Shill Trade Me bidding costs car company more than $165,000

An Auckland-based car company has been sentenced today in the Auckland District Court on 13 charges under the Fair Trading Act.

The Auto Co (Millenium) Ltd has been fined $42,000 plus court costs of $1727.57 after pleading guilty to misleading consumers about the price of vehicles auctioned on Trade Me.  The fine is on top of over $122,000 already paid in compensation to affected consumers and related costs.

The Commission's investigation found evidence suggesting that The Auto Co may have misled customers in at least 530 online vehicle auctions between the charge period of June 2011 and July 2012. The investigation was triggered by a complaint made by Trade Me, who raised concerns about $1 reserve auctions conducted by The Auto Co. Trade Me was concerned that The Auto Co was engaging in shill bidding, which breaches the Fair Trading Act and is banned by Trade Me.

In online auctions, shill bidding is the practice of selling goods under one membership, but bidding on them with other memberships controlled by or related to the vendor. Shill bidding is illegal because it misleads the public about the price of goods by manipulating the bids placed by genuine auction bidders. In this case the shill bidding effectively increased the auctions’ reserves above the $1 reserves represented.

“The Commerce Commission takes shill bidding seriously and we work closely with Trade Me to investigate and prosecute traders who engage in this type of offending. Consumers bidding at auctions deserve to know that they are bidding against other buyers, not against bids arranged by the vendor,” said Commerce Commission Competition Manager, Stuart Wallace.

Analysis by Trade Me established that over 7,500 bids were placed by persons associated with The Auto Co, using 20 different Trade Me memberships in the 13 month period from June 2011.

“While it is not uncommon for traders to list goods on Trade Me with a $1 reserve, artificially raising the price of the goods themselves could breach the Fair Trading Act. If traders list goods with $1 reserves they must be prepared to sell them for $1 if no other bids are placed,” said Mr Wallace.

The penalty imposed takes into account $102,174 that The Auto Co has already voluntarily paid into a reparation fund for those who purchased vehicles in affected auctions since 1 July 2010. They have also contributed approximately $20,000 towards Trade Me’s investigations costs.

In sentencing The Auto Co, Judge Singh noted the seriousness of the offending as “premeditated and systematic” and that the extent of the loss suffered by both Trade Me and affected consumers was “significant”.

The Auto Co is the second car company to be prosecuted over shill bidding on Trade Me. Morrison Car Company was fined a total of $45,000 in August 2011 after pleading guilty to charges of bidding on their own online auctions and other related vehicle selling offences.