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NYC investigates eBay

The city's Department of Consumer Affairs probes complaints of fraudulent sales at the online auction site.

Online auction host eBay is under investigation by the New York City Department of Consumer Affairs, as concern mounts among regulators that auction sites could enable an unprecedented amount of consumer fraud.

Consumer Affairs Commissioner Jules Polonetsky announced today that the department is "actively investigating complaints regarding alleged fraudulent sales at online auction houses."

A Consumer Affairs spokeswoman said eBay, which hosts person-to-person auctions but does not participate directly in the auctions, is the target of the probe, but she declined to give details.

According to a report in the New York Post, the transactions involved one-of-a-kind sports memorabilia that was sold to several buyers.

The newspaper also reported that Consumer Affairs is trying to determine whether eBay itself can be charged with violating trade regulations because it collects a fee for every transaction resulting on its site.

Fraud among eBay users has come under increasing scrutiny of late. On Friday, a Pennsylvania man agreed to pay back more than 30 people who bought Furbys from him but never received the stuffed animals, a popular gift last Christmas. Just 27 of every 1 million transactions between buyers and sellers on its site are fraudulent, eBay said.

eBay recently rolled out a new consumer protection initiative called Safe Harbor, offering free insurance coverage up to $200 for all transactions. The auction site will soon give "Verified eBay User" status to those willing to provide additional identifying information, such as Social Security number and a driver's license.

Consumer advocates say programs like Safe Harbor are a step in the right direction, but don't go far enough. Person-to-person auction sites like eBay "have a responsibility to try to detect fraudulent users," said Cleo Manuel, spokeswoman for the National Consumers League.

But Manuel said auction participants, particularly those new to the Internet, need to guard better against risks. "A lot of people don't do their homework to realize that these auction sites are just listing services," she said.

The stock performance of Internet auction sites like eBay has also driven many more users to join. Despite the fraud probe, Ebay shares soared 20.75 to close at 217.50 today after computer maker Compaq announced it will place eBay buttons on the start screens of its Prosignia desktop and laptop computers later this quarter.

Many eBay users purchase their first computer specifically to buy and sell items on eBay, said Steve Westly, eBay vice president of marketing.