E-Commerce News: News: Startup Internet Auctioneer Asks Giants for Regulation

Internet auctions have been in the forefront in recent weeks, with FBI studies reporting widespread fraud and a federal criminal indictment handed down against three men charged with artificially pumping online auction prices.

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One week after the U.S. Federal Bureau of Investigation (FBI) named auction fraud as the most common Internet scam, Web auctioneer Liquidprice.com proposed Tuesday that the industry move quickly to regulate itself.

Calling some kind of industry regulation "inevitable," Piyush Gupta, the chief executive officer of the Santa Clara, California-based business-to-consumer auction firm, said he sent a proposal for self-regulation to nearly 400 auction sites, including eBay, Yahoo! and Amazon.com.

"Regulation is needed and is inevitable to separate the good from the bad," Gupta said during a panel discussion on Web fraud, according to Reuters. "I am proposing nothing that is not merely good business."

Insurance Suggested

Gupta's proposal includes six major points, including offering insurance plans that would protect both buyers and sellers from fraudulent auction practices.

The insurance premium costs would be spread among buyers, sellers and the auction host and protect all three in the event an auction results in a complaint.

Gupta also recommended a code of conduct that would help Internet auction users know what pitfalls the auction process holds. Another proposal is that auction sites designate a point person or ombudsman who has the authority to investigate and resolve customer complaints.

Mum's the Word

No formal responses from his fellow Net auctioneers have come back, but Gupta is hoping that recent bad news about common fraud complaints within the auction business will prod the industry into action.

"If I were eBay, I'd jump at this," he said.

Liquidprice.com, which launched at the end of 1999, is facing market dominance in the Internet auction space, where eBay holds the lion's share.

Topping the List

A week ago, the FBI called auction fraud the No. 1 online scam, accounting for 64 percent of the complaints recorded by the Internet Fraud Complaint Center between May and November of 2000.

With more than 5,000 complaints referred to law enforcement officials, auction fraud dwarfed both undelivered or incorrect merchandise complaints, which made up 22 percent of all calls, and credit card data theft or misuse, which accounted for about 5 percent of calls to the center.

Longtime Trend

The FBI's report echoed an earlier report from the U.S. Federal Trade Commission, which also cited auction fraud as the top reason for consumer complaints, and a report from eMarketer, which tagged auctions with 87 percent of all complaints about online scams.

In related news, last Friday, three men were indicted by federal authorities in a scheme involving self-bidding in art auctions in order to pump up prices. The documents filed in the case refer to sham bids made by the seller on the Internet auction sale of an allegedly fake painting that drew a bid of US$135,000.