"Investment scams on Internet are escalating"
Source: Philadelphia Inquirer
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.
What's certain is that they are many and their
ranks appear to be swelling daily, as more
investors go online and are lured by the promise of
making millions at the mere click of a computer mouse.
Consider the case of Yun Soo Oh Park, a.k.a.
Tokyo Joe, a former restaurateur accused of
manipulating stocks and misleading investors. He
has reportedly earned more than $10 million, largely
through subscriptions to his online newsletter.
The Securities and Exchange Commission
says the newsletter regularly touted stocks
Park was selling at the same time.
Park, who is contesting the SEC's case, has
said his trading does not present a conflict
because he has clearly disclosed that he may
indeed be selling shares in companies he has recommended.
Then there's Fred Moldofsky, a self-described day
trader, who allegedly posted fake news releases
to pummel the price of Lucent Technologies shares.
And there's Stephen Sayre, a former tree trimmer who
allegedly pocketed nearly $1.4 million in 10 days by
selling shares in EConnect after issuing false
statements touting the company's stock.
The SEC also has cases pending against those two,
with responses from Sayre and Moldofsky expected
soon. In an interview with a news
service, however, Sayre denied profiting from
the transactions.
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.
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 online 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."
There are no easy ways to protect investors from venal
tipsters on the Internet, experts agree. Neither the SEC
nor private watchdog groups appear 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, John Emshwiller,
author of Scam Dogs and Mo-Mo Mamas: Inside the Wild
and Woolly World of Internet Stock Trading (Harper Collins, 2000),
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.
This research is easy to do on the Web through the SEC's
Edgar database at sec.gov, which posts financial
statements and other regulatory filings. But it takes
time and commitment.
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