit card number where you enter your address to ship your winnings. They are designed to confuse people."
Risenhoover said affiliates who use the Craigslist spam tactics are violating their agreement with his firm, and maintained that his new website is sifting out less desirable affiliates. Hilbert, however, said firms that hire affiliates could do more to screen out bad ones.
"My opinion (is) bad product affiliate marketers will push the envelope, but advertisers have a way to check quality," he said.
BouncyBids also has the ability to control what happens to consumers who are delivered to its website by affiliate marketers. This week, those consumers were treated very differently than users who arrived via the site's front door.
Direct visits to BouncyBids.com generate a sign up form that promises "free" membership. Once the forms are filled out, users are presented with the chance to spend under $10 to start making bids on the site.
But users who find their way to BouncyBids via Craigslist spam are presented an entirely different, two-step registration process that includes only one option: the $89 "premium account," which gets members a "bid pack" of 165 bids to start using the site.
Penny auctions have exploded in popularity during the past 12 months, in part because of massive Internet marketing campaigns and even major airtime purchases at networks like ESPN. They have been shrouded in controversy the entire time. Dozens of sites have appeared and quickly disappeared with users' money, having never delivered products to winning bidders. Because the firms make more money with every bid, there are rampant accusations of shill bidding by companies to drive up the prices.
But even without accusations of fraud, many observers say the sites involve illegal gambling -- users pay for a chance to win a near-free product, not unlike a raffle. (Red Tape Chronicles explored this issue in depth earlier this year.)
Penny auction firms prefer the term "entertainment shopping," and say the concept sites are legitimate, and fun to use. Risenhooven acknowledges his industry has seen its share of scams, but said it's easy to distinguish between bad actors and legitimate ones.
"The biggest way you can tell a scam is if products are getting shipped," he said. "It's important to me that (scam sites) get called out. They don't do anything for our industry.”
Indeed, BouncyBids' Facebook page is crowded with winners who post pictures of themselves along with the product they've received as winning bidder. Many are quick to defend the site against its critics.
One frequent winner claimed in a side conversation she'd been paid $100 by the company to post such pictures.
"Everyone else has the same opportunity," she wrote. She did not respond to an emailed request for confirmation.