Re: 10/5/00 - 'Dot-Cons' Leave Black Mark on the Net; The SEC’s fourth nationwide Internet-fraud sweep nets 33 companies.
'Dot-Cons' Leave Black Mark on the Net
The SEC’s fourth nationwide Internet-fraud sweep nets 33 companies.
By Marceia Lathou
for Office.com
Oct. 5, 2000 — Ask a scam artist for an eight-letter word that means "opportunity" for him, and the answer is likely to be "Internet." With thousands of bargain hunters logging on in search of quick profits and low-price stock trades, opportunities for swindles are richer than at any time since the days of the snake-oil salesman.
The Securities Exchange Commission worries that it is too easy for scam artists to separate investors from their dollars. It seems such concerns are valid. The commission brought cases against more than 30 companies and individuals engaged in pump-and-dump stock manipulations, following its fourth annual fraud sweep. The commission also released an online brochure "Pump&Dump.con: Tips for Avoiding Stock Scams on the Internet" to educate investors.
The pump-and-dump is a classic stock scam. Once a stock promoter inflates the price of a stock with false statements, he then sells out at a profit.
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"The Internet has made an ugly problem that existed widely before get even quicker and uglier."
— Marc Pollina, program manager, Yankee Group
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The Internet gives the pump-and-dump a new twist. Instead of professionals touting questionable stocks out of boiler rooms, the Web enables individuals to tout stocks using e-mail, chat rooms, message boards and press releases at Web sites.
"The Internet has made an ugly problem that existed widely before the technology existed even uglier," says Marc Pollina, program manager of Online Financial Strategies for Yankee Group.
Who's doing it? Judging by the SEC experience, just about anybody, from bus mechanics to corporate execs to foreign entities. The Internet facilitates the fleecing of massive numbers of U.S. investors, offering a quick and efficient platform through which scam artists can practice their trade.
Microcap stocks quoted on the OTC bulletin board are favorite targets.
Next page: "Virtually all attempted stock manipulation on the Internet is done using spam, usually sent with forged headers."
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'Dot-Cons' Leave Black Mark on the Net
Continued
"The SEC's trying to get a grip on Internet fraud, but they're understaffed and underfunded," says Janice Shell, Milan, Italy-based art historian and Net vigilante. "For every sleazy promoter they nail, for every nasty, fraudulent little company they halt, there are hundreds more."
Since the initiation of its crackdown on Internet fraud in October 1998, the SEC has brought more than 180 Internet-related enforcement actions.
"Virtually all attempted stock manipulation on the Internet is done using spam, usually sent with forged headers," says Tom Geller, founder and administrator of The Suespammers Project. The Project encourages spam recipients and Internet service providers to bring legal action against spammers for theft of service and related charges.
Geller feels the SEC sweeps are definitely a step in the right direction.
"The SEC is doing exactly the right thing. They should prosecute frequently and completely wherever manipulation occurs," says Geller.
The Internet has developed into such a breeding ground for stock manipulation that the best way for investors to protect themselves is awareness. The SEC's new brochure warns investors to investigate before they invest.
But investor discipline is tough, especially when the Internet offers easy access to investment ideas and the means to facilitate them in seconds, frequently with little forethought. So online discount brokers, among them Charles Schwab and E-Trade, are stepping up to the plate by making available both education resources and investment advice to customers.
"We are seeing many pure-play Internet-only brokers beef up their online advice offerings," says the Yankee Group's Pollina, "That is certainly helpful to investors."
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