Off topic -- (amazing) WSJ article on big fraud by eBay seller.
An eBay Merchant Disappears, Failing to Deliver the Goods
By NICK WINGFIELD
Staff Reporter of THE WALL STREET JOURNAL
WHITE LAKE, Mich. -- Stewart Richardson seemed to be the model of
a successful eBay entrepreneur, and January promised to be one of his
best months yet. For five years he had built up a business on eBay as an
online dealer in collectible figurines. In some cases, he was able to
auction off whimsical ceramic creatures from the Wee Forest Folk line
for hundreds of dollars apiece.
On the feedback bulletin board on eBay Inc.'s auction Web site,
customers posted rave reviews of their experiences with Mr. Richardson
and his business. A few days into the new year, he completed his
biggest series of online auctions ever, collecting hundreds of thousands
of dollars within a matter of weeks.
Then, on Jan. 17, Mr. Richardson told the handful of employees at his
figurine shop here in this blue-collar Detroit suburb that he was going
out to lunch.
He hasn't been heard from since.
Thursday, Mr. Richardson's store was locked and appeared to be in
disarray. A woman inside refused a reporter's request to unlock the
door, and a sign told UPS delivery personnel to go away.
Scores of online bidders who bought the little porcelain mice, moles,
angels and other figures in Mr. Richardson's last auctions say they never
received the items they paid for. The Oakland County, Mich., Sheriff's
Department says it has handed the case over to the Federal Bureau of
Investigation. A person familiar with the investigation says authorities
don't know where Mr. Richardson is but that the FBI is treating the case
as a fraud investigation.
Mr. Clark's Conclusion
There seems to be little doubt among his would-be customers that Mr.
Richardson pulled off one of the most remarkable con jobs in the almost
seven-year history of the eBay auction site, the Internet's most
successful commercial outpost. "The guy ran off with the money," says
Gene Clark, a computer consultant in East Brunswick, N.J., who says
he paid Mr. Richardson $700 for four porcelain mice that never arrived.
A person familiar with the
law-enforcement investigation estimates
that Mr. Richardson reaped about
$225,000 from the recent series of
auctions, which ended Jan. 4, but some of
the bidders say that figure is too low.
According to his wife, Mr. Richardson
withdrew a total of $220,000 from various
business bank accounts in the days before
his disappearance.
EBay says it shut down Mr. Richardson's
account with the company on Jan. 23 after it received a flurry of complaints
from users and concluded that his recent auctions amounted to a major case
of fraud. "This is a pretty extraordinary situation," says Rob Chestnut, the
ex-federal prosecutor who leads eBay's fraud-prevention team.
'Middle of Our Life'
Mr. Richardson's wife, Arlene Murray, who was his business partner, also
was caught off guard. "The man just left in the middle of our life," Ms.
Murray says.
Indeed, a person close to the investigation says he believes that Mr. Richardson acted "totally behind the
backs" of his wife and employees.
If Mr. Richardson's eBay sales ultimately prove to be fraudulent, the scam would rank among the costliest
frauds ever perpetrated over eBay. The case, first reported in the online SuperSeller Auction Newsletter,
suggests that even with a big company's aggressive policing measures, fraud is an unavoidable risk of
Internet commerce.
Insurance Policy
EBay says that fraud is a persistent problem, but the company adds that it affects fewer than 0.01% of the
millions of transactions the auction site handles every year. The San Jose, Calif., company, which makes
most of its money on commissions from its auction sales, had revenue of $749 million last year. It says it
isn't liable for any fraud-related losses on its site, because the transactions occur strictly between buyers
and sellers. The company's insurance policy provides a maximum $175 per auction to reimburse any
defrauded bidders.
The company employs a team of about 20 fraud investigators. They look into complaints about sellers and
then contact law-enforcement authorities and shut down the sellers' eBay accounts if there's enough
evidence of wrongdoing.
EBay says it has an arsenal of fraud-prevention weapons, many of which it won't disclose. One example: It
verifies the credit-card numbers sellers provide when they open eBay accounts and cross-checks the
credit-card billing addresses to make sure they match the addresses the sellers have listed on their eBay
accounts.
At the heart of its efforts to weed out crooked sellers is its "feedback" system, which allows buyers and
sellers to rate each other based on their satisfaction with a transaction. For example, a buyer might rate a
seller positively for delivering an item in the promised condition or a seller might rebuke a buyer for slow
payment. The system aims to give a buyer and seller who are usually strangers some way to gauge each
other's integrity.
Even so, scammers have found many ways to use eBay. In past cases, sellers have operated with rings of
"shill bidders," cohorts who bid on an item solely to run up its price. Last year, in the most notorious such
case, two men pleaded guilty to wire- and mail-fraud charges involving several instances of shill-bidding in
eBay art auctions. Those auctions included the sale of a painting purported to be by the late artist Richard
Diebenkorn. Bidding on the painting, which turned out to be a fake, reached $135,805.
Cashing In
In other cases, eBay executives say, individuals have conducted legitimate auctions for several weeks or
months to build up positive ratings, and then cashed in on their track records by holding a series of phony
auctions, often for pricey items.
Still, Mr. Richardson's case stands apart. For one thing, he had a real bricks-and-mortar business here, a
shop called the Retired Figurine Exchange Inc. And then there was his sterling record and relatively long
history on eBay.
In all, Mr. Richardson earned 6,185 positive feedback points since he started selling on the site in 1997,
with an additional 58 negative and 56 neutral ratings from buyers who bought from him, according to eBay
records. Those scores meant that 98% of the sales Mr. Richardson made resulted in satisfied buyers.
Mr. Richardson was fussy about his reputation, says Vickie Johnson, an employee who handled eBay sales
for him from his shop. She says he fretted if anyone posted negative feedback about a sale. But Mr.
Richardson's standing was especially high among eBay's small, but passionate, community of figurine
collectors.
Figurines of many types are hot items among collectors. Mr. Richardson sold the most popular brands --
Lladrós, Hummels and Swarovskis, as well as the Wee Forest Folk, a 25-year-old line of miniatures
designed by Massachusetts artist Annette Petersen. The Wee Forest Folk, typically no more than a few
inches in height, include a range of furry critters in human garb, such as mice dressed up as witches or
moles made up as Christmas carolers. The figurines have whimsical titles like "Nightie Bear," which features
a Teddy-bear-toting, pajama-clad bruin, and "Stand by Your Mole," which depicts a mouse and mole
Country Western duo. Recent models of the figurines often sell for no more than $40, but some dating from
the 1970s fetch thousands of dollars.
Mr. Richardson's wife says he never showed much personal interest in the figurines, but they were a big hit
with customers. When he found something that interested him, she adds, he "was very focused," and
business was one of his obsessions.
'Passion' for Money
"I think Stewart had a passion for making money," Ms. Murray said in one of several recent phone
interviews, though she declined subsequent interview requests, citing her lawyer's advice.
Mr. Richardson's enthusiasm for eBay, the source of most of his sales, rubbed off on others. A friend,
Howard Barnett, began selling collectible glass and other items on eBay in 1998 at Mr. Richardson's urging.
"Stewart got me started on eBay," he says. "He told me how great it is."
Mr. Richardson seemed to have hit the motherlode in late December when he began to list hundreds of
figurines for sale on eBay. The selection included porcelain and glass pieces by Lladró, Hummel and
Swarovski, says Ms. Johnson, who worked for him for just a few months before he disappeared. The 150
or more Wee Forest Folk Ms. Johnson says he put up for auction was an impressively broad collection of
the figurines. She says that Mr. Richardson told his staff that the latest batch of figurines were part of an
estate sale he was handling on behalf of a family in Phoenix.
He scheduled bidding on the auctions to end Jan. 4 and instructed successful bidders to send their payment
to him promptly. "This is a large estate auction!" read the description on the eBay site for one of the
figurines, a mint-condition 1978 Chief Nip-a-Way from Wee Forest Folk, a mouse dressed up as an
American Indian. "It is very important that we receive your payment within seven days of auction end," the
posting declared. The winning bid on Chief Nip-a-Way: $1,035. The buyer says the figurine was never
delivered.
At his shop here in White Lake, Mr. Richardson kept tight control of the supposed estate auction. Ms.
Johnson says she helped prepare the auction materials, but that Mr. Richardson limited her involvement,
insisting on handling all correspondence with bidders himself.
After the auctions closed, bidders began sending payments to Mr. Richardson. Most winning bidders paid
with credit cards, cashier checks or PayPal, an Internet-payment service popular on eBay. PayPal clients
can transfer money into their PayPal accounts via cash or credit card and then use it to pay online vendors.
EBay sellers typically require payment before sending merchandise to winning bidders.
Ms. Murray, Mr. Richardson's wife, says she was unaware of the estate auction her husband claimed he
was handling. Ms. Murray says her husband dealt with all of the business's finances and its Internet
operations, while she spent most of her time down the block running a separate gift shop that sold
scrapbook supplies. "We were always successful with Stewart's decisions," Ms. Murray says.
Ms. Murray and Ms. Johnson say that Mr. Richardson's employees and family got their first inkling
something was wrong when he didn't return from his Jan. 17 lunch. Bidders began to suspect something
was amiss almost immediately thereafter.
For Joyce Schweickert, the realization sank in the next day. The self-employed Bellevue, Wash., collector
had won the bidding on several of Mr. Richardson's auctions, she says, and he had agreed to meet her and
her husband in Phoenix on Jan. 18 at 7:30 a.m. to personally take them to collect those pieces. She says he
also had promised to lead her to many other figurines from the supposed estate sales so that she could
photograph them. Ms. Schweickert says she and her husband flew to Phoenix and waited for Mr.
Richardson, as arranged, at Rennick's Restaurant at the Phoenix Airport Hilton.
Mr. Richardson didn't turn up. When Ms. Schweickert couldn't reach anyone by phone at Retired Figurine
Exchange, she called a Michigan friend and asked her to pay a visit to the shop. "She said the store was
closed up tighter than a drum," Ms. Schweickert recalls.
Ms. Schweickert and her husband turned to the Internet to spread word of Mr. Richardson's no-show,
posting a message on a discussion Web site for Wee Forest Folk collectors. That posting alerted other eBay
buyers, such as Mr. Clark, the New Jersey computer consultant. Mr. Clark sent e-mails to other bidders,
including Marten Halma, warning them that their merchandise probably wouldn't show up.
"I'm usually very careful -- I look at the history and comments" on eBay's feedback system, says Mr.
Halma, a retired IBM engineer in Poughquag, N.Y., who says he paid Mr. Richardson $4,000 for five
figurines. "I felt he was on the up-and-up." One bidder, who asked not to be identified, says she sent a
$20,000 registered check to Mr. Richardson but got nothing in return.
Estimates of the total sum bidders sent to Mr. Richardson for the apparently bogus auctions vary widely,
partly because of a ruse he appears to have employed. When contacting other aggrieved bidders, Ms.
Schweickert says she learned that Mr. Richardson sold many of the same items in his auctions twice or
three times. After an auction closed, according to Ms. Schweickert, Mr. Richardson contacted the second-
and third-highest bidders for particular auctions and told them that the winning bidders had failed to pay.
Those bidders would then pay Mr. Richardson, nearly doubling or tripling his take from a single auction.
EBay confirms that it has received fraud complaints from losing bidders who bought items from Mr.
Richardson outside of the normal eBay auctions.
Based on conversations with other buyers, Ms. Schweickert estimates that Mr. Richardson may have
collected as much as $400,000 for items that were never received. The person familiar with the
law-enforcement investigation says the actual figure may be closer to $225,000.
Ms. Murray says the $220,000 her husband withdrew from their business bank accounts shortly before his
disappearance included the proceeds from the auctions of merchandise that belonged to Retired Figurine
Exchange, she says. Ms. Murray also believes her husband deposited money from the estate auctions in
other bank accounts to which she doesn't have access.
EBay says that it has encouraged bidders who feel they were defrauded by Mr. Richardson to fill out a
fraud complaint form, which eBay then forwards to law enforcement. It says it believes between 100 and
125 bidders didn't receive the goods they bought from Mr. Richardson. The number of bogus auctions is
probably higher since many bidders purchased multiple items, eBay says. Mr. Chestnut, eBay's
fraud-prevention chief, says Mr. Richardson's case is unusual and that eBay's feedback system remains a
good way for buyers to judge a seller's integrity.
"It will certainly be difficult to detect" situations like Mr. Richardson's, where good sellers apparently turn
bad, Mr. Chestnut says. "This is the sort of thing that happens very rarely."
EBay says that some buyers may get their money back, depending on how they paid. Those who used
credit cards may have the best shot at a refund. Mr. Halma says he recently received a notice from his
credit-card company that it would reimburse him. Those who paid with cashier's checks aren't so lucky.
The figurine collectors, for the most part, say their experience with Mr. Richardson hasn't turned them off
of eBay. Some say they will be more cautious in the future -- for example, by using third-party escrow
services that inspect auction merchandise before payment is delivered.
Ms. Murray says she has closed both of the family's businesses as she attempts to return unsold
consignment items to their owners. She says she filed for divorce following her husband's disappearance
and expects to file for personal bankruptcy shortly to shield herself from creditors. Ms. Murray says she
has lately begun using her maiden name instead of Richardson because her husband's surname is "a
disgrace."
Those who knew Mr. Richardson still can't explain why he misused and abandoned an apparently
successful business. Ms. Murray says she and her family have found evidence on Mr. Richardson's
computer that her husband was gambling over the Internet. She says she thinks that he may have had
gambling debts.
"I didn't realize the man had it in him to be a criminal," she says.
Write to Nick Wingfield at nick.wingfield@wsj.com
Updated February 22, 2002
Copyright © 2002 Dow Jones & Company, Inc. All Rights Reserved |
