Federal Law Enforcement Agencies Bring Few Online Auction Fraud Cases

(February 15, 2000) Representatives of the FTC, Department of Justice, US Postal Service and state Attorneys General discussed efforts to limit Internet auction fraud at an event at the FTC headquarters in Washington DC on Monday February 14.

"Prior to the Internet, auction fraud was simply not a problem," said Chris Painter, Computer Crimes Coordinator in the U.S. Attorneys Office in Los Angeles. "In traditional auctions you could meet the buyer and seller and inspect the merchandise. At the very least you could make sure the merchandise actually existed. In online auctions however, you don't know who the seller is, where he is, or whether the offered items even exist."

Jodie Bernstein, Director of the Bureau of Consumer Protection at the Federal Trade Commission (FTC) spoke and presided at the event. She stated that:

"We want Internet auction users and the online auction industry to know that the e-con artists who capitalize on them are 'going, going, gone'. We don't intend to let a handful of rogues erode consumer confidence in Internet commerce or Internet auctions."

The FTC also released a report, titled "Going, Going, Gone: Law Enforcement Efforts to Combat Internet Auction Fraud," which revealed that the FTC's role to date has been minimal. Moreover, Internet auction fraud prosecutions are rare, and penalties are light. Also, the bulk of the investigation and prosecution to date has been handled by the state and local authorities.

The report summarizes the thirty-five online auction fraud cases to date. Twenty-two were state cases. This includes criminal cases, civil cases, and cases settled before filing. It also includes cases handled by state attorneys general, as well as other state and local government entities.

Many of the cases summarized in the report involved joint efforts by multiple law enforcement agencies -- sometimes both federal and local.

Seven were US Postal Service cases. Most of these were simply obtaining an order from a USPS Judicial Officer to stop delivery of mail, and involved no jail time, fine, or restitution. Five cases were brought by various United States Attorneys.

Only one case has been brought to date by the FTC.

Jodie Bernstein stated that the FTC received 10,700 complaints about online auctions in 1999. The FTC's report on pending and completed cases lists only one case brought by the FTC. That one case, FTC v. Hare, was a civil action brought in March of 1998. It involved a Florida man who was auctioning laptop computers and related equipment which he did not delivery. The FTC obtained an injunction banning Hare from using the Internet to advertise, market, or otherwise offer for sale any goods and services.

The U.S. Attorney for the Southern District of Florida also brought a criminal case against Hare. He plead guilty, and was sentenced to six months of home detention.

Lisa Hone, the FTC staff attorney who wrote the report, told Tech Law Journal that "this law enforcement problem has just emerged." She added that there is "a lot of law enforcement on the beat doing investigations" and there will be more cases in the future.

While the FTC, and Department of Justice have played a minor role in prosecuting auction fraud, the FTC is performing other functions, including referring cases to state Attorneys General, training law enforcement officers, working with auction sites, and educating consumers. Jodie Bernstein stated:

"Based on what we learned from the Hare case, we decided to take a more comprehensive approach to combating Internet auction fraud and have developed a three pronged approach, which involves: (1) training law enforcers all over the country about auction fraud and using our Consumer Sentinel database to identify emerging fraud artists in order to refer cases to other law enforcement agencies; (2) working with the auction sites to encourage them to adopt more consumer protection measures; and (3) educating consumers."

Indeed, much of the event at the FTC was devoted to educating consumers on how not to become victims of online auction fraud.

Bernstein was joined at the event by several others:

• Christopher Painter, Computer Crimes Coordinator in the U.S. Attorneys Office in Los Angeles.
• Joe Curran, Attorney General of Maryland, also representing the National Association of Attorneys General.
• Rob Kuykendall, U. S. Postal Inspection Service.
• Susan Grant, Director of the Internet Fraud Watch at the National Consumers League.
• Lisa Hone, staff attorney, Federal Trade Commission.

Neither Bernstein nor Painter announced the filing of any new cases. They did not announce the launching of any new investigations. Nor did they recommend any new legislation to deal with auction fraud. No representative of any online auction site participated in the event.

However, Joe Curran, the Maryland Attorney General, took a different approach. "Licensing and regulation" of auction sites, said Curran, "that may be the ultimate thing that might have to be done."

Also, during a question and answer session, a writer for Bloomberg asked, "Should companies have any responsibility?" Curran stated that "it seems to me that there ought to be some responsibility there."

Lisa Hone told Tech Law Journal that the FTC has not advocated licensing of auction sites. "We think self-regulation is the way to go."

Chris Painter was also questioned about the status of the government's investigation into last week's distributed denial of service attacks on several popular web sites. He confirmed that his office was involved, but provided no details. "It is a pending investigation. It is not appropriate for us to answer."