3 Men Indicted in Alleged Scheme to Boost EBay Art Bids

A federal grand jury Thursday indicted three men accused of running an Internet ring that illegally bid up online auction prices for art on EBay, including the aborted $135,000 sale of a fake Richard Diebenkorn painting that drew national attention last year.

The 16-count indictment, the first criminal case for abuse of the popular Web auction, alleges the trio conspired on hundreds of occasions to send sale prices skyrocketing with “shill bids” on innocuous paintings they found at secondhand shops.

Aside from peddling a phony Diebenkorn, on which one of the men forged the abstract artist’s initials, the ring used a variety of schemes to boost the price of paintings purportedly by William Wendt, Clyfford Still and other renowned artists.

The indictment charges Kenneth A. Walton, 33, a Sacramento attorney, Kenneth Fetterman, 33, of the Sierra foothills town of Placerville, and Scott Beach, 31, of Lakewood, Colo., with wire and mail fraud.

Fetterman, the alleged mastermind of the scheme, faces six additional counts of money laundering. Authorities say he was last seen months ago and his whereabouts remain a mystery.

Beach and Walton are cooperating with investigators. Neither returned phone calls, but an attorney for Walton said his client simply got snagged by a scheme that started out innocently.

“What first appeared to be clever mischief eventually got out of hand,” said Harold Rosenthal, Walton’s San Francisco-based attorney. “Ken’s a good, decent guy. He’s never been in trouble before. He’s tremendously embarrassed.”

Walton met Fetterman years ago in the Army. Beach was a friend of Fetterman.

The indictment alleges the three men worked together between late 1998 and June 2000 to create more than 40 phony user IDs on EBay. They used those aliases--”birdaroo,” “bububuy” and “thriftstorebob” among others--to place fraudulent bids that artificially inflated the prices of hundreds of paintings, the indictment charges. Their final take in the 1,100 auctions hosted by the trio was about $450,000.

The indictment said the ring purchased items at secondhand shops, antique stores and other spots, marketed them on EBay, then split the profits.

For more than a year the three men managed to operate unfettered. Then in April 2000, Walton listed a painting for sale under the alias “golfpoorly.” According to the affidavit, Walton forged the initials “RD 52,” the moniker used by Diebenkorn. He also misrepresented that it had been purchased in Berkeley, where Diebenkorn worked during the early 1950s.

The colorful abstract painting quickly attracted a frenzy of bidders. The defendants made more than 50 fraudulent bids during the auction, which concluded with a final bid of $135,805 by a collector in the Netherlands. The sale was aborted within days as suspicions about the painting surfaced.

Each fraud count carries a sentence of up to five years in prison and a $250,000 fine, and the money-laundering counts carry a punishment of up to 20 years and a $500,000 fine.

Officials at EBay said they were happy to see charges brought.

“I’m pleased a case like this was done,” said Rob Chesnut, EBay Inc.’s deputy general counsel. “It sends a message.”

The online market runs up $17.7 million in sales on a typical day, offering more than 6 million items at any given moment. Analysts estimate it holds a corner on 80% of the business for online auction houses.