The site used "bots" -- automated programs that imitate a human being making bids -- to artificially drive up prices, win auctions outright and make the site appear well-trafficked, according to the state's complaint.
Penny auction sites are booming on the web, fueled by the possibility of winning a flat-screen TV or other popular consumer item for hundreds of dollars less than retail. Generally, participants pay a membership fee to join a site or are required to purchase a package of bids to participate. Each bid raises the price of the item by a penny, though the bid itself may cost $1 to buy. Each bid resets the penny auction clock, until there are no more bidders, and the highest wins. Hours or days may pass in a penny auction until an especially sought-after item is won.
Sites can be built with software available online that is particularly susceptible to behind-the-scenes tinkering, or even marketed for its cheating capabilities. Operators can set automated scripts for "shill bidding," artificially driving up the price of an item by fake bids, and to win items outright, so they pay nothing and keep the money spent to buy bids. Sellers can also recruit friends and accomplices to act as shill bidders, though that practice is not limited to penny auctions.
Washington state regulators and Penny Auction Watch, an online community that keeps track of the industry, both say PennyBiddr was built with software called PHPPennyAuction.com, from an Essex, U.K.-based company called Scriptmatix that is not shy about advertising its built-in rip-off components:
State regulators began investigating the site on a tip from the U.S. Federal Trade Commission. Owner Kanwal Preet Singh, or Laly Singh, started the site in November of last year. Singh admitted no wrongdoing in the settlement, agreeing to shut the site down and make refunds, the state said. As of today, the site was still live, with a message saying, "We are still in testing phase, please wait till we are finished making all adjustments. Website will be live next month!""Testing & automated bidding bots. phpPennyAuction takes away the need for a constant supply of visitors - a lifeline when you're just starting out. Create bots to bid up to the price YOU want (can be disabled)."
Penny auctions "are a form of entertainment in which you pay to play," state Assistant Attorney General Jake Bernstein said. Some of the more reputable penny auction sites offer a "buy it now" option, so losers of an auction can still buy the item and apply their spent bid money toward the price.
Penny Auction Watch posted a reader's complaint about the site in January, noting its registration to a Kanwal Singh in Federal Way, Wash., though the site is now blind-registered to a private proxy service.
Also, have a look at Consumer Ally partner SiteJabber.com's take on penny auction sites and use the convenient search bar on the main Consumer Ally page to check out what other consumers think of sites before doing business with them.