Two men pleaded guilty Tuesday in Sacramento, California federal court to scamming eBay users out of US$450,000 over two years by self-bidding on their own auctions to drive up prices.
Sacramento attorney Kenneth Walton and Scott Beach, of Lakewood, Colorado, were indicted in March on charges of wire and mail fraud for using self-bids, or shills, to illegally inflate the prices of more than half of the 1,000 auctions they hosted at eBay from November 1998 to June 2000.
“While it’s hard to rejoice about a guilty plea, we feel that we’re very satisfied with the agreement that we reached with the government,” Walton’s attorney, Harold Rosenthal, told media sources.
One Still at Large
As part of their plea, Walton agreed to pay back at least $65,000 and Beach at least $39,000. The pair are barred from participating in any Internet auctions for a period of up to three years and Walton agreed to surrender his license to practice law in California.
In return for the guilty pleas by Walton to seven counts of fraud and by Beach to four counts of fraud, federal prosecutors agreed to ask for leniency when the two are sentenced in June. Each of the fraud counts carries a maximum penalty of 5 years in prison and fines of $250,000.
Still at large for his part in the scam is Kenneth Fetterman of Placerville, California.
Authorities started investigating the trio after they auctioned what was ultimately revealed as a fake Richard Diebenkorn painting. The painting garnered a winning bid of $135,000.
Walton reportedly found the unsigned painting at a Littlerock, California antiques store and forged the inscription “RD 52” on it.
After placing the painting up for sale at eBay, the three defendants made over 50 phony bids to artificially inflate the price of the painting by using alternate eBay identities. The defendants created the aliases by providing eBay with phony names, addresses and phone numbers.
An amateur art collector from Amsterdam won the Diebenkorn auction, but eBay voided the sale, saying it had detected shill bidding.
eBay spokesperson Kevin Pursglove told the E-Commerce Times earlier that the San Jose, California-based Web auction house assisted the investigation by providing federal authorities with access to eBay tools that can help pursue individuals who perpetrate auction fraud.
Pursglove said that with approximately 6 million items listed on eBay each day, it would be impossible to catch each and every fraudulent action as it occurs. However, recently introduced software gives eBay a better shot at stopping shill bidding. The software searches the bidding history of individual bidders to look for historical shill patterns, and identifies shill patterns as they are occurring, Pursglove said.
Previously, the auction house was only able to detect shill bidding when the auction was over.