Shill bidding: fake bids placed by, or on behalf of, the seller or site to push the price up or keep an auction going.

Key takeaways

  • Some penny auction sites have been shut down for using software to place fake bids.
  • Other bidders can break the rules too, for example by running several accounts or working together.
  • Many practices that feel unfair are legal because they are written into the terms you accept when you sign up.
  • Reading the terms before you buy bids is the best way to avoid surprises.

Most penny auction problems fall into three groups. Some practices are illegal. Some are unfair or deceptive and have drawn action from regulators. And some are allowed by the fine print: you agree to them when you accept a site's terms, even if they would surprise most people. This article covers all three, from sites and from other bidders.

Chart of practices in three groups, for sites and for other bidders. Illegal: by sites, fake bidders and bots, items never delivered and money-making schemes; by bidders, fake identities, stolen cards and false not-received claims. Unfair or against the rules: by sites, hidden fees, free bids that need a card and misleading savings claims; by bidders, multiple accounts, collusion and unauthorized bidding software. Allowed by the fine print: by sites, bids that expire, no court or class action and bids lost if suspended; by bidders, power bidding and auto-bidder battles.
Not everything that feels unfair is illegal. Some of it is in the terms you agree to.

Practices by sites

Illegal

  • Fake bidders. Some sites have used software "bots" or staff accounts to bid against customers, pushing prices up and sometimes "winning" the item so no real bidder did. Washington State's attorney general shut down penny auction sites for this in 2010 and 2013, and Florida obtained refunds from one in 2014.
  • Not delivering. Taking payment for items that never arrive, arrive late, or are of lower quality than described.
  • Schemes dressed up as auctions. In 2012, the SEC shut down a $600 million Ponzi scheme run through the "rewards" program of a penny auction site. Be wary of any site that pays you to recruit others or promises income.

Unfair or deceptive

  • Hidden fees. Registration, activation or subscription charges that are not made clear up front.
  • "Free" bids that need a card. Offers that quietly start a paid plan.
  • Misleading savings claims. Ads showing only very low winning prices. UK regulators have ruled that price claims must include the cost of bids.
  • Fake endorsements. Celebrities or "winners" paid to claim they won items cheaply. Japanese police made arrests over this in 2012.

Allowed by the fine print

These are usually legal because you agree to them in the terms. Look for them before you buy bids.

  • Bids that expire. Unused bids may disappear after a set time, often a year.
  • Bids with no cash value. Terms may define bids as a license to bid, not money, so they cannot be refunded or cashed out.
  • Losing all bids if your account is suspended, sometimes "for whatever reason."
  • Buy now prices that vary. The price may change over time or differ between users, and terms may say it should not be read as the item's value.
  • Terms that change without notice. Some terms make it your job to check for changes.
  • No court, no class action. An arbitration clause and class-action waiver can mean disputes go to private arbitration, and you cannot join other customers in a lawsuit.
  • Short claim windows. You may need to report a missing item within a set number of days, or lose the right to delivery.
  • Limits and bans. Caps on wins per person or household, restrictions on where items ship, and bans on reselling what you win.

Practices by other bidders

Illegal

  • Fake identities and stolen cards. Registering under a false name or with someone else's card is fraud.
  • False non-delivery claims. Receiving an item, then claiming it never arrived or disputing the charge with your bank to get the money back.

Against the rules

These break most sites' terms and are unfair to other bidders.

  • Multiple accounts. One person using several accounts, for example to get around win limits or to enter beginner auctions again.
  • Collusion. Bidders working together, for example agreeing not to bid against each other or placing fake bids to create activity.
  • Unauthorized bidding software. Third-party scripts or bots, as opposed to a site's own auto-bidder.

Allowed, but worth knowing

  • Power bidding. Some bidders bid instantly every time, to signal they will never stop and push others to give up. It is legal and allowed, but it is a tactic, not a sign the auction is nearly over.
  • Auto-bidder battles. Two automatic bidders can trade bids for a long time, quickly using up bids on both sides.

Red flags

Watch for

  • Registration, activation or subscription fees
  • "Free" bids that ask for a card
  • No physical address or phone number
  • Terms that are hard to find or understand
  • The same usernames winning again and again in the final seconds
  • Ads that show only very low winning prices
  • Any offer to earn money by recruiting others

What to check in the terms

Checklist

  • Do bids expire, and when?
  • Can bids or fees be refunded?
  • What happens to your bids if your account is closed?
  • How are disputes handled: court or arbitration?
  • How long do you have to report a missing item?
  • Are there win limits or shipping restrictions?

Where to report a problem

Report to the Federal Trade Commission at ReportFraud.ftc.gov, to your state attorney general, and to the Better Business Bureau. Keep receipts, screenshots and emails. If you were charged without permission, contact your bank or card issuer.

Summary

Fake bidders and non-delivery are illegal, and regulators have shut sites down for them. Many other practices are legal only because they are written into the terms. Reading those terms before you buy bids, and watching for the red flags, is the best protection.