Should Congress Shut Down eBay?

Is this auction site the world’s biggest criminal conspiracy?

February 2008 By Denny Hatch

multipage

—Jonathan Brown, Independent.UK, May 21, 2007

The shoplifters discovered some stores would allow them to return the goods without receipts for store credit or gift cards. They then sold those vouchers on the giant online marketplace. It was easy, instant and anonymous. The money flowed in—they got 76 cents per dollar of stolen merchandise, a huge takeaway considering that shoplifters traditionally net 10 percent or less of the retail value of the items. The group made more than $200,000 in 10 months.
—Ariana Eunjung Cha, The Washington Post, January 6, 2005

Bruce and Laura Wasz, a mother-and-son team, ran an 11-person theft ring in Illinois. They paid people to hit home-improvement chains such as Home Depot Inc. and Sears Holdings Corporation’s the Great Indoors. The thieves stole the old-fashioned way, simply sneaking things out the doors. Accomplices ripped off entire truckloads of products such as chain saws. They stored the stuff in three shuttered pawn shops and unloaded it on eBay, using numerous different account names, according to Brian Hayes, an assistant U.S. attorney for the Northern District of Illinois. “They held themselves out as honest dealers,” says Mr. Hayes. Investigators later determined that in 2003 they sold more than $2 million of sump pumps, Koehler faucets, mosquito exterminators, snow blowers and other merchandise.
—Ann Zimmerman, The Wall Street Journal, October 25, 2006

In Rochester, New York, two brothers were last year sentenced to 12 and five months in prison respectively and ordered to pay nearly $100,000 each for selling the proceeds of local house burglaries on the Internet auction site.
In San Diego, a former police officer was sentenced to 21 months’ home confinement for not paying taxes on $63,000 he received from selling stolen goods on eBay. He had already served a year in prison for selling the goods.
In the UK, a man from Kenilworth, Warwickshire, who sold £121,000 worth of stolen BMW parts on eBay, was sentenced to three years.
—Michael Skapinker, FT.com, January 14, 2008

A couple in Chicago sold about $3 million worth of allegedly stolen merchandise on eBay before an investigation by the Federal Bureau of Investigation and the local police led to charges last year. An airport theft ring in Toronto fenced merchandise worth at least 550,000 Canadian dollars, or $446,000, on eBay before being shut down in February.
—Daniel Altman, International Herald Tribune, October 26, 2004

Much of the criminal activity that used to take place at flea markets has simply moved online. The difference is that flea markets and another typical fencing operation—pawn shops—are regulated by a patchwork of state laws. In those venues, sellers might be required to show receipts for merchandise, or to register and fill out paperwork before selling certain goods. Online, the same rules don’t apply. “The auction sites, in my opinion, are a marketing ploy for the organized retail crime organizations, just like the flea market booths were before the Internet took over,” [King] Rogers [former VP of Target] says. “It’s simply a situation of criminal displacement.”
—Sarah D. Scalet, CSO, August 2005

The Tiffany Brouhaha
“EBay has had to be dragged kicking and screaming to do even minimal levels of policing of what is taking place on its site,” a reader of this e-zine wrote me. “It’s a lot of effort to try to keep things fair and legal, and they never wanted the work and expense. They got into a big pissing match with Tiffany a year or two ago about counterfeit Tiffany goods, and I think it’s just gone to trial. It’s a big one and everyone is watching it.”

The lawsuit was precipitated when, in 2004, Tiffany bought 186 of its own items from sellers on eBay and found that 175 of them were counterfeit. The trial ended in mid-November of 2007. It is generally believed that if Tiffany wins, eBay will be forced to dramatically alter its business model.

How Much Criminal Activity Is on eBay?
Hani Durzy, eBay’s PR spokesman, told Knight Ridder’s Dean Takahashi that he estimated “one one-hundredth of 1 percent of goods sold on eBay involve some kind of fraud, whether it’s counterfeiting, or trademark violations, or something else illegal.”

That’s one in every 10,000 sales.

I respectfully disagree.

Back in 1977, my wife, Peggy, and I bought via mail order from Chicago art dealer Jean-Paul Loup a Salvador Dali lithograph of “Venice” for $375. The Certificate of Authenticity states “this limited edition consists of 395 signed and numbered lithographs of Rives Paper and 55 signed artist’s proofs of Rives paper.” It goes on:

THESE LITHOGRAPHS WERE PULLED BY THE OFFSET PROCESS IN 1975 BY ARTS-LITHO, MASTER PRINTERS IN PARIS, FRANCE. A TOTAL OF SIXTEEN COLORS WERE REQUIRED FOR EACH LITHOGRAPH. THE SIXTEEN LITHOGRAPH PLATES WERE DESTROYED UPON COMPLETION. THEREFORE, NO FURTHER EDITION WILL EVER BE PULLED. EVERY SINGLE LITHOGRAPH HAS BEEN APPROVED AND HAND-SIGNED BY SALVADOR DALI.

Because it was so cheap, we assumed the piece was tainted. For example, Dali is reported to have signed 350,000 sheets of high-quality blank paper over the course of his lifetime (for which he was paid $40 per squiggle) that promoters could buy, print Dali lithographs on and call them signed limited editions. This is flat-out fraud.

When “Venice” arrived, the edition number in the lower left was 109/195. Nowhere in Loup’s correspondence or certificate was an edition number of 195 mentioned, so the thing has dubious provenance at best.

But we love the image and have since spent twice the original cost on a frame job. It looks spectacular.

The only time I go on eBay is when siezed by morbid curiosity to see how many of this Dali work—of which the plates were supposedly destroyed back in 1975—are currently being offered as the real thing. I always find a slew of them. Although some are prints and posters for $20 to $100 and make no pretense of originality, they are in violation of copyright. In addition, I have found several “signed” versions with guarantees of authenticity. Most recently I have seen these at $799, $1,500 and $2,000, and have PDFs of the eBay pages in my archive.

All are bogus.

If I go on eBay looking for one item and find it and it is a fraud, only to have an eBay representative claim that the odds against it being a fraud are 10,000-to-one, I am skeptical.

Further, eBay would claim that the chances of me finding three counterfeits of a counterfeit I own on their Web site are three in 30,000.

Yeah. Sure.

The Real eBay Numbers
Let us say that just 1 percent of all transactions on eBay are dishonest in some form or other—items that are stolen, pirated, counterfeited or non-existent.

In the November 14, 2005, issue of InformationWeek.com, Thomas Claburn reported, “Globally, in the fourth quarter of 2004, eBay says it processed on average 4.4 million transactions per day.”

One percent of those transactions would mean that 44,000 sales per day are scams.

That’s a total of 16 million fraudulent transactions—crimes—a year.

In addition, the actual theft, copyright infringement, piracy and fraud that got the items into the hands of the unscrupulous eBay sellers make up an additional 16 million crimes.

So the grand total may be somewhere around 32 million crimes per annum committed under the auspices of eBay.

For example, when 33,000 pairs of fake Oakley sunglasses were found stored in that Oregon man’s house, they represented 33,000 instances of fraud. The sale of them on eBay would be an additional 33,000 crimes.

If my numbers are remotely correct, it means that eBay is the supreme enabler of counterfeiters, forgers, hooligans, miscreants, petty crooks, pirates, rapscallions, reprobates, rogues, scallywags, scamps, scoundrels, swindlers, thieves, thugs and villains on a scale heretofore unimagined in human history.

If my numbers are correct, eBay is perpetrating the largest, most pernicious worldwide criminal conspiracy and fencing operation the world has ever seen.

If my numbers are correct, eBay is costing consumers whose homes have been burglarized—and businesses and copyright holders of all sizes whose merchandise has been plundered and who have lost legitimate sales—billions upon billions of dollars, not to mention the insurance companies that have paid for the losses.

The eBay Alibi
“EBay and others contend that they merely provide a trading platform for buyers and sellers, and are not responsible for any illegal transactions that may occur,” wrote Sarah D. Scalet in the August 2005 issue of CSO.

“We never take possession of goods,” eBay’s Hani Durzy told Scalet. “We never touch them; we never see them. Therefore, of the 50 million listings on eBay [on an average day], we cannot confirm the origin of anything.”

The Solutions
Pennsylvania State Representative Michael Sturla (D-Lancaster) has a bill in the works requiring every Internet seller to have an auctioneer’s license. Section 3(c) of this proposed law states:

Licenses shall be granted only to persons who have a good reputation for honesty, truthfulness, integrity and competence to transact the business of auctioneer [or], apprentice auctioneer or electronic auction broker in a manner as to safeguard the interest of the public and only after satisfactory proof of these qualifications has been presented to the board as required by regulation.

One idea under consideration is to make auctioneers/sellers spend $40 a year for a $5,000 bond. Under this system, sellers could be traced, and if a buyer has been scammed, the seller is out $5,000 and could further be prosecuted to the full extent of the law.

That could mean additional fines and, very likely, jail time.

I would add that eBay should require that every listing include a Certificate of Authenticity, which identifies the actual name and address of the seller, the provenance of the item being offered and attests in writing to its legitimacy. The seller’s signature and printed name and address—plus the registration number of the $5,000 bond and the name of the bondholder—should be sufficient without the hassle of formal notarization.

However, should an on-again-off-again patchwork of state regulations be the answer to dealing with the probable 32 million crimes being committed nationally and around the world under the aegis of eBay?

If Congress can effectively ban Internet gambling—which does far less harm to society than eBay—shouldn’t it look into shutting down eBay too?

What do you think?

Breaking News
EBay seller free and clear
Mary Jo Pletz, a former stay-at-home mom, won’t be prosecuted for selling thousands of items on the Internet without an auctioneer’s license. But Pennsylvania is not backing off its licensing crackdown. Story, C1.
—The Philadelphia Inquirer, front page blurb, February 7, 2008