What to Expect on Penny Auction Sites

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Jeff Geurts, chief financial officer of QuiBids, which describes itself as the largest and most visited penny auction site in the U.S, said dozens of sites have launched, but few have rolled out extensive national marketing and retained customers.

"2010 was the rise and fall what I would consider the vast majority of the bad penny auction sites," Geurts said. "There were sites during 2010 that would have shield bidders and bot bidders so customers would not know if they were real or fake. Scripts were sold on Internet through which you could build a site and have bots built in."

Geurts said the first penny auction site of which he is aware launched in Germany in 2005. Swoopo eventually expanded around Europe and came to the U.S. in 2008.

Geurts said Quibids.com, based in Oklahoma, expanded on Swoopo's idea with features such as a "Buy Now" option. Swoopo, which did not use bots and raised millions in venture capital funding according to Venture Beat, filed for insolvency in March 2011 in Germany.

Quibids.com launched in October 2009 with five employees. It now has 120 employees and has expanded to Canada, with plans to expand to Australia and Europe, and so far has no outside funding. It was voted fourth best place to work in Oklahoma City, a city in which the energy industry dominates. The company name combines the words, "quick" and "bids."

QuiBids conducts about 10,000 auctions a day, a portion of which are bids on vouchers for additional bids. But Geurts said the company prides itself on having hundreds of millions of bids on millions on auctions and shipping millions of tangible products to customers in less than two years.

The company also asked auditor Grant Thornton to test its business and services. The auditor's report from July 18 confirmed QuiBid's controls provide "reasonable assurance" that "bids on auctions are placed by bona fide users, that QuiBids does not manipulate the bidding process to inflate the bid price or affect who wins the auctions, and that winning auctions and "Buy Now" orders are fulfilled (i.e., shipped)."

"We wanted everyone to help understand QuiBids is a solid, long-term business," Geurts said, who explained that employees and their immediate families are prohibited from bidding. Even if they were able to bid, he said the system would prevent them from having an advantage over other users.

While smaller sites have come and gone, authorities have shut down some sites for scamming customers.

Washington state's attorney general investigated a small site called Pennybiddr last year. Jake Bernstein, assistant attorney general in Washington, said documents filed by the state in King County Superior Court accused PennyBiddr of using phony bids to artificially increase prices and sometimes make it impossible for consumers to win an auction. The owner of PennyBiddr settled and paid full restitution to about 86 customers of about $7,700 total.

The attorney general's office also investigated another small site called bid4millions this past spring for its failure to deliver products won and paid for in auctions. The defendants signed an Assurance of Discontinuance, an agreement not to engage in specific types of behavior in lieu of any civil charges being filed. The settlements of those two companies did not include an admission of wrongdoing.

"The big problem is that it's really difficult to tell if you are being cheated," Bernstein said.

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