Auction Scammers Settle FTC Charges

Internet auctioneers who promised laptop computers to the highest bidders, took consumers’ money, but didn’t deliver the products will pay $35,000 to settle Federal Trade Commission charges that their scheme violated federal laws. During litigation, the FTC facilitated full refunds for most of the defendants’ customers, totaling approximately $400,000. Under the terms of the settlement, the remaining purchasers who did not receive a laptop or refund also will receive a full refund. The order also permanently bars the defendants from committing auction fraud in the future.

In its complaint, the FTC charged that Brian Silverman and John Engholm (a/k/a John Patterson), doing business as Electro Depot, BES Systems, Dallas Tech Surplus, and New York Tech Surplus, placed ads on several Internet auction house sites, including eBay, posing as laptop computer sellers. The defendants conducted the auctions with consumers, accepting only advance payment by check or money order to complete the sale. In many cases, according to the FTC, the defendants failed to ship computers to the highest bidders as promised. Further, when consumers complained about not receiving their computers, the defendants failed to give them refunds.

The FTC’s complaint alleged that the defendants violated the FTC Act by misrepresenting that they had laptop computers in stock that would be sent to consumers within a reasonable time period after receiving the agreed-upon payment, and claiming they would provide a refund to any consumer who requested one. The defendants also were charged with violating the Commission’s Mail or Telephone Order Merchandise Rule (Mail Order Rule) by soliciting orders for laptop computers without expecting they would be able to ship them within 30 days of receiving payment, failing to provide delay or cancellation notices to consumers, and failing to issue refunds.

The stipulated order permanently bars the defendants from falsely representing that: 1) consumers who offer the highest bids and send defendants the agreed-upon payment will receive the promised goods; 2) the defendants have, in their possession or control, goods available to be purchased; 3) the defendants will ship the goods within a reasonable time period, upon receipt of payment for those goods; and 4) the defendants will provide any customer a refund. The order further prohibits the defendants from failing to provide delay or cancellation notices, which would give consumers the option to cancel their order and receive a refund. The defendants are required to pay $35,000, which will be used for consumer redress. Finally, the order contains standard recordkeeping and reporting provisions to assist the FTC in monitoring the defendants’ compliance.

The case against Electro Depot was announced in November 2002 as part of the “Northeast NetForce” sweep, a federal, state, and local initiative to fight Internet scams.

An FTC consumer guide, “Internet Auctions: A Guide for Buyers and Sellers,” offers fraud-fighting tips to consumers who want to buy or sell products on Internet auction sites. The guide is available at http://www.ftc.gov/bcp/edu/pubs/consumer/tech/tec07.shtm.

The Commission vote to authorize staff to file the stipulated final order was 5-0. The stipulated final order for permanent injunction was filed in the U.S. District Court for the Southern District of New York on August 30, 2004, and was signed by the judge on August 31, 2004.

NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Copies of the Commission’s complaint and the stipulated final order are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC Matter No X030004)
(Civil Action No. 02-8920 (GEL))