Amazon merchants are taking Walmart to court over accusations that the big box retailer’s marketplace vendors are illegally reselling Amazon-listed products.
A newly proposed class-action lawsuit accuses Walmart of allowing organized retail crime (ORC) groups to run operations on its third-party marketplace platform. Amazon sellers Artistic Industries, LLC; Knight Distributing Co. (d/b/a Regency Cosmetics); Longstem Organizers Inc. and Ez-Step Mobility, Inc. claim that Walmart’s lack of oversight has given way to a slew of fraudulent sellers illegally hawking their products.
In a lawsuit filed in Delaware district court on Sept. 17, the plaintiffs claimed that the bad actors “hijack, upload and post for sale on Walmart Marketplace, products that are being concurrently sold by the legitimate Amazon merchants on Amazon.com, for which the fraudulent sellers have no inventory nor any authorization to sell.”
The plaintiffs alleged that the scheme runs this way: A consumer first purchases an item via Walmart Marketplace from a fraudulent seller, then that seller places an order in the consumer’s name from the Amazon merchant actually selling the item. The Amazon merchant then ships the product to the end consumer, under the impression that the order was placed by a real Amazon site or app shopper, and unwittingly provides a tracking code to the purported Walmart seller. The Walmart seller shares the tracking code with the customer, who receives the product and is none the wiser of the convoluted operation taking place behind the scenes.
Notably, upon the order’s fulfillment, the fraudulent Walmart sellers claim they “never received” the product they ordered and request a refund from the Amazon seller. In the end, the bad actors generate the revenue from the racket, while the Amazon sellers are cheated out of inventory and sales.
That process negatively impacts the Amazon sellers being used in the scheme, but also implicates unwitting consumers, the plaintiffs argued.
“Unsuspecting customers who buy products on Walmart Marketplace from fraudulent sellers are transformed by Walmart and [those] sellers into participants in the ORC,” the complaint alleges.
According to the complaint, the fraudsters almost exclusively target items that are fulfilled by merchant (FBM) on Amazon, rather than items included in Amazon’s Fulfilled by Amazon (FBA) program. They also avoid listing items affiliated with popular consumer brands or brands that require a license to resell as a means of avoiding detection.
Reportedly, Amazon merchants have suffered significant profit loss because of the scheme. The plaintiffs alleged that they’ve been prevented from selling their products to legitimate customers due to the fact that their inventory has been tied up in fraudulent transactions instead.
“Walmart was, at a minimum, reckless in not taking steps to prevent, enjoin and stop the ORC,” it reads. “The harm and financial loss to the Amazon merchants from the ORC is substantial. For each ORC transaction, Walmart and the fraudulent sellers are deceptively and fraudulently taking from the Amazon merchants substantial monetary sums. For each ORC transaction, the Amazon merchant is out-of-pocket: the product and the costs for shipping, handling and processing the fraudulent Amazon orders.”
The plaintiffs stated that not only are the alleged fraudsters turning a profit off of Amazon merchants’ misfortune, but they also allege that Walmart is making money off of the illegal activities because it’s capitalizing on the fees it charges its sellers.
“Walmart has knowingly or recklessly enabled, profited from and not taken steps to prevent and stop the ORC that is occurring on Walmart Marketplace,” they say in the complaint, later noting that the scheme the false sellers are allegedly running would not be possible without the company’s lack of oversight.
The plaintiffs cite the Integrity, Notification and Fairness in Online Retail Marketplaces for Consumers Act (the INFORM Consumers Act), which is meant to protect consumers from harm. Amazon, eBay and Facebook were recently asked to provide further information about their seller-vetting practices because of the legislation; Walmart, thus far, has not been tapped for more information by legislators.
“Ensuring that sellers on an e-commerce platform are real, can fulfill orders, are not engaging in fraud or scams, are selling real products (not stolen or counterfeit products) and are authorized to sell the listed products, among other things, are critical to fundamental notions of fair competition, the credibility of e-commerce businesses and protecting consumers who utilize online retail marketplaces,” the plaintiffs argue in their complaint, noting that Walmart fails to do so despite having access to information that would show “inability of the fraudulent sellers to provide valid proof of inventory or the legal right to sell the products.”
That Walmart allegedly flouts the full vetting process for its sellers is an invitation for sellers interested in “exploiting systemic vulnerabilities and Walmart’s corporate greed for fraudulent purposes,” they further allege.
The plaintiffs have asked the judge to define a nationwide class as “all Amazon merchants domiciled in the United States who fulfilled an order placed by a fraudulent seller that originated on Walmart Marketplace between January 1, 2021 to the present,” which they note likely number in the thousands and are thus “so numerous that joinder of all members is impracticable.”
Walmart is accused of violating the federal Racketeer Influenced and Corrupt Organizations Act (RICO Act), California’s Unfair Competition Law, California’s Consumer Legal Remedies Act, California’s False Advertising Law and the Lanham Act.
A spokesperson for Walmart said the company monitors all reports it receives about its platform.
“Walmart takes all claims of misconduct on our Marketplace seriously, and we make it easy for customers, sellers and brands to report concerns. We are reviewing the complaint and will respond accordingly,” the spokesperson told Sourcing Journal via email.
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