Groupon Fraud Fake PhotographerIt was bound to happen eventually: One of those too good to be true deals on popular startup Groupon turns out to have been false.

The apparent attempted fraud came to light on Sept. 15, when photography blog PetaPixel posted details about how a photographer offering a Groupon deal on photo shoots was displaying other photographers' work as her own on her website, and offering her services to more clients than she could possibly accommodate in the period the deal was covering. Despite her claims of an honest mistake by her website designer, the deal was pulled, and Groupon refunded the money to the 1,175 patrons who had signed up.

The incident raises an ugly specter about fraud within the new group buying genre. Granted, such instances are rare, and it's mostly quite easy to verify that a group buying deal is the real thing. Go to Google or Bing, search the business name, look for a map location, and call the phone number.

In that sense, this tempest is a classic case of caveat emptor. On the other hand, the fact that Groupon allowed the bad deal to slip through demonstrates slipshod account management on their part, the sort of mistake that's characteristic of what could be a slap-dash growth push run primarily out of call centers where achieving deal volume is the primary motivator. In other words, perhaps Groupon's big local play may be harder to pull off than it looks without true local knowledge. In fact, even with decent feet-on-the-street sales teams, group buying services could become a fraudsters dream, a tool to help them sucker even savvy shoppers.

Step one: Set up a PayPal account. Step two: Build out a fake website and get a phone answering service with a voice message -- or multiples thereof. Step three: Buy a fake yellow pages listing. Step four: Post fake Yelp! reviews and ratings. Step five: Offer your Groupon deal. Step six. Collect your check and disappear before anyone's the wiser. Scaling up a group buying fraud network could be easier than scaling up a group buying business.

A likely stopgap measure to keep such ambitious fraudsters in check will be some sort of escrow period for the payments, but such a move would also remove some of the incentives that group buying services present to legitimate businesses: upfront cash and redemption rates of less than 100% (and perhaps as low as 60%). Could this be the Achilles heel of what has so far been perceived as the most amazing cash register to emerge on the Internet since Google, a service recently valued at an eye-popping $1.35 billion? Stay tuned, Groupon groupies! It's gonna be a wild ride!

Increase your money and finance knowledge from home

Investing in Startups

The lucrative and risky world of startups.

View Course »

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Does it help you think that you give instructions to would be con artists? Bad call.

October 26 2010 at 6:24 AM Report abuse rate up rate down Reply

i think That is The Funniest thing If You people Will Get Of Your Behinds From In front Of The computer And Just Go To The store to buy Your Products Then You May Get What You want & Not get Scammed.!!!! And Just a Hint If you talk To the Manager At That store You can probably Get at Least 10 Percent off Anyways which is Usually more than The Internet Deals Give You!!!!!!!!!!!!

September 20 2010 at 2:40 PM Report abuse -3 rate up rate down Reply

Well, thanks for the step-by-step instructions on how to perpetrate a fraud. Dummy!

September 20 2010 at 12:32 PM Report abuse -1 rate up rate down Reply
1 reply to Melinda's comment

I would have never known to do all that. My simple little mind has a perception that making money involves working hard and offering a good product or service to people.....learn something new everyday.....

September 20 2010 at 11:33 AM Report abuse rate up rate down Reply

If people get sucked into "Goldline" they will get suckered into just about anything.

September 20 2010 at 11:31 AM Report abuse -1 rate up rate down Reply

I would not have given all the steps it take to commit this fraud........that was a mistake. Seriously. Dumb move.

September 20 2010 at 10:57 AM Report abuse -1 rate up rate down Reply
Jim Warren

One bad apple, indeed. Plus, to do business with Groupon and set up accounts, a phone line, web site, etc. is going to leave an electronic trail that is very easy to trace. This incident will not ruin Groupon or any other deal site. It will only teach them some things so they can improve. You will see many more sites like that popping up, as they all get a 50% revenue share of whatever the merchant is charging. Remember that means the merchant is getting about 25% of what they would normally offer for the good or service (50% savings to the customer then 50% of that sale price goes to Groupon). not a bad deal for them, so I think they will get past this by any means necessary.

September 20 2010 at 10:13 AM Report abuse -1 rate up rate down Reply

There's nothing like getting directions on line, like you just provided,to commit fraud at groupon's expense! You can make your point without giving step by step instructions. I think Groupons are great!

September 20 2010 at 9:40 AM Report abuse -1 rate up rate down Reply
redreeper happened once, a clear indicator that Groupon is going down in a ball of flames. And coming from AOL news staff... pot calling the kettle black. Love the new comments section! And so does my boyfriend who is 50 years older than me who buys cheap nikes!

September 20 2010 at 8:44 AM Report abuse -6 rate up rate down Reply

Wow do you realize that you just told everyone HOW to set up a scam???

September 20 2010 at 8:38 AM Report abuse +4 rate up rate down Reply