EBay Scam Uses IPods as Bait

A search for "iPod" on eBay yields a couple thousand listings for the digital music player and accessories, but beware: Hundreds of the listings are inducements to join pyramid-style scams.

Ebay is swamped with new "matrix" schemes, which appear to be legitimate buyers clubs but are in fact variations on classic pyramid scams, which are outlawed around the world.

In most cases, eBay shoppers are offered hot products like an iPod, a game console or a cell phone at an incredible discount, say for $40 or $25.

The eager bargain hunter is told not to bid on the item, but is directed instead to sites like My3Mobile, The Phone Matrix or Goraks.com, which offer iPods or cell phones as free gifts when products like CDs or eBooks are purchased.

The catch is that buyers only get their free iPod after more people sign up. When making a purchase, the buyer's name is added to a list. As new members join, names are shuffled up the list. When they reach the top, the iPod is dispatched

To speed up the process, buyers are often encouraged to recruit new members to join the scheme. And that's where all the eBay posts come from: Victims are using eBay to recruit new members.

EBay spokesman Hani Durzy said he was unaware of the scams. However, he said eBay allows some informational listings as long as they are clearly marked and placed in the correct categories. If an auction is in violation of the policy it will be removed, and repeat violators are banned.

"We have 20 million items on the site at any one time. In the grand scheme of things it is insignificant," Durzy said, referring to the large number of matrix listings on eBay.

In fact, matrix schemes are so common on eBay, some buyers think their popularity is a sign of legitimacy.

"There are so many, you think there must be something to it," said Danny Yi, a 22-year-old graphic designer from New York, who signed up at My3Mobile for a free iPod with a $40 CD purchase.

Recruited by an eBay listing, Yi said he bought a $40 CD at My3Mobile last week, before posting his own iPod ads on eBay. Yi has yet to receive his CD, or his iPod.

Yi was surprised when told he was involved in a scam.

"It seemed like something was not right," he said. "I was pretty skeptical. I'm still skeptical. But it's just $40, so I thought, why not? If you get it, great, but if not, so what? You learn your lesson."

A search for "iPod," sorted by the lowest price, reveals the extent of the problem.

The prevalence of matrix schemes on eBay was highlighted by the weekly Need to Know newsletter, which noted the rip-off is rife in the United Kingdom.

James Kohm, an attorney with the Federal Trade Commission, which polices consumer scams, said he hadn't heard of matrix schemes, but if they worked as described, they are outlawed.

"If that's what's going on," he said, "it's definitely illegal."

Kohm said matrix schemes appear to be classic pyramid schemes, in which victims are promised iPods or cell phones instead of the more usual cash.

Kohm noted that simple math shows these schemes cannot work. As the scheme grows, the number of new members needed to support it grows exponentially. The number of people needed to sustain the scheme would exceed the world population after about a dozen iterations. In practice, the schemes collapse much sooner than that, although early members sometimes get what's promised, Kohm said.

"You are always going to have more people who are not getting anything than those who are," he said. "Everybody's recruiting, but not everyone's going to get an iPod."

It's not just eBay that has problems with matrix scams.

Craig Newmark, who runs the popular craigslist listing service, said matrix schemes are sometimes posted to craigslist, but they are usually weeded out by the user community.

"This scheme shows up infrequently, because people jump on it," Newmark said. "Our community is really smart about this kind of thing.... As a result, we get rid of them fast."