The director of an online car dealing company which placed thousands of bids on its own auctions didn't know the behaviour was illegal, his lawyer says.
The Auto Co was yesterday fined $42,000 for 13 charges laid by the Commerce Commission under the Fair Trading Act.
The company pleaded guilty to the charges - which related to "shill bidding" on $1 reserve Trade Me auctions over a year - at its first appearance on March 5.
Defence lawyer Donald Webster said director Masashi Umeoka knew staff were shill bidding, but did not know the scale of the behaviour or that it was illegal.
Mr Webster said when Mr Umeoka was made aware of the behaviour, he immediately sought legal advice to understand what had been done wrong.
"The initial interview with the defendant's director made it clear that the defendant's director did not realise that its actions were illegal," Mr Webster said. "The practice is apparently rife in Japan, where the defendant's director comes from, and it was not understood that it was illegal in New Zealand."
The Auto Co has already voluntarily paid $122,000 reparation to Trade Me, $90,000 of which has been distributed to 110 victims. There were still members to be contacted by the website.
Commerce Commission prosecutor John Dixon said The Auto Co's conduct was deliberate and systematic and involved more than 530 auctions and more than 7000 shill bids. "It makes a mockery of the representation that it's available for a $1 reserve," he said.
Trade Me described the offending as "almost industrial in its scale" and said it was "the most prolific and damaging campaign in [its] history".
The cost of uncovering the fraud cost the auction site $22,500, which resulted in a separate compensation claim.
Judge Ajit Singh reduced the original sentence by almost half, giving the company credit for its co-operation, change in systems since the shill bidding was uncovered, and the fact that the company had already paid reparations.
The Auto Co was ordered to pay $42,000, plus court costs of $1727.
Judge Singh noted the seriousness of the offending as "premeditated and systematic" and said the loss suffered by both Trade Me and affected consumers was "significant".
Trade Me head of trust and safety Jon Duffy said he was pleased to see the fine imposed.
The company was the biggest motor trader on the site at the time and the case is the largest of its kind in New Zealand. The company and Mr Umeoka have been banned from Trade Me for life.
'Shill bids' led to resignation
A former employee of The Auto Co says he left the company as soon as he learned it was placing false bids on Trade Me.
Chris Jellie said he came under pressure in 2009 to start "shill bidding" and decided to leave after a disagreement with company management.
"We were right on track to making a very good and credible business but [management] wanted to up the price of what the vehicles were selling for and asked me to bid against [the genuine bidders] and I couldn't do that.
"I just didn't agree with it at all."
There were other disagreements over the company's practices which led Mr Jellie to leave. He is now a contractor to another car import company.
When he left, the company had up to 10 employees.