CyberRebate.com Goes Bankrupt

CyberRebate.com's massive rebates sometimes returned as much as 100 percent on the wide range of products it sold. Apparently, the business model wasn't sound, because last week the increasingly popular Web retailer closed its site, fired most of its employees, and filed for Chapter 11 bankruptcy protection from creditors.

CyberRebate.com's filing means thousands of people won't get rebates they're expecting--at least not soon. A statement posted on the company's now-defunct Web site suggests it will at least try to pay its customers.

"We are currently in the process of creating a plan to repay our customers and creditors. It is our intention to pay back as much as we can, hopefully up to 100 percent of what we may owe. More information will be made available as developments occur," the statement reads.

Calls to several telephone numbers for CyberRebate.com failed to elicit much response. The respondent of the sole answered call said no executives were available for comment, and referred the caller to the terse message on the Web site. Other lines are apparently disconnected.

The law firm representing CyberRebate.com is Ruskin, Moscou, Evans & Faltischek--but representative Valerie Zurblis, director of marketing, declined to comment on the situation, referring queries to the statement on the company's Web site.

Where's the Money?

It's unclear just how many consumers are owed money by the company. However, according to the petitionit filed with the United States Bankruptcy Court in the Eastern Division of New York, CyberRebate.com's liabilities top $83 million, on assets of less than $25 million. A filing under Chapter 11 of the U.S. bankruptcy code allows companies to reorganize and continue to do business. Listed among its 20 largest unsecured creditors are Yahoo and Ebates.com, as well as a handful of unlucky individuals owed as much as $115,000 each in rebates.

It worked like this: Customers visited the site, browsed its many categories, and bought items often priced upwards of ten times their retail value. Each item, however, came with a rebate for as much as 100 percent of the purchase price. After receiving their item, customers mailed a rebate form with proofs of purchase, then waited up to 14 weeks for a rebate.

So, for example, a 900-MHz cordless phone that sold for $50 on another site would go for $259 on CyberRebate.com, with the promise of a full rebate later. Other examples included $100 jigsaw puzzles and $159 DVD movies. It might sound fishy, but the company advertised heavily, drew millions of visitors, and apparently made good on its rebate offers (albeit a bit slowly at times).

It was enough to draw the attention of even the most cautious Web shoppers.

Bargains Overwhelmed Cautious Buyers

Scott Smith, a software developer in Kirkland, Washington, says he's normally a conservative Web shopper. But advertisements for CyberRebate.com drew him to the site, and the promise of 100 percent rebates convinced him to buy.

Over several visits, he ordered seven overpriced items. He eventually received 100-percent rebates on five of them. CyberRebate.com customer service representatives said the other two rebate requests weren't received, and told Smith it was too late to return the two items for a full refund.

The rebate deal--and a free-shipping promotion--was too good to pass up, Smith says. But he wouldn't do it again, even if he had received all of his rebate checks. The process "wasn't worth it," he says.

Smith holds out little hope of ever seeing his rebate money returned. "I learned a lesson, and I don't think I'll get my $200," he says.

Smith got off light. CyberRebate.com owes another PCWorld.com reader, who asked to remain anonymous, close to $1400.

"The whole time, we were like, 'we need to be careful,'" he says. "For some reason I had it in my head if they just received the rebate (forms), I'd get my money."

That's how it worked at first. The customer purchased more than 19 items for a total $2139; the products always arrived promptly, and the rebates followed within the 14-week window. Although he was effectively receiving his items for free, the process still left him a bit uneasy, the customer says.

"The whole concept kind of made you nervous," he says. "You just can't get something for nothing." That statement later proved true. All his orders have been filled, but he hasn't yet received any rebates from products purchased since April.

The customer checked the site this week for the status of his rebates when he saw the note about the company closing. "I just about got ill when I went to the Web site that day," he says.

He probably wasn't the only one. CyberRebate.com was drawing quite a crowd. According to a report from Nelson/NetRatings, the site was experiencing a huge upturn in traffic. In November 2000 the site logged 1.9 million U.S. visitors. By January 2001 the number of visitors had surged past 3 million. And in April 2001 the site was listed as the 12th biggest advertiser on the Web, with more than 510 million impressions with at-home users, and reaching more than 37 percent of the U.S. at-home Internet audience.

What Can You Do?

If you're a CyberRebate.com customer who recently made a purchase from the site, you should contact your credit card company right away, says consumer advocate Edgar Dworsky. A former assistant attorney general, Dworsky operates the for-profit ConsumerWorld.orgpublic service site.

"Ask for a charge back," he says, noting that different credit card companies respond to this request differently. A written request to your credit company disputing the charge and requesting a charge back removes the charge from your bill while the credit card company investigates. If the credit card company finds a problem with the charge, it can permanently remove it from your credit card.

This may not work, however, since no federal guidelines say how companies must handle the process, Dworsky says. To be safe, customers should also consider making a claim under the credit card company's online fraud guarantee. Visa, Mastercard, and American Express all promise zero liability for victims of online fraud, he says. But it's not a given that fraud occurred in the CyberRebate.com case, he adds.

Yet another option is to investigate whether your card offers a satisfaction guaranteed policy, which lets you appeal to the card issuer for a refund not provided by the actual seller.

Finally, any CyberRebate.com customer still owed money should file a "proof of claim" form with the bankruptcy court, when the court requests it. These forms should become available later on the court's Web site.

Too Good to Be True

You have to wonder how any company could make money doing this, Dworsky says. It's probable that CyberRebate.com was drawing interest on buyers' cash during the 14-week delay for the rebate. But the cost of the site's own credit card processing would eat up that profit, he says.

It's also possible the company hoped a number of customers would simply forget to claim their rebates. With its massive markup, CyberRebate.com would make a profit if only a small percentage of people forgot. But when you're paying outrageous sums of money for a product based on the premise you'll get your money back, you don't forget, Dworsky says.

Finally, the company may have hoped to start offering rebates for less than a 100-percent refund to customers, so CyberRebate.com could keep a portion of the price. But the folks shopping at the site were accustomed to full rebates, and likely wouldn't be interested in accepting less, he says.

Dworsky hesitates to call CyberRebate.com shoppers greedy, noting that "all consumers want a good bargain."

"You can't fault a consumer who was a loyal repeat customer," he says. However, the skyrocketing prices on some items should have been a telltale sign of problems at the company, he says. "When the prices got nutty you had to ask, 'where is this going to end?'"

Company Fined Last Year

The company's May 16 filing wasn't the first sign of trouble. In August 2000, the New York State Attorney General completed an investigation of CyberRebate.com after receiving numerous complaints about delayed rebate checks and poor customer service.

Without admitting wrongdoing, CyberRebate.com promised future rebates would arrive within 14 weeks of request, and agreed to improve its e-mail and telephone support services. The company also agreed to pay the state $40,000 to cover the cost of the investigation, the attorney general's office says.

The state has continued to monitor the company, says Christine Pritchard, spokesperson. After the investigation, complaints dropped dramatically, and the company's books appeared to be in order, she says. The office reviewed CyberRebate.com's records as recently as March, covering transactions back to November, she says.

While complaints were on the rise again recently, she says the attorney general could have done nothing to help consumers from falling into the current bankruptcy quagmire, she says.

"The attorney general's role is to make sure a company is following through on its promises," she says. CyberRebate.com may have a unique business model, but it's not the attorney general's role to evaluate business plans, she adds.