Preying on the hopeless

I came across the Web Site "Swoopo.com" back in October. After looking at how they do their auctions, I decided to write the Utah State Attorney General's office to see if this kind of auctioning is illegal (since it more resembles a raffle than an auction, and many types of raffling are illegal in Utah (and other states))
This letter went to them on 10/23/08.
I read BoingBoing, and today they had an article linked about the same issue entitled "Profitable Until Deemed Illegal" http://www.codinghorror.com/blog/archives/001196.html by Jeff Atwood.

Because he comes to the same conclusion that I did back in October, I figured it would be about time to say something on my Blog (especially in light of the silence I have received from the Utah AG's office)...

Swoopo preys on the hopeless.

I work in Technology, and I buy a lot of computer equipment for personal and business use.
Because of this, I am always looking to save some money.
Especially in today's economy, when we are finding it more and more difficult to purchase even the necessities.
I came across a web site called Swoopo (http://www.swoopo.com) which touts itself as an auction site like Ebay (http://www.ebay.com). I did find, however, that there are several things wrong with their claims - it is more like a gambling or a raffle outlet than an auction house.

To clarify; Ebay, like any auction outlet, provides items for sale "to the highest bidder". This is a Fair and Free Market tactic to let society determine what something is worth. I have seen something you could normally buy at $10 go for as much as $90 and as little as $5. The point is, there is (normally) no "artificial inflation" of a product's worth, especially when there are multiple auction sites and Internet Retailers fighting for your business. Ebay takes a small percentage of the winnings, or there is a small fee to list your items on Ebay. This is their business model.

Swoopo, on the other hand, is free to join, but in order to bid, you must purchase "bids" in packages for a set amount.
Since I originally wrote the Utah AG's office, Swoopo has changed their bid buying model. It used to be that you bought "bids" for $1.00 each and each "bid" was worth $0.01 or $0.15. It is now that you buy 50 "bids" for $37.50 (for the math challenged, that is $0.75 each), and they are worth $0.01 or $0.15 each (depending on the type of auction).

My examples below are still geared toward the $1.00 bid price, so they are off by 25%, but it is still an insane amount of money...

They claim an item sells for it's face value, or for actual bid value, HOWEVER, if $1.00 = $0.01 then an item that they claim sells for $15.00 actually sold for $1500.00, and if I purchased 20 "bids" or $20.00 and I bid 20 times, and I win the item that is now listed at $15.00, it didn't actually sell to me for $15.00, but for $20.00.
ONLY, that isn't really correct. The item gets BID UP to $15.00 on a penny auction, and you put in $20.00 or 20 bids, then you have to pay for the item, which is now set at $15.00...
YOUR TOTAL OUT OF POCKET is $35.
THEIR TOTAL PROFIT is $1500 (bids) + $15.00 (final price) - (actual cost of item)

As you can imagine, I have some serious questions about the Legality of this type of "auctioning"...it sounds more like outright "gambling" than a "raffle", but maybe a "lottery" describes it better...
Unfortunately, lotteries, raffles, and gambling all do the same thing...they take money from desperate people who cannot afford to throw money away in this manner...but people do it for a couple reasons:
1) they want something of great value for a small price
2) they get financially vested in an item (via "bidding") and want to realize their "investment"

Aren't raffles/lotteries/gambling illegal in Utah (among other states)? This is, essentially, what it is that Swoopo is doing:
Instead of selling "tickets" or "chances", they sell "bids" - the more "bids" you buy, the better
chance you have of winning
Aren't they falsely advertising their goods/service? If they say something sold for $15.00, but in reality, the final price of the item might be $15.00, but the profit realized from the "$15.00" price tag was 100 times that. This is almost like a play on words...

This seems to me like a scam, a raffle, a lottery...it smells of false advertising, deception, and fraud. And it is DEFINITELY preying on the poor, especially in this economy.

There are some things that I neglected to mention, that Jeff points out...
Each time a bid is made, in the final few seconds of an auction, it extends out the time of the auction by another 15 seconds. This is the same kind of thing as enticing a mule to move by following a dangling carrot in front of its face...no matter how many steps he takes, that carrot is still just as far away...

They also "auction off" bids (the same as receiving quarters back from a quarter slot machine)...

And finally, they have a clause that allows "bait and switch". If I bid on an item, they can ship me an "equivalent" item...is that "equivalent" as in PRICE or in FEATURES and FUNCTIONALITY?

I am going to resubmit my email to the Utah AG's office, and see what happens. I will clarify and maybe even have them call me with any questions.