SAN FRANCISCO (CN) - Project Fair Bid's penny auction website, Bigdeal.com, was a $100 million RICO gambling racket, a John Doe claims in a federal class action.
Doe claims Project Fair Bid ran BigDeal.com, an unlicensed gambling site that operated in violation of state and federal laws.
He claims the site misled customers into thinking they could win prizes such as Apple iPods and laptop computers for a fraction of their retail cost.
The website claimed: "Winners save around 75 percent on average, and many save 98 percent or even more," and, "We guarantee you a fair chance to win a great deal," and, "Everyone's a winner on BigDeal.com," according to the complaint.
The website, which operated from 2009 to 2011, charged bidding fees on top of an entry fee for a chance to win prizes.
"In order to participate in BigDeal.com's 'auctions,' players were charged entry fees that ranged in price from $22.50 to more than $500," the complaint states. "These entry fees were similar to purchasing poker chips and were used to place 'bids.'"
After paying to register, participants were charged to bid.
"Each auction contained a designated box that, when clicked, charged a nonrefundable $.75 fee to the player's account," the complaint states. "Clicking the box afforded players a chance to win the designated auction prize."
Each bid increased the price of the item by 1 penny. The auction was won by the last player to timely place a bid before time expired.
"All failed bids were revenue to BigDeal.com," the complaint states. "If a player 'bid' 200 times, he or she lost $120 (200 x $.75) to BigDeal.com." (Sic: recte $150.)
The only exception to the rules was BigDeal.com's "Bid Buddy," a computerized bidding program that automatically placed bids for participants, according to the complaint.
"According to BigDeal.com's website, Bid Buddy would enter bids when the auction fell under the 30-second reset time and it bid at a random time within that period," the complaint states. "Bid Buddy was programmed to beat all other bidders. Thus, if a Bid Buddy was in play, manual participants would have no chance of winning. BigDeal.com did not disclose this fact to the players, nor did it disclose to the player when a Bid Buddy was in play."
The game design created a hectic bidding atmosphere, Doe said.
"At any time, any number of players could activate and utilize Bid Buddy, as long as they activated it when there was time remaining on the clock," the complaint states. "In a BigDeal.com auction, there were tens to hundreds of bidders, and bidding could be rapid and frenzied as each player and Bid Buddy were chancing the future unknown result of being the last to bet in order to win the merchandise."
Doe claims that BidDeal.com, which did not have a gambling license, conducted hundreds of auctions every day, misled participants about what they were actually spending their money on, and broke state and federal gambling laws.
Worse, Doe claims, BigDeal.com kept computer records of each player, logging personal information such as their names, addresses, phone numbers, user names, passwords and credit card numbers.
"The records included the players' bidding records by date and time, the date and time of each losing bid and each winning bid, the prizes won be each player and the cost of those prizes to BigDeal.com," the complaint states. "The total losses of each player and the winnings acquired by BigDeal.com can be readily computed from the company's detailed computer records, which can be obtained through discovery."
Doe claims that BigDeal.com scooped in about $100 million.
Also named as defendants are Mayfield XIII, Foundation Capital VI L.P. and First Round Capital II L.P., venture capital companies based in San Francisco, which collectively provided $4.5 million to start the site, according to the complaint.
Also sued are Rajil Kapoor, a venture partner at Mayfield who became a director for BigDeal.com in July 2009; Charles Maldow, a general partner at Foundation Capital; and Josh Kopelman, a partner at First Round, according to the complaint.
Also sued are Nicolas Darveau-Garneau and Brandon Ramsey, described as founding partners of BigDeal.com, who helped manage, operate and finance, and obtain financing from other defendants.
Doe seeks statutory and treble damages for RICO violations, bank fraud and violations of the Unlawful Internet Gambling Enforcement Act of 2006.
His lead counsel is Robert S. Green, with Green & Noblin, of Larkspur.
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