Key takeaways
- At least 125 penny auction sites were operating by late 2010; nearly 150 closed between late 2009 and early 2011.
- US regulators shut down sites that used software to place fake bids.
- The SEC shut down a $600 million Ponzi scheme run through a penny auction site's "rewards" program.
- In Japan, more than 20 celebrities were found to have been paid to blog about bargains they never won.
- China banned a related lottery-style format in 2017 as disguised gambling.
The boom (2008–2011)
After Swoopo launched in the US in 2008, copycats followed fast. Ready-made penny auction software was cheap, so starting a site was easy. Sites appeared across the US and UK, in Germany, Spain and Japan, and elsewhere. By November 2010, researchers counted at least 125 sites aimed at US shoppers. In early 2010, penny auction traffic in the US was a few percent of eBay's.
Sites experimented to keep bidders coming: "buy it now" options, beginner auctions, win limits, auctions where the prize was more bids, and automatic bidding tools.
The bust
The same ease of entry meant fierce competition, and the model had a weakness: most new bidders lost money and left, so sites needed a constant flow of newcomers. Nearly 150 sites shut down or went bankrupt between late 2009 and early 2011. Swoopo, the pioneer, went offline in March 2011. Other well-known sites closed over the following years, and by about 2013 none were left in Japan.
The scandals
United States: bots that bid against customers
Washington State's attorney general shut down penny auction sites in 2010 and 2013 for using software to place fake bids. One site's software could even "win" its own auctions, keeping both the item and every real bidder's fees. Florida obtained $425,000 in refunds from one of those sites. The FTC warned in 2011 that a penny auction is "more like a lottery than a traditional online auction," and the Better Business Bureau listed penny auctions among its top ten scams of 2011.
United States: a Ponzi scheme with a penny auction front
In 2012, the SEC shut down ZeekRewards, the "rewards" arm of a penny auction site, calling it a $600 million Ponzi scheme with more than a million investors. About 98% of its revenue came from new investors, not auctions. Its founder was later convicted of fraud and sentenced to more than 14 years in prison.
United Kingdom: misleading ads
UK advertising regulators ruled against several pay-per-bid sites for savings claims that left out the cost of bids and for undisclosed win limits. In 2017 they warned the whole sector that price claims must include the cost of bids.
Japan: paid celebrity posts
Japan's consumer agency ordered three penny auction sites in 2011 to stop advertising "up to 99% off." In December 2012, police arrested operators of a site that used automated bids so real users could never win. The case revealed that more than 20 celebrities had been paid to blog about winning goods cheaply. One was paid ¥300,000 for a post about an air purifier "won" for ¥1,080. The scandal made "stealth marketing" a household term in Japan.
China: the one-yuan treasure hunt
In China, a related format let shoppers buy ¥1 shares of a product, with one buyer drawn to win it. Large tech companies ran versions of it. In 2017, regulators classified it as disguised gambling or fraud, and the major services shut down.
Story: A house for $26
In 2013, a Houston startup auctioned a four-bedroom house in a penny auction. It sold for a final price of $26.12. The winner had spent about $130 on 32 bids and had never seen the house in person. At one cent per bid, the final price means roughly 2,600 bids were placed in total.
Story: $705 for $392 of goods
In a 2011 lawsuit, one bidder said he spent $705.51 on his first day at a penny auction site and won $392.49 of merchandise. He went on to spend more than $15,000 there. A US court allowed his deceptive-practices and illegal-gambling claims to proceed in 2012; the case later ended in a settlement.
Is it gambling?
Courts have never settled the question. In the US, gambling claims against penny auction sites have been settled or dismissed without a final ruling, and the UK's gambling regulator did not treat penny auctions as gambling. China took the opposite view of its lottery-style relative.
Today
The format survives as a small niche. A few sites still operate, mostly in the US, and consumer agencies still warn about them. In 2025, a North Carolina consumer group described a stand mixer "won" for under $25 that cost the bidder more than $480 once the 761 bids were counted.
Summary
Penny auctions boomed because they were easy to start and looked like bargains. They declined because most bidders lost money, competition was fierce, and regulators caught the worst practices. The lessons from that history still apply to any site that charges you to bid.