http://www.wired.com/news/technology/0,68788-0.html

Old story, but definitely worth discussing.

By Cyrus Farivar
02:00 AM Sep, 08, 2005 EDT

On the morning of Sept. 3, Rich Kyanka set up a PayPal account to raise money for Hurricane Katrina victims, with the intention of donating the money to the American Red Cross.

Kyanka runs the popular Something Awful web community, which is hosted in New Orleans, and donations came in quickly. Within nine hours, Something Awful readers had donated $27,695.41. Kyanka donated an additional $3,000 from his own pocket.

"While we are a very cynical and bitter and adult humorous site, when actual tragedies strike, we try to band together and try to help out," the 29-year-old said.

But just as Kyanka prepared to send the money to the Red Cross, the account was locked by PayPal, which launched an investigation into possible fraud.

Kyanka said he thinks PayPal became suspicious because too much money came in too quickly. PayPal spokeswoman Amanda Pires would not discuss details of the case, citing "privacy concerns."

This is not the only post-Katrina fund-raising account PayPal has locked. Members of the forums at dealmac also say a charity account was frozen.

"My account was red-flagged by PayPal for keywords in the hurricane disaster-relief fund," wrote fund-raiser Danny La on the dealmac forums. "On the phone they said that unless I was a nonprofit group then I could not collect (money for charity)."

In an attempt to unlock the Something Awful account, Kyanka faxed copies of bank statements, credit card statements and his driver's license. However, in an e-mail, PayPal told him he would have to wait "between three and five business days" while the investigation continued, Kyanka said.

Kyanka said he asked PayPal to donate the money directly from the account to the Red Cross.

However, PayPal declined, saying it has an exclusive charity relationship with United Way of America.

When Something Awful members complained about the choice of organization -- citing, among other things, theft by the former head of the United Way of the National Capital Area, Kyanka decided to refund all the money back to donors and have them donate it directly to the Red Cross.

PayPal's Pires refused to say why United Way is the only charity that can receive donations through the PayPal website. However, she said it is "rare" for accounts to be flagged for potential fraud. In the second quarter of 2005, the service had a loss rate of 0.19 percent of total payment volume, which, during that same period, was $823 per second, she said.

"In this case, we worked out a solution that we believe the account holder was happy with," she said.

Kyanka said he remains frustrated that the money was not donated to the Red Cross directly.

"I would have been happy if I could have donated money to the Red Cross but having people refund their money and go on this donation drive where nothing got accomplished, that didn't really make me happy," he said.

Kyanka said he could understand PayPal's concerns about fraud, but suggested that perhaps the company could have handled the situation differently.

"You've got to find a balance between assuming everyone is guilty and treating your customers with respect," he said.