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The Courts Businesses The Almighty Buck Hardware

Computer Parts Site Newegg Is Being Sued For Allegedly Engaging In Massive Fraud (gizmodo.com) 165

Posted by BeauHD from the ponzi-scheme dept.
schwit1 shares a report from Gizmodo: A suit filed Friday in the U.S. District Court in Los Angeles by four South Korean banks alleges "massive fraud" with an outstanding debt of at least $230 million, and California-based electronic parts seller Newegg has been named as a defendant, along with wholesaler ASI Corporation and its officers. These new documents allege that Moneual, Newegg, and ASI were engaging in "an intricate scheme of circular transactions." The banks submitted a list of over 70 pages of supposedly fraudulent orders as evidence that Newegg and ASI created the paperwork that Moneual used to secure loans. The suit further claims that Newegg and ASI "received kickbacks from Moneual in varying amounts in exchange for agreeing to collude with Moneual to defraud the Banks." One method of inflating purchase orders for Moneual -- a brand barely remembered in North America as a a low-tier entrant into the robotic vacuums market -- allegedly involved creating paperwork that showed components being sold for over 370 times their value.
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Computer Parts Site Newegg Is Being Sued For Allegedly Engaging In Massive Fraud More

Computer Parts Site Newegg Is Being Sued For Allegedly Engaging In Massive Fraud

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  • The 2015 lawsuit alleged forgery (Score:5, Insightful)

    by naughtynaughty ( 1154069 ) on Monday October 23, 2017 @08:05PM (#55421027)

    "The Seoul Central District Court convicted Park Hong-seok, head of Moneual Inc., a manufacturer of computers and small home appliances, of getting a total of 3.4 trillion won (US$3 billion) from 10 local banks between October 2007 and September 2014 based on forged documents that falsely showed the company's computer export contracts."

    Were they forged, as alleged back in 2015, or were they real and NewEgg was part of the scheme? What was in it for NewEgg? It isn't like they did a lot of business selling Moneual's products.

    Seems like the lawyers are looking for deep pockets.

    • Re:The 2015 lawsuit alleged forgery (Score:5, Interesting)

      by jonsmirl ( 114798 ) on Monday October 23, 2017 @08:20PM (#55421059) Homepage

      This does not make sense: "Moneual purported to charge ASI and Newegg between $2,530 and $2,980 per HTPC unit, and those amounts were stated on the invoices and purchase orders from ASI and Newegg upon which the Banks advanced funds to Moneual. However, the Banks later learned that in reality, the HTPCs were only worth $8 per unit."

      How can an HTPC be worth $8? Newegg still has empty Moneual cases listed for $70. Depending on what it was filled with in 2012 $2,530 is not an impossible price. $8 seems close to the shipping cost, not the product cost.

      • Re:The 2015 lawsuit alleged forgery (Score:5, Interesting)

        by UnknowingFool ( 672806 ) on Monday October 23, 2017 @08:59PM (#55421209)
        There may be another explanation in that Newegg sometimes acts as the middleman. You see this in the product details when it is listed as "Sold and Shipped by XXXX" instead of Newegg. So Monueal or their agents could fake "selling" many HTPCs when for a small service fee that Newegg that would collect as the middleman.

      • Looks like a circle fraud (Score:2, Insightful)

        by Anonymous Coward

        Moneual sells lots of these home entertainment (Vista PCs in hifi boxes with speakers etc) to New Egg at $2500+, then buys a lot of them back from NewEgg. Leaving only a net sale per unit of $8, since a lot of the buys cancels out a lot of the sale value.

        Moneual shows only export invoices to banks to secure funding, does not show the purchase side which is hidden in other companies are via other channels.

        I doubt Newegg did anything wrong or illegal here, it's just that Moneual have no money, so they've been

        • Happening at Amazon, too (Score:5, Interesting)

          by SethJohnson ( 112166 ) on Tuesday October 24, 2017 @01:35AM (#55421891) Homepage Journal
          The circle fraud you describe is absolutely happening over at Amazon. I had thought it was only to farm positive reviews and get products boosted to #1 seller status in a category, but now I suspect the manufacturers may be benefitting in other ways. As an example, do a search on Amazon for "pico projector"-- you'll find a bunch of cheapie ~$100 video projectors with hundreds if not thousands of 4 and 5 star ratings. This item is the "best seller" in the category [amazon.com]. Check the reviews. There are two thousand reviews written by 'verified purchasers' who simply relate a few of the product features likely printed on the box and offer no comparison with competing products nor mention any possible drawbacks (like that these projectors don't display true HD resolution), and English does not seem to be the authors' native language.

          i like this mini projector very much! it has really good quality and works really well~ it shows very clear and also with sounds by itself. This projector is very good, It's worth to get this!

          I love this projector. when it will be in 20 ft or 10 ft image is clear that when it is in 4 to 5 ft otherwise it is really good quality in dark.

          Projector is good value for money. Small, lightweight and does the job effectively. The cables and remote control are added plus. And the USB interface is really cool. You don't even need to connect is to a computer. Just plug in the USB and enjoy.

          If you click through on any of these profile names, you'll see hundreds of reviews written on cheap, Asian-sourced gadgets. Never any expensive, name-brand products. And the reviewers are so prolific, they write the reviews almost every day and usually upwards of five reviews per day. It's common to see one of these fake reviewers purchase two or three knock-off fitness trackers over the course of two months, yet none of their reviews compare the multiple trackers they seemingly have recently purchased.

          I can imagine that when they boost a product up to "#1 seller" status, they can get loans against projected sales volume just like these scammers did via their Newegg fraud.

          • Re:Happening at Amazon, too (Score:4, Insightful)

            by Shadow of Eternity ( 795165 ) on Tuesday October 24, 2017 @01:47AM (#55421911)

            Amazon and Newegg both went to shit when they opened themselves up to being filled with chinese knockoffs in the "marketplace". It basically turned them into a more expensive ebay where you need to try and hunt for the one legitimate seller page and thenhope Amazon's mixed inventory doesn't send you the knockoff anyway (like happened with the eclipse glasses).

            Hell even on Ebay you used to at least be able to just block any listing not in North America, although now even that doesn't work.

            • Re: (Score:2)

              by MobyDisk ( 75490 )

              Best Buy and Sears do this too. Newegg, Best Buy, and Sears do have an option to filter out 3rd-party products. I shop at NewEgg intermittently, and whenever I get a chance to provide feedback I make sure to mention how I never buy from their 3rd-party sellers. I request that others do this as well if they feel strongly enough to warrant posting here.

      • How can an HTPC be worth $8?

        If it's just an empty box created to make it look like you're selling product.

        You would also get bonus points for shipping drugs in some of the empty boxes, but I'm not alleging that actually happened. Just using my imagination.

      • How can an HTPC be worth $8?

        Maybe that was the value listed for import tax?

    • Seems like the lawyers are looking for deep pockets.

      Of course the lawyers are looking for deep pockets. Their clients are out hundreds of millions of dollars. The question is the extent to which NewEgg was responsible for that. If they weren't responsible or if they were, the case should settle quickly. Hopefully it's pretty clear.

      We don't know if they were responsible because all we have now is a Slashdot summary of an article describing a complaint that accuses NewEgg of something and our own personal experiences with NewEgg. (Which are generally positive.

      • Drawing conclusions from it would be like making decisions based on Betazoid intuition

        I thought for trials by jury, THAT's what the defense lawyers looked for in a jurist. If they had a college degree or knew Schrodinger had a cat, they were OUT. If they knew what channels and when Jerry Springer was on, they were the next in line.

        Anything, just as long as they could be convinced by feelings and not look at those annoying pesky facts.

        • Re: (Score:1)

          by AvitarX ( 172628 )

          In the jury selection I've seen, it's the side that feels they are wrong that does this.

          I've seen plaintiffs act this way as often as defendants, and similarly, I've seen both sides want the educated on different instances.

          You can generally tell which side is right by who they object to.

        • I thought for trials by jury, THAT's what the defense lawyers looked for in a jurist. If they had a college degree or knew Schrodinger had a cat, they were OUT. If they knew what channels and when Jerry Springer was on, they were the next in line.... Anything, just as long as they could be convinced by feelings and not look at those annoying pesky facts.

          People have different strategies, and everyone thinks theirs is best. One basic rule is each side wants to get rid of the other side's foreperson. So if you think someone is going to both sway the rest of the jury and side with the other side, you want them out.

          Education is sometimes good and sometimes bad, in terms of jurors. I knew a guy who sat on a jury trial for murder, and everyone with a science background voted guilty because the evidence showed the defendant had murdered his wife. (IIRC the scient

    • Re: (Score:3)

      by JoelKatz ( 46478 )

      I suspect that they added NewEgg to the suit because they figured that Moneual would point the finger at NewEgg if they just sued Moneual. The best way to ensure that NewEgg shows up in the courtroom to solidly place the blame on Moneual is to sue NewEgg too.

    • Right, they couldn't possibly have a legitimate complaint because those kinds of shenanigans are unheard of in business...

  • Anytime I think I'm getting a deal with their Premier discounts/free shipping, I look at Amazon to find that Prime is either matching or beating Newegg.

    • Re:Is There A Point to Newegg Premier Anymore? (Score:5, Interesting)

      by MBGMorden ( 803437 ) on Monday October 23, 2017 @09:22PM (#55421295)

      Newegg's interface is still a lot better for actually finding computer parts. All of their filters are much more targeted.

      That said - I'll admit that due to Prime I often go to Newegg.com, create a shopping list of what I want . . . then go over to Amazon and search the specific product names to duplicate the cart and buy from there instead.

      • Re:Is There A Point to Newegg Premier Anymore? (Score:5, Informative)

        by The Raven ( 30575 ) on Monday October 23, 2017 @10:07PM (#55421433) Homepage

        PC Part Picker [pcpartpicker.com]... and you can tell it to check Amazon and NewEgg outomatically and pick whichever gives you the best price, taking Prime and Tax into account. Even with Prime, I actually find NewEgg to usually be cheaper for high value PC guts. For fiddly bits like cables and fans Amazon usually wins.

        • PC Part Picker is a neat way to check for compatibility between all the hardware you'd like to use, like case clearance and such, but when I used it literally none of the prices they were showing were actually offered to me when I clicked on them. I wound up buying the stuff for my last PC upgrade from a combination of Newegg and eBay, where they showed a combination of Newegg and Amazon. And I didn't order all the same stuff they suggested from Newegg, either.

      • Yeah, I've found myself doing something like that too--not something I'm proud of. And as you say, NewEgg's filters are *much* better for finding what you want.

        • With the world of purchasing as it is, I've never understood this: using one company's resources, then buying from someone else.
          This seems inherently dishonest. not illegal, just dishonest.
          Then, at some point, the "superior service" company goes out of business and everyone sits around wondering what happened.
          I'm wondering how people would feel if a company obtained a quote from them for consultant work, used them to define the process and work needed, then took that list to a competitor who offered the sam

  • They did it... (Score:1)

    by Anonymous Coward

    Straight up. Not knowingly at first, but the continued it.

  • But I like NewEgg (Score:5, Interesting)

    by jwhyche ( 6192 ) on Monday October 23, 2017 @08:40PM (#55421127) Homepage

    Bummer. I actually liked NewEgg.

    • Re: (Score:1)

      by Anonymous Coward

      I was buying from NewEgg until about ten years ago? They were great at first, they would even give you free newegg t-shirts with your order, but I had to stop using them. They suddenly stopped allowing me to ship anywhere but my billing address. I needed everything at the office instead, and no matter whether I had that listed with the banks as a second address etc, they would not ship there (or anywhere else apart from my home address), so I could not order anything anymore, when I has been spending about

    • Re: (Score:2)

      by oic0 ( 1864384 )
      I stopped using them when their automatic inventory pricing algorithms made them too irritating to deal with. If they had the best price on an item, it would only be until a couple people noticed then the computer would jack the price up.

      • Re: (Score:3)

        by jwhyche ( 6192 )

        Never saw that problem. I always would do a price comparison between newegg and amazon for price. But speaking algorithms I did love some of the suggestions that newegg would come up with.

        "We see you just bought 4 hard drives, would you like this chansaw to go with them?"

    • Bummer. I actually liked NewEgg.

      So... guilty until proven innocent?

      • public opinion does not have or need to go by innocent until proven guilty for better or worse, that is purely for the courts. Personally I vote with my wallet as to what I find most likely true, I don't need to justify or provide a burden of proof one way or the other.

      • Re: (Score:3)

        by jwhyche ( 6192 )

        No. It is just things like this tend to spiral out of control and usually sink companies like newegg. As for me I plan to continue using newegg till they shut the lights off if their price are lowest.

        • Re: (Score:2)

          by rhazz ( 2853871 )
          They've survived patent trolls [arstechnica.com], they should survive this (assuming innocence).

        • Re: (Score:2)

          by G00F ( 241765 )

          I don't use them because they are the lowest(amazon is consistently lower, and I can generally find a part cheaper elsewhere)

          I use them because they cater to the PC market and it shows. They also put more care into their customers. And further they battle patent trolls.

      • Re: (Score:1)

        by Desler ( 1608317 )

        Personal opinion doesn’t have to be rational or follow rules of law.

      • Dealing with a company that's in trouble means an increased risk losing your money. If you can't afford to lose your money, deal with a healthy company with a good reputation.

    • So did I until I had a warranty claim. To be fair I am not in the USA, but since Newegg specifically services and caters for other countries in the local currency and language, one would expect them to offer local warranty services as well. None of this 1 year standard - *in size 2 font* unless you're not in the USA then it's 6 weeks, even for server parts.Their customer service was completely unhelpful directing me to worthless claim forms which ended up in an endless loop of saying that the product wasn't

    • They used to be downright awesome but have in my experience have gone to complete shit since they sold out to Chinese interests...

  • 370x markup? (Score:1)

    by Anonymous Coward

    That's the same markup as bottled water and barista coffee!

    • Re: (Score:1)

      by AvitarX ( 172628 )

      I don't think that's true on the coffee.

      I spend about $1/day on coffee at home.

      I've never seen it over $4 at a coffee shop, and that's for more than I drink at home (though I make mine quite strong).

      • if you are spending $1 at home, then you will find a business will be paying only a tiny fraction of that as you are paying for distributers and retailers margins and buying in much much lower volumes then them. The most expensive part of the coffee is the building and the people making it for you.

    • My wife spent like $47 on two hot pretzels, a tub of popcorn and two bottles of water at the movie theater a few months ago. The pretzel sucked and I didn't eat all of it.

      I didn't find out until about a day later how much she had paid for it all. Just as well, I wouldn't have enjoyed the movie much.

  • We spent seven figures with newegg in 2002... (Score:5, Insightful)

    by Anonymous Coward on Monday October 23, 2017 @08:47PM (#55421155)

    so we were for a long time one of their largest customers. They used to be great. Then they, like amazon.com did when they abandoned books and became stupid, decided they wanted to become a platform to support third-party frauds that weren't them. When newegg only sold computer parts, they were the best in the business. Now, they're just like any other site that allows fraudulent third-parties to sell via their platform. I don't want to see ads for, for example, air conditioners and bidet toilet seats.

    • Re:We spent seven figures with newegg in 2002... (Score:5, Insightful)

      by MBGMorden ( 803437 ) on Monday October 23, 2017 @09:39PM (#55421353)

      I have to agree with this - and I don't know why companies keep doing this. When I want to shop at a flea market I got to eBay or Aliexpress. That's their ENTIRE BUSINESS MODEL.

      When I go to Amazon, Walmart, or Newegg, the first thing I do is to scroll to the side and filter out 3rd party vendors.

      • For hard to find items, it can be a good idea to look on Amazon with third parties enabled and then look up those third parties that stock the item you want to see if they have their own webpage or an eBay store. Amazon fees must be higher because whenever I have done this, I've found the same vendor selling the same item for less from a different middleman or direct. The barrier for entry for an Amazon third party seems just high enough to ensure that you're getting what you wanted versus the crap shoot

        • The fees are higher because of Prime and Amazon processing returns. Plus I found that Amazon will give you refunds with problem vendors and then deal with the vendor for you. So you do get something for those higher fees.

      • Comment removed based on user account deletion

    • like amazon.com did when they abandoned books and became stupid

      Yeah, it's a shame you can't buy books on Amazon any more. And their pure stupidity is, correctly, reflected in their plummeting stock price. People HATE doing business with and through Amazon. That's why they're failing so badly.

      Oh, right. You're talking out of your lying ass. Why? Does it feel good to assert an alternate reality?

      • Re: (Score:2)

        by Kaenneth ( 82978 )

        https://www.merriam-webster.co... [merriam-webster.com]

    • Re: (Score:2)

      by swb ( 14022 )

      I can't disagree. I still buy the occasional item from them because they still have an excellent filtering function which allows you to drill down to specific features, but they are flooded with a lot of other crap I just wouldn't buy from them or their third party sellers. At least you can still choose "Sold and shipped by Newegg" as a selection criteria.

      I kind of think that Amazon will ultimately do something to improve some of their repuational problems -- third party sellers, fraudulent merchandise, m

      • I kind of think that Amazon will ultimately do something to improve some of their repuational problems -- third party sellers, fraudulent merchandise, mixed inventories, if only because they are an American company and their size gives them a lot of leverage over their suppliers.

        That's why they can do something, but it's not why they will. Amazon only improves when forced, or at least strongly encouraged. Remember when they were being really, really horrible to workers? They pared that back to a single horrible without a lawsuit. But it took more than a polite request to get them to "crack down" on counterfeit sunglasses, for example. (I wish they hadn't; all the brands I used to love are now owned by douchebags Luxotica, and they have ruined them to the point that fakes are just a

        • Re: (Score:2)

          by swb ( 14022 )

          You're right.

          I'm kind of wondering if the whole big tech world -- Amazon, Apple, Google, Facebook, (add or remove Microsoft or a couple others as you see fit), isn't in for some kind of comeuppance. Those few seem to be within about five minutes of such a level of pervasiveness that I think they will face a kind of political revenge.

    • I agree except for the "became stupid" part. I think "became greedy" is more accurate. Like another poster who replied to this, I filter out 3rd-party vendors, but where NewEgg used to be the best deal around for parts, they haven't been for a long time.

    • Everyone seems to do it now a days. Homedepot and Bestbuy websites are not mostly 3rd party re-sellers. I have to assume that for everything sold to a 3rd party the host company takes a percentage, so they see it as free money as other than handling the transaction they have nothing to do with it. The 3rd parties are getting free brand recognition and a selling platform. If not done properly however what these companies might not realize is that it will hurt their brand name they have built up over the year

    • But I remember buying some RAM from them back in 2001. They sent me double what I ordered, and charged me for it. It was clearly a mistake on their part as the invoice only showed what I ordered. I finally got them to agree to take the return, and vowed to never shop with them again.

      Fast forward a few years and they really started to improve, and I did buy quite a few things from them. They were the gold standard at the time for prices, reviews, communication, and shipping speed. Even if I could get i

  • But at least it was new ... (Score:5, Funny)

    by 140Mandak262Jamuna ( 970587 ) on Monday October 23, 2017 @08:47PM (#55421159) Journal
    The banks ended up egg in their faces, but small consolation, it was at least Newegg...

    (Ducks and runs away, dodging more eggs)

  • Patent Trolls (Score:3)

    by Gim Tom ( 716904 ) on Monday October 23, 2017 @09:38PM (#55421345)
    Although it might be unrelated, I can't help but wonder if some patent troll is behind this. Newegg has been giving them a hard time and I wouldn't put some form of obscure payback past them.

    • Re: (Score:1)

      by Desler ( 1608317 )

      Why would a couple of banks worth trillions in assets combined file a phony lawsuit to do the bidding of a some piddling patent troll? The idiocy of your post is astounding.

    • A 10 second google search would have shown you how fucking dumb that comment was. Their is absolutely no doubt that Moneual and its directors engaged in a huge Ponzi scheme and are currently in jail/being prosecuted for it or that the banks have been defrauded of hundreds of millions. This is simply yet another in a long list of fraud commited by Moneual.
  • Buying things for several times parts and labor.
  • This is what happens when you sell your American business to a Chinese company. Lying, bank fraud, copyright infringement, selling known defective products, lying to consumers, not complying with fair business laws, lying in their advertising, etc is what Chinese companies do. The culture over there resembles Turkish street vendors.

    • Re: (Score:1)

      by Anonymous Coward
      Newegg was founded by Fred Chang, who is chinese. It is now owned by a chinese corporation. Looks like neweg got tricked and dragged into this mess. Corruption in South Korean is rampant, just look at what happened to the former president. https://en.wikipedia.org/wiki/... [wikipedia.org]

  • You all seem to have forgotten when NewEgg was originally selling things "auction" style where you'd bid on their products. The thing was they would creatively mis-label products, such as labelling disposable film cameras as "Digital Camera". Then after that I seem to remember something about selling rejected OEM equipment but I don't remember if they actually got in trouble for that one...

  • I am not normally so harsh on a business, but I'm glad to see they are getting some comeuppance.

    Anyone who still likes Newegg because they haven't gotten screwed yet should really take heed. This is a "where there's smoke; there's fire" type thing. Newegg are really the worst kind of company because they give zero shits about their customers. This is a lot different than companies like the big banks or the airlines where they just have lackluster or inadequate customer service. Even those behemoths are smar

  • Did they think they were Apple ?

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