Jay Nelson parked his wife’s white Jeep Cherokee in a garage near Hartford’s Bradley International Airport and dashed toward the terminal. It was Valentine’s Day 2001, and he was worried he’d miss his flight.
This was Nelson’s first day as a fugitive.
The following day, Nelson was expected to appear in federal court in Concord, New Hampshire to face arraignment for fraud related to his ingenious home-based business: running auctions for computer equipment on Yahoo and eBay and rarely delivering the merchandise. It was a business, Nelson now says, built on a “100% profit margin.”
Before leaving home early that morning, Nelson had written a note to his wife, Krista, who was pregnant with their first child. In the note, he explained that he was leaving because he didn’t want to cause problems for the family.
When Nelson stopped to check his luggage with a redcap outside the terminal, the redcap told Nelson that he’d have to go inside — his name had been flagged because he’d bought his ticket the day before. “I was worried that they would catch me before I got onto the plane,” Nelson says. He was traveling with $10,000 in cash and about $4,000 in gold and platinum coins.
But if he was on any computerized watch lists, the agent at the US Airways counter didn’t notice. Nor did the agent balk when Nelson handed over his New Hampshire driver’s license, even though it didn’t match the name he had used to buy the ticket on the Web, Jay Elson. Nelson boarded the plane just before the cabin door closed, and a few minutes later, he watched with relief as the airport began blurring past the window.
Eventually, however, Nelson’s real name would feature prominently on another list: the most-wanted roster of the U.S. Postal Inspection Service, which is responsible for investigating most online-auction scams. He’d be charged with conducting more than $200,000 in illicit auctions, using 15 different screen names and ripping off 1,700 victims. “He found a method that worked,” says Tom Higgins, the postal inspector who was the sole investigator who built the case against Nelson — and who tracked him down after he fled. Nelson could produce new online identities almost at will, and “he could commit Internet fraud faster than we could investigate,” Higgins says.
Though Nelson never wielded a gun, Higgins started thinking of him as the John Dillinger of the Web — someone who excelled at a particular kind of crime and was brilliant when it came to eluding capture. In contemporary terms, Nelson’s case was the Internet version of Catch Me If You Can.
Nelson is just one of the individuals who have decided to make a living by swindling bidders on eBay and Yahoo — albeit one of the most successful. Auction fraud has been the biggest source of consumer complaint to the Internet Fraud Complaint Center, run by the FBI and the National White Collar Crime Center, every year since the center was created in 2000. Fraud is also a sticky problem for eBay, the Web’s biggest auction site. (Although Nelson operated on both Yahoo and eBay, eBay’s business is far more dependent on auctions than Yahoo’s is.) EBay’s virtual auction house hosted nearly $15 billion in sales of merchandise last year, generating $1.2 billion in revenue for the company. EBay says that only an infinitesimal fraction of its auctions are fraudulent, but ensuring that its marketplace is a safe arena for buying and selling merchandise is crucial to the company’s continued growth. And catching serial scammers like Nelson is a good place to start.
Complaints trigger an investigation
There wasn’t anything exceptional about the Jay Nelson file when it first showed up in Tom Higgins’s interoffice mailbox, courtesy of his supervisor, in May of 2000.
Higgins, 45, has worked for the U.S. Postal Service since he was in college, when he took a job as a letter carrier in the town of Andover, Massachusetts, north of Boston. He had always wanted to be a federal agent — maybe in the Secret Service or the FBI — but the path to becoming a postal inspector seemed a little clearer. Despite the dweeby title, postal inspectors are indeed feds: Higgins packs a 9-millimeter Beretta Centurion whenever he leaves the office. “We’re not as well-known as the FBI,” shrugs Higgins. “That doesn’t bother me.” He has a low-key personality, a spiky gray brush cut with a shock of white in front, and a reputation around the office as a tenacious investigator.
Postal inspectors ferret out crime that takes place within the ranks of the postal service, but they also work on cases that involve drugs and bombs sent through the mail, as well as mail and wire fraud — the category that online auctions fall into. Part of Higgins’s job is to sort through complaints and figure out which ones are worth investigating. The Nelson file was thin, but it seemed worthy of attention. Buyers were complaining about a seller who operated from a rented mailbox in Tyngsboro, Massachusetts, a town near the New Hampshire line. The seller was offering hard drives and other computer components but not delivering — or occasionally sending broken products. He was also selling illegal copies of software such as Adobe PhotoShop, which buyers found they couldn’t register.
It didn’t take long for Higgins to connect the Tyngsboro mailbox to Krista Nelson, whose name was on the box-rental form. Higgins learned that Krista and Jay Nelson lived in a rented house on 32 acres on a mountain in Lyndeborough, New Hampshire, about a half hour’s drive from Tyngsboro. He also discovered that a postal inspector based in New Hampshire had already visited the Nelsons earlier in 2000 to inquire about other complaints relating to auctions that traced back to them.
“This was someone who was ingenious at devising new ways to beat the system,” says U.S. postal inspector Tom Higgins. “He did it for a living.”
Nelson had claimed then that he’d simply fallen behind with his business. He promised that he would refund his customers’ money, and he later supplied the New Hampshire postal inspector with a list of all of the customers who’d complained and how much he’d refunded to each. But the scams continued, under different screen names on Yahoo and eBay.
“I figured I’d better step back and consider the scope,” says Higgins, explaining why he didn’t visit the Nelson home right away. “When you interview someone, you want to know as much as you can. Clearly, this guy wasn’t telling the whole story” to the New Hampshire postal inspector.
Higgins started tracking money transfers from Nelson’s accounts on PayPal, an online payment service now owned by eBay, into accounts at the Bank of New Hampshire. (Auction bidders often send sellers money through PayPal.) At that point, Higgins was the only person on the Nelson investigation — and he was conducting it in parallel with seven or eight other investigations for which he was responsible.
Higgins had been on eBay once or twice, but he’d never bought or sold anything on the site. Working the Nelson case was “a fast learning process,” he says. “It was like skipping 101 and going right to the master class.”
By summer of 2000, Nelson had “left the realm of having dissatisfied customers and stepped over the line to conducting failure-to-render scams,” Higgins says. “And everything he was doing involved fictitious information and false identities.”
More interested in booze than books
Nelson grew up with adoptive parents in Rockford, Illinois. His father ran a property-management company that dealt with apartment buildings and shopping malls. Nelson studied criminal justice at a local community college and later attended Illinois State University in Bloomington, but he didn’t graduate. “I was more interested in drinking,” he says. By the time he reached his twenties, Nelson had amassed enough DUI convictions to qualify as a felon, and he had spent time in Cook County Jail.
He had been interested in computers since he was a kid, and when he got out of jail, Nelson managed to land an IT-support position at the Eureka Company in Bloomington. He wasn’t beyond fudging the truth to get a better job, though. When he applied for a job as a Lotus Notes administrator at Caterpillar, for example, Nelson said that he had a degree in criminal justice and that he was familiar with Notes. “I got a copy of Lotus Notes for Dummies and learned enough of the buzzwords,” he says. After three rounds of interviews, “they hired me on the spot,” Nelson says. “I’d never even turned on the program.” But he was a quick study, and he says that he was soon competent at creating and maintaining Notes databases.
Nelson’s older brother had started selling computer equipment on a fledgling auction site called eBay. When Krista, who worked for State Farm at the time, found out that employees there could get deep discounts on surplus office equipment, she bought Hewlett-Packard inkjet printers from State Farm 10 at a time, and Nelson posted them for sale on eBay. Then his brother connected him with a man who had a large supply of computer software, and Nelson started selling that too.
By 1997, Nelson’s auction income had surpassed his Caterpillar salary, and he quit to run his auction business full-time. “I would hire neighborhood kids to bubble-wrap modems for me or type up labels,” he says. “I was working 16 hours a day, seven days a week.” Several hundred pieces of mail came in every day, and several hundred packages went out, Nelson says.
At that point, at least some of the auctions Nelson ran were legitimate. One of his user names from that era, Diamondsoft, had 58 positive ratings in eBay’s feedback system and only one negative rating. (Diamondsoft mostly sold copies of Microsoft Office.) But the negative rating offered a hint of what was to come: “I think they are thieves,” the buyer wrote in March of 1999. “My bank paid my check 12/28/98 and I’m still waiting.”
Other buyers began finding themselves in similar situations. “I sent money order, they sent nothing,” another buyer wrote in May 1999. Eventually, a postal inspector knocked on the door of the house that Nelson rented from his brother and told Nelson that there had been complaints about his auctions. The sheriff and a representative from the Illinois attorney general’s office also dropped by.
Nelson decided that it might be a good time to move to New Hampshire. “My wife hated the Midwest, and she’d lived in Nashua [New Hampshire] before,” he says. Another motivating factor: The Illinois attorney general was building a case against the Nelsons for failing to deliver merchandise they’d sold, selling pirated software, and establishing new screen names with false information after their old screen names had been suspended. So Jay and Krista relocated to Lyndeborough. (They later reached a settlement with the Illinois attorney general, agreeing to pay $6,000 to their customers and $1,000 to the attorney general’s Consumer Education Fund.)
Since most auction bidders look at a seller’s feedback messages before they place a bid to determine whether the seller is trustworthy, Nelson devoted a lot of energy to creating positive feedback profiles for his various online identities. One identity of Nelson’s would “sell” an item to another, and then the “buyer” would post positive feedback on the “seller.” Nelson would also buy inexpensive items, like paperback books, from sellers who actually existed, hoping that they would add good feedback to his profile. He didn’t care about actually receiving the books, and he regularly used a fake mailing address.
Once an identity had received enough positive feedback to be considered trustworthy, Nelson would set up a “Dutch auction,” in which he claimed to have a large batch of a particular item to sell. Dutch auctions allow sellers to post quantities of identical merchandise all at once, rather than item by item, and bidders can buy as many as they want. By the time buyers started complaining to Yahoo or eBay that they’d paid but never received the product, causing that particular identity of Nelson’s to be suspended from selling, Nelson would have collected most of the money. In June 2000, one identity, harddrives4sale, took $32,104 from would-be buyers on Yahoo; in September, another identity raked in $12,985 on eBay.
By the fall of 2000, when Higgins felt he had made enough progress to take the next step in his investigation, the Nelsons had moved again. They’d purchased a historic house on Main Street in Gilsum, New Hampshire, a town near the Vermont border. The house, built in 1883, had once been an inn, and Nelson converted the third floor, which had served as the inn’s ballroom, into his office. Nelson hardly kept a low profile: He coached Little League, led a Boy Scout troop, and occasionally helped his neighbors with computer glitches.
Higgins first met Nelson on the morning of October 20, 2000, when Higgins arrived at the front door of his house with a search warrant, two New Hampshire state troopers, six fellow postal inspectors, and a battering ram. The last proved unnecessary: Nelson answered the door when Higgins knocked. “Mr. Nelson, we’re federal agents from the U.S. Postal Inspection Service,” Higgins told him. “We have a federal search warrant from a magistrate regarding your activity on Internet auctions.”
Higgins and his team took five computers from Nelson’s house, along with several boxes of documents. The search took about six hours, and afterward, the computers were sent to a crime lab in Virginia for analysis.
Nelson expected to be arrested that day. But Higgins first needed to comb through the evidence from the search and write up a formal complaint against Nelson. “I knew there was stuff on my computers that would screw me,” Nelson says.
Learning of his own indictment on the 11 o’clock news
After the search of his house in Gilsum, “we figured Nelson was on notice,” Higgins says. But then Higgins got calls from Stoney Burke, a member of eBay’s antifraud squad, and his contact at PayPal, who reported, incredulously, that Nelson still seemed to be at it. (Yahoo’s auction service was much less cooperative with the investigation, Higgins says. A Yahoo spokeswoman issued a statement: “When we are contacted by the authorities, we work closely with them to provide the requested information in a timely manner.”)
With a proud smile, Nelson says that shortly after his home was searched, he built three new computers. “They took the CPUs but left the keyboards and monitors,” he says. “And we had a lot of extra parts sitting around.”
With his new computers, Nelson continued vacuuming money via eBay and Yahoo auctions. In November and December of 2000, under the name Susancutey, he took bidders for more than $30,000 on Yahoo Auctions. As YoshiInc on eBay, he “sold” $7,600 worth of computer gear.
On the advice of Michael Gunnison, an assistant U.S. attorney in Concord, New Hampshire, Higgins decided to take a small slice out of the bigger pie and focus on one crime for which they could arrest Nelson. They didn’t necessarily think that they could keep him in jail — but they wanted a judge to impose pretrial conditions that would stop him from running auctions.
The small slice that Higgins and Gunnison focused on was an auction from August 2000 in which Nelson interacted with a customer who’d won a Yahoo auction and expected to pay Nelson for a 32-megabyte RAM card for his laptop. Nelson took the customer’s credit-card number to consummate the transaction. (He had no ability to process a credit-card payment, however.) Nelson never sent the RAM, but over the next two months, he used the customer’s Visa number to establish an America Online account — which he later used to conduct other fraudulent auctions — and to set up monthly subscriptions to several porn Web sites.
The next time that Higgins knocked on Nelson’s door, in January 2001, he didn’t bring the whole posse. He arrived with just one other postal inspector in tow and a warrant for Nelson’s arrest in connection with a single charge of wire fraud, for the unauthorized use of the credit card. Nelson answered the door in his bathrobe. Higgins allowed him to dress before packing him into a car for the hour-long trip to the federal courthouse in Concord. Though Nelson was cuffed in the back of the car, Higgins let him read the arrest warrant. They made small talk. “He seemed like an affable enough guy,” Higgins says.
They arrived in Concord just before noon. The U.S. Marshal’s Service took custody of Nelson, though Higgins did Nelson’s fingerprints and mug shots. In the afternoon, Nelson made his appearance before the federal magistrate, James Muirhead. Muirhead listened to Gunnison describe the ongoing investigation Higgins was working on. Then he heard from Nelson, who sounded contrite, promised to get a job, and mentioned that his wife was pregnant. Muirhead released Nelson and told him to return to Concord for his arraignment in a few weeks. There were also pretrial conditions, as Higgins and Gunnison had hoped for: Nelson had to stay in New Hampshire and “refrain from any use of computers.”
A grand jury indicted Nelson on one count of wire fraud on February 7. Nelson found out about the indictment by watching the 11 o’clock news. “We didn’t sleep much that night,” he says. Nelson was required to appear in Concord again for his arraignment on February 15. He feared that they’d keep him in jail until the trial — and he was convinced that he would wind up serving a long prison term.
On the 14th, Krista called her husband’s pretrial service officer to inform him that Jay had disappeared in the Cherokee and had left a note. On the 15th, no one knew where Nelson had gone. “We were looking at a potential flight situation,” Gunnison says. Few expected Nelson to show up in court.
And he didn’t. He was now officially a fugitive, and it was the responsibility of the U.S. Marshals to find him. Higgins kept working the case too.
A cold feeling inside
On the US Airways flight, Nelson brought his newest computer with him, a Toshiba laptop that he’d bought at a Best Buy in Concord on February 2, three days after agreeing in front of the magistrate to refrain from any use of computers.
Nelson connected through Pittsburgh and landed someplace warm. He took a taxi to the motel room he’d reserved, which turned out to be in a seedy neighborhood. “There were hookers and strip clubs and adult bookstores,” Nelson says. “The first room I got had a mildewy smell to it. So I went back to the office to change rooms. As I was walking back from the office, I realized what I’d done. I’d just left my wife, walked away from everything. I got this cold feeling inside.”
Nelson was paranoid about being caught. “I thought I saw a U.S. marshal behind every rock,” he says. But after a while, Nelson convinced himself that he was “a really small fish in a really big pond.” Higgins had no idea where Nelson was, and neither did the U.S. Marshals. Krista Nelson’s Jeep Cherokee, parked at the airport parking garage, wasn’t even found for several months.
Nelson’s auctions continued to pop up on eBay and Yahoo, but at that point he seemed mostly focused on eBay. In March and April, he took in almost $8,000 on eBay, spread over 73 different transactions. Then came nearly $20,000 in April and May as “Biggerthanu.” Then $27,000 as “Skunkker” in May and June. Nelson was a mass manufacturer of electronic identities.
Higgins decided that if he was going to catch Nelson, he would need to tap into the online-auction community. He began contacting buyers who’d lost money to all of the Nelson scams that he knew about. He asked them to complete a Web-based survey form that he’d designed especially for the case. As information poured in, Higgins sifted through it.
Bryan Small, a union electrician in Chicago, bought an Intel Pentium motherboard in May 2001 from an eBay seller called Biggerthanu. It was for a computer that Small was putting together. He paid $188.50 via PayPal but never got the merchandise. “I felt rather p.o.’ed,” Small says. “I decided to do what I could.” So, like Higgins, Small started to email other buyers who’d been burned by Nelson, asking for information.
Why did Small make the effort? “If you go and rip people off, you make the whole system look bad,” he says. “And once the system looks like it’s not trustworthy, then no one wants to be affiliated with it.” Small forwarded all of the information that he had collected to Higgins.
Contained within Small’s cache of emails was the case’s first big break. One of the emails Small had received was from someone who hadn’t bought anything from Nelson but had sold him a digital camera. Luckily for Higgins, that seller had kept a meticulous database of every transaction, and he supplied the shipping address where the camera had been delivered. It had been sent to “John Nelson” at a Howard Johnson Express Inn & Suites in Orlando, Florida.
A postal inspector from Orlando went to the Howard Johnson’s and showed the manager a photo of Nelson. The manager recognized him but said that he wasn’t staying there anymore. Yet Higgins was encouraged. He now had a rough sense of where Nelson was — or at least where he’d been recently.
Then he made what seemed like a huge mistake. In talking about the case to a reporter for MSNBC.com, Higgins mentioned that he thought that Nelson was in Florida. He intended to indicate that that information was off the record. But it ran in the MSNBC.com article on June 7, 2001.
“We were concerned that the MSNBC story had blown everything,” Gunnison says. “Why wouldn’t Nelson be Googling his own name [to see what was being said about him]? We were convinced that he’d leave Orlando.”
Spread-eagled on the sidewalk
Nelson wasn’t planning to leave Orlando, but he was laying the groundwork for creating a new identity in the real world, just as he’d been able to churn out new identities online. In libraries and on the Web, he researched how to obtain a fake set of ID documents. He didn’t have a bank account in Orlando, so he had to be inventive about how he pulled money from his PayPal account. Proceeds from his auctions went into the account, and Nelson used that credit to buy other things on eBay, such as gold coins, CD burners, and other electronics.
Often, his purchases weren’t mailed to him at hotels where he was currently staying. Instead, he’d have things sent to neighboring hotels. When he went to pick up the packages, he would tell the desk clerk that he was staying nearby and had made a mistake with the mailing address. Nelson took the electronics to pawn shops, where he sold them for cash; the coins went to a stamp-and-coin shop in Kissimmee, adjacent to Orlando.
One day at Disney World, Nelson met a Disney employee. She eventually moved into his motel room. He told her that his wife had been killed in a car accident and that he was a special agent with the Department of Justice. Nelson said that because of the types of cases he was working on, the agency had had to move him out of New Hampshire for his own safety — and that she shouldn’t tell anyone that they were living together.
In Boston, Higgins thought that the MSNBC.com article had surely tipped Nelson off. Instead, it wound up being the key to finding him. An AM talk-radio station in Orlando, WDBO, broadcast a piece about Nelson, mentioning that the notorious scammer was thought to be in Florida. One person who happened to be listening to the show that day was Ann Fettig, the owner of A&R Stamp and Coin in Kissimmee. The name Jay Nelson rang a bell with her.
Fettig, 60, looked through the records in her shop and found a copy of Nelson’s New Hampshire driver’s license. (Fettig’s policy is to photocopy the license of anyone she buys from.) “He came in about 12 times over a period of six weeks,” Fettig says. “He’d have one or two gold coins at a time. He was very chatty, and he seemed to have plausible reasons for having the coins and selling them.”
Nelson told the judge that he was very sorry. “His comments needed to be taken with a cargo container full of salt,” says assistant U.S. attorney Michael Gunnison.
In her spare time, over the next two weeks, Fettig scouted for information about Nelson on the Internet and eventually found his wanted poster on the Postal Inspection Service’s Web site. “I wanted him to stop so that he wouldn’t keep scamming people,” she says, although she doesn’t buy or sell through online auctions herself. “After I found the photo, I realized it definitely was him.” She contacted Higgins.
Higgins was overjoyed to hear from Fettig that Nelson was a regular visitor to her shop. He started putting together a plan for Nelson’s arrest. And immediately found out that his managers wouldn’t let him go to Orlando to do it himself.
“We were at the end of our fiscal year and under a budget directive. I was obviously a little disappointed,” he says, with typical understatement. Higgins had to contact the postal inspectors in Florida and ask them to handle the arrest. He filled out the requisite paperwork, and the Orlando office put two inspectors on the case. The U.S. Marshals arranged to post an agent inside Fettig’s shop to wait for Nelson to appear.
Nelson had last been to the shop on June 29. Fettig took a vacation in early July, and when she reopened the shop on July 10, deputy marshal Sam Maddox kept her company. Nelson showed up the next morning, before the shop was open, and waited outside. Fettig and Maddox were already inside, and Fettig was worried that Nelson had seen Maddox and been scared off, since she always ran the shop alone.
“Something didn’t feel right,” Nelson says. “I didn’t go in. I lit a cigarette and walked away from the shop.” Maddox came flying toward Nelson with his gun drawn. A second later, Nelson was spread-eagled on the sidewalk. Maddox put plastic handcuffs on him. Nelson wasn’t armed. “He just had the coin he was trying to sell me,” Fettig says.
“I was glad to be done with it,” Nelson says. “I was tired of running.” But he was surprised. “I knew I wasn’t big enough to be on America’s Most Wanted. But I never thought I’d be on the radio in Orlando.” Nelson asked to be taken directly to jail; he didn’t want to face his girlfriend back at the motel.
Gunnison and Higgins spent the next few months assembling the case against Nelson. (They investigated Krista as well, but ultimately decided not to file charges.) Last summer, Nelson pled guilty to mail fraud, wire fraud, identity fraud, and money laundering. It was one of the first times that PayPal transactions had been defined as money laundering, Gunnison says, although that definition wasn’t tested in a trial.
Nelson told the judge at the U.S. district court in Concord that he was very sorry. “We said that his comments needed to be taken with a cargo container full of salt,” Gunnison says. The judge brushed off Nelson’s pleas for leniency and handed down the maximum term. This past March, Nelson was sentenced to spend six and a half years in federal prison.
Higgins was pleased to hear that Nelson would serve serious time, given that Nelson was a white-collar criminal. “This was someone who was ingenious at devising new ways to beat the system,” he says. “He did it for a living.”
Doing serious time in jail
Today, Higgins still works as a postal inspector in the Boston office, and Gunnison has been promoted to chief of the criminal division at the U.S. Attorney’s office in Concord. Nelson earns 17 cents an hour working on construction projects inside the medium-security federal prison at Otisville, New York. His face looks more worn than in his mug shot. He has lost most of his hair and buzzed the rest down. He is separated from Krista, who gave birth to their son while he was in Florida. She has filed divorce proceedings. He is pursuing a degree in business administration by taking courses offered at the prison.
“Until the day I got caught, I thought that no one had lost money,” Nelson insists, explaining that he had thought that his buyers would be able to get their money back from PayPal or their credit-card companies. But he also says, in a prison interview, “I could’ve taken 20 times more than I did. I could go and create a fake identity on eBay the day I get out.” A moment later, he says that of course he would not do that.
Nelson, now 35, will be at Otisville until 2007 — although it’s possible that he could earn an early release. While there, he’s not allowed to use the computers.
Don’t miss this article’s sidebar: How eBay Fights Fraud
Contributing editor Scott Kirsner (firstname.lastname@example.org) writes from Boston’s North End.