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Jewish World Review March 21, 2001 / 26 Adar, 5761

Eric Young

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Consumer Reports

Problems on EBay hit at heart of the site -- Federal prosecutors have gone after three men who allegedly faked bids and put a phony canvas up for auction on eBay. The company says it's policing the site better, but some others say bidders should still be aware of potential trouble.

The bidders who took part in last year's online auction of a painting purported to be the work of the late abstract and figurative painter Richard Diebenkorn had every reason to think it was the genuine article.

The photo that ran on eBay plainly showed the artist's initials in the corner of the canvas. The listing said the work was acquired somewhere near the artist's beloved Berkeley, Calif. And most important, the seller had received a gold-star approval rating under the San Jose, Calif., company's highly touted evaluation system.

Despite a winning bid of $135,805 from Robert Keereweer, a software executive in Amsterdam, the sale was never completed because of suspicions about the auction. Eventually the painting was revealed as a fake, and earlier this month a federal grand jury indicted three men, including the seller, Kenneth Walton, for fraud involving the faux Diebenkorn and dozens of other eBay auctions.

The charges threaten to knock eBay off its tightrope: The online auction house built its empire on the idea that buyers and sellers can trust one another, all the while insisting it should bear no liability for any instances of fraud on the site.

Perhaps no aspect of eBay's balancing act is more tenuous than the rating system it provides to let buyers check a seller's past performance.

As of last week - several days after the indictment came down - the site continued to list glowing evaluations for two of the three men accused of fraud. According to their eBay ratings, both Walton and alleged co-conspirator Kenneth Fetterman had a history of honest dealings among buyers and sellers.

Some of those reviews may be the result of sales that the two men handled on the up-and-up. But those ratings also show how easy it is to manipulate the system. Both men had built sterling reputations, in part, by giving positive feedback to themselves and to each other.

The evaluation issue is a small piece of the legal case against the three men. Much of the attention has zeroed in on their use of dozens of aliases to place shill bids - the illegal practice of bidding on your own auction to drive up the price. The trio is charged with defrauding buyers of a total of $450,000 over two years.

EBay says it has taken steps to correct the problem. In addition to handing over the men's aliases to federal investigators, it has adopted a more stringent policy for posting feedback: Buyers and sellers can now comment on each other only at the conclusion of a sale. Previously, eBay users could post comments at any time. And even though Walton's gold star was still there for all to see last week, eBay executives insist that their system would never allow another auction to take place under the indicted men's names or aliases.

Furthermore, in January - seven months after the fake Diebenkorn was auctioned - eBay began using new software to detect bogus bids. EBay's old software alerted officials to suspicious bids only after an auction had concluded. Spokesman Kevin Pursglove says the upgrade has already paid off and that the company has put a stop to shill bidding on a number of occasions in the past three months, though he declines to say how many.

EBay executives insist that fraud on its site is rare, but that's difficult to judge. The FBI's Internet Fraud Complaint Center logged more than 3,900 complaints of fraud on an array of auction sites during its first six months of operation last year.

Consumer groups have urged eBay and its competitors to do more to protect consumers. "Con artists are smart and have figured this system out," says Holly Anderson, a spokeswoman for the National Consumers League in Washington. The group calls for eBay to offer free escrow service and to increase insurance coverage to protect users - suggestions the company so far has not implemented.

Although eBay claims it is working hard to police fraud, it hasn't added any new restrictions to register with the site and also has declined to play a more active role in authenticating items listed for sale.

Eric Young writes for The Industry Standard. Comment by clicking here.


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