September 30, 2002, 12:00 AM

Auctions hatch a problem and an industry to solve it

The Internet Fraud Complaint Center logged nearly 50,000 complaints last year and referred nearly 17,000 for legal action. The largest category: auction fraud. And now a crop of companies to settle auction disputes has sprung up.

Online auctions are flourishing-and to a lesser extent, so is auction fraud. In its first annual report, the recently created Internet Fraud Complaint Center said that in 2001, it received 49,711 complaints of Internet-related fraud and other Internet-based problems such as computer intrusion. The group referred 16,775 complaints for action by law enforcement and regulatory agencies.

Topping the list of complaints at 42.8% of those referred for action were allegations of Internet auction fraud. One fifth of the complaints specifically involved non-delivery of payment or merchandise. 78.2% of those reported a dollar loss as the result of auction fraud, averaging $395, according to the Fraud Complaint Center.

But the center, a non-profit organization that’s a joint project of the Federal Bureau of Investigation and the National White Collar Crime Center, a group itself funded in part by a grant from the U.S. Department of Justice, refers only complaints it deems actionable on legal grounds. Where does that leave buyers or sellers in search of resolution whose complaints don’t make that cut, and how big is the problem?

Big enough to support a relatively new industry of third-party organizations that specialize in the resolution of disputed online transactions. Two-year-old San Francisco-based SquareTrade Inc., for example, says it’s successfully resolved 150,000 disputes and though it offers dispute resolution in the online real estate and b2b marketplace sectors as well as b2c auctions, auctions represent the largest share of its business. And there are enough disputes in the world of online transactions to support a number of dispute resolution services; SquareTrade is by no means the only such provider.

While it’s bad news for the online auction marketplace that there is a need for such services, the good news for buyers and sellers is that they work: SquareTrade for example, whose auction clients include eBay and other auction sites, says its success rate in resolving disputes is 80%.

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