Friday, September 29, 2006

Civil Actions are unlikely to stop fraudulent activity on eBay

I've written a thing, or two about fraud on eBay and auction sites in general.

Now we are seeing the retail industry go on the offensive for the large quantities of "knock-off" (counterfeit) goods available on the site. Tiffany's, Louis Vuitton and Dior Coutre have all filed lawsuits.

Microsoft took a different approach and is going directly after the sellers.

And counterfeit goods aren't the only fraud category on auction sites.

eBay has the distinction of being one of the most "phished" brands. And besides counterfeit goods, fencing operations are common on eBay. In fact, I was recently told that Target dedicated a full-time investigator to watch for their stolen goods on eBay.

Will this lead to additional civil actions?

Brian White (Blogging Stocks) hits the problem right on the head in a recent article:

Although eBay likes to let its buyers and sellers meddle with each other without oversight, this stance alone, combined with the unusually high numbers of Internet visitors eBay sites get, has made it a huge hotbed of forgery, fakes and fraud in every imaginable category. This should have been widely expected -- the formula for fraud contains a few things that the Internet promulgates -- larger visitorship, buyers ready with "cash" in hand and a low level of policing by the administration. Hmm, 2+2 definitely equals 4 here, yes?

Link, here.

From the criminal point of view, eBay has a business model that makes it easy to commit fraud. The Internet has made it much easier to commit crime and disappear in an "electronic mist." Coupled with a ever-growing identity theft crisis - it's very easy for the criminal element to use a legitimate person's identity and once it's compromised move on to another persons.

Another thing to consider is eBay - although considered the guru of the industry - isn't the only player in it. You can find "fraud, phishing and financial misdeeds" on any of the auction sites out there.

In the end -- although action is being taken -- it's unlikely that any of these lawsuits are going to do much good for the consumer, or hurt the criminal element operating on auction sites.

The sad truth is litigation costs a lot of money and expenses (including fraud) normally end up getting passed on to the consumer.

Perhaps the money being spent on litigation would be better spent on going after the people causing the problem?

Of course -- in order to do this -- all the corporate giants involved would have to work together and go after the core problem instead of attacking each other.

And there is a financial incentive for them to do so - consumer confidence is a key economic factor. If the rapid increase in fraud (driven by technology) continues, they are likely to lose the reason for their lucrative margins, or to put it (quite simply), their customers.


Anonymous said...

Very interesting post with terrific insights Ed. Here are two additional blog posts that touch on this same subject, but from a slightly different perspective.

"What's Wrong With eBay? It's Simple Economics" at

What is a "Market for Lemons"? at

Anonymous said...

Very informative article on eBay and cyber crime.

Found you on google, along with:

ebay's the next Enron.