INVESTORS BEWARE: SWINDLERS ABOUND AS NET LURES FOOLS
Kathy Kristof
Los Angeles Times Syndicate
July 2, 2000
No one knows precisely how many individuals cruise the Internet's copious stock chat rooms and bulletin boards with the intent of manipulating stock prices by not only finding greater fools, but by creating them through imaginative tales of riches about to be made.
What's certain is that they are many and their ranks appear to be swelling daily, as more investors go on-line and are lured by the promise of making millions at the mere click of a computer mouse.
Investors beware.
"You cannot wait for the SEC to come along and protect you," Emshwiller says. "The world is moving too fast and the temptations are too great."
In some ways, Internet cons are like the investment swindles of yesteryear. The swindler generally tells you "inside" information that you need to act on immediately or the opportunity will be lost. But there's a huge difference that often makes these new economy swindles harder to resist: the Internet medium.
First, they don't call you on the phone to give you a hard sell and urge you to send them a check via Federal Express. Instead, they're reaching you through a medium that can connect millions of people at a time. And rather than sending them money directly, they want you--and all the other people lurking in a chat room or reading an on-line bulletin board--to click over to your favorite broker and make a trade.
What you probably don't know is that, if enough people like you take the bait, the tipster can make a fortune trading in the opposite direction. While you feed the buying frenzy, pushing the stock's price up, the tipster sells shares in what he knows to be an overvalued or even worthless company. By the time you find out that the stock is worth little or nothing, the tipster probably has gone on to a new stock, a new chat room and maybe a new moniker.
"A lot of it is adapting to this new medium," says Philip Rutledge, deputy chief counsel for the Pennsylvania State Securities Commission. "The public needs to understand the ulterior motives. The tipster may be trying to `pump and dump.' They talk up a stock because they bought it and they need you to feed into a buying frenzy so they can sell."
This type of scam is what the title of Emshwiller's book is all about. A "mo-mo mama" is a stock driven by trading momentum that's often fanned by a handful of chat-room tipsters. A "scam dog" is one step worse--a stock that is overvalued at best, a complete fraud at worst.
Listening to these tipsters is seductive because they often can drive the price of a stock up just by saying it's heading higher. If you are quick on your feet, you can make a profit through rapid-fire buying and selling, Emshwiller says. Unfortunately, few investors are that quick. They end up coming home after a long day's work to find that the stock they bought in yesterday's buying frenzy has crashed today.
There are no easy ways to protect investors from venal tipsters on the Internet, experts agree. Neither the SEC nor private watchdog groups appear to be close to stemming the rising tide of Internet-based stock swindles.
Instead, investors need to protect themselves in dull, old-fashioned ways. Do your own research. Determine whether a company has value before you buy it, Emshwiller says. Investigate the backgrounds of company officers. You'd be surprised how many corporate "consultants" have criminal records or backgrounds pockmarked with allegations of fraud, he adds.
chicagotribune.com
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