Auction Blocks: Criminals Unload Counterfeit and Stolen Goods on eBay

Criminals use online auctions as a place to unload stolen, diverted and counterfeit products. EBay does little to stop them, creating more work for CSOs. Here's what smart companies do.

The sting seemed like a moment of glory for the good guys. When police searched Stevanovich's apartment, they seized $28,000 worth of new apparel from Victoria's Secret, Express, Gap, Abercrombie & Fitch and other retailers, along with $15,000 in cash and a device that removes product security tags. (At press time, Stevanovich was out on $15,000 bail and faced, if convicted, up to five years in prison for receiving stolen property, according to Hashem. Stevanovich pled innocent.)

But for Limited Brands, the panty raid was a mixed victory. Only one person was arrested in what investigators believe must have been a much larger criminal operation. And the company had dismaying new evidence that the resources it devotes every week to searching online auction sites for stolen and counterfeit goods are not optional. They have become a permanent cost of doing business.

"Criminals are just like water," says King Rogers, former vice president for asset protection at Target and now CEO of an eponyous loss prevention consultancy. "They seek the path of least resistance." Right now, say Rogers and other loss prevention experts, online auctions sites such as eBaylargely unregulated, wildly popular and next to impossible to controlare providing that path.

EBay, for its part, insists that it is not a retailer but a marketplace"the world's online marketplace"and as such is not responsible for the products offered on its site. So far, the courts have agreed. That puts companies like Limited Brands in the awkward and expensive position of serving as the world's online cops. If they don't, right now, no one else will.

A New Kind of Marketplace

Today, eBay markets itself as a vast and utopian community, where buyers meet sellers, and the laws of supply and demand rule. The strategy has worked. According to Nielsen/NetRatings, eBay has 49 million unique visitors per month, 50 times as many as its largest competitor, uBid. In the first quarter of 2005, eBay's members traded $10.6 billion of merchandise.

The vast majority of eBay sellers are law-abiding citizens. But eBay's success has also attracted a customer base that the San Jose, Calif.-based company does not as readily acknowledge: criminals. Many are the online equivalent of pickpockets, who describe products inaccurately, drive up prices with illegal shill bidding or fail to deliver merchandise. Far more dangerous to corporate America, however, are criminal sellers whose products do arrive as promised. These are the sellers who rely on good customer feedbackeBay's primary mechanism for protecting both buyers and sellers from fraudto grease the wheels of illegal activity.