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.

A constant dribble of news reports illustrates how. Wiley Publishing sues a college student for selling copyrighted material. A Maryland woman finds an iPod on eBay with the same inscription as one that was just stolen from her home. Officials in Florida bust an orchid thief who's been auctioning off flowers he allegedly stole from state parks. Two Americans are arrested for selling pirated DVDs in China.

The problem gets worse. Experts see alarming evidence that these sellers are often organized retail crime rings, unloading huge quantities of counterfeit, stolen and gray-market goods. Oftentimes, the activities on auction sites serve as the public-facing portion of a much larger operation.

Shoplifting only begins to describe what these crime rings do. Loss prevention experts say that groups of three to six professional "boosters" can rob a store of $5,000 worth of apparel in one fell swoop. They'll pile merchandise into bags with special foil lining that thwarts store alarms, or one of them will "accidentally" set off the alarms to distract security, while the others walk brazenly out the doors with bags of merchandise. The boosters then pass the stolen goods on to the fence. The fence lists the items at sites such as eBay and Yahoo Auctions, posting large lots of similar goods, all labeled "NWT," for "new with tags." Once the seller finds a willing buyeroften a wholesaler or small-business ownerhe typically offers to sell goods outside of the auction space, as Stevanovich allegedly did.

"We're careful about not encouraging people to go out and steal" when they're under investigation, says John Talamo, Limited Brands' vice president of loss prevention, who directs the company's organized retail crime division. "But once our investigator starts to buy things, the person will contact us and say, Hey, I can get a lot more of this,' or I can get you what you want.'

"The Internet kind of transforms shoplifting from a petty theft into a lucrative business," Talamo says.

Uncertain Legal Terrain

Fake Coach handbags for sale on Canal Street in New York; fake Coach handbags for sale on eBay. Are online auctions really any different from criminal activity that has been happening all along? Yes and no.

Much of the criminal activity that used to take place at flea markets has simply moved online. The difference is that flea markets and another typical fencing operationpawn shopsare regulated by a patchwork of state laws. In those venues, sellers might be required to show receipts for merchandise, or to register and fill out paperwork before selling certain goods. Online, the same rules don't apply.