Interesting article from Moneyline.."How to avoid Internet rip-offs
Money.com's five simple tips on how to spot a scam artist, and what to do if you think you have been ripped off
By Andrew Marks
moneydaily.com
The SEC crackdown on Web investment scams has shown just how easy it is to fool a good number of people by claiming to be an independent expert with a hot stock.
Kevin Lichtman, publisher of The Stock Detective, is behind "The List," a catalogue of questionable investment advice sites that had pinpointed 12 of the 44 companies and individuals now targeted by the SEC complaints. Says Lichtman: "Last time I checked, fewer than half of the 70 sites on Stock Detective's "The List" fully comply with the SEC's disclosure rules."
With this cautionary note in mind, Money Daily has culled the following tips on how to avoid the bad ones:
1) Read the fine print before you read the advice.
There is nothing illegal about being paid by a company to recommend its stock, but financial publishers that accept payment from publicly-traded companies in exchange for discussing their stock are legally obliged to fully disclose this fact.
While Elizabeth Grey, assistant director of the SEC's enforcement division notes that "many people in the stock promotion business don't exercise full disclosure," just about all of them do include a disclaimer or disclosure statement of some kind, though it's usually buried somewhere, often in hard-to-read typeface.
As soon as you read even the vaguest reference attesting to the newsletter's receiving compensation from the companies being recommended, you can bet the so-called advisor cannot be trusted to give impartial advice.
2) Beware of recommendations that don't discuss the downside.
"There's no such thing as an investment without risks," says Salomon Smith Barney stock analyst Keith Mullins. A brokerage firm analyst, for instance, will always enumerate a company's negatives and the reasons why its stock might not perform well even if he or she is strongly recommending the stock. Stock 'touts,' on the other hand, rarely acknowledge the risks or potential pitfalls of an investment.
3) Look out for paid shills posing as regular joes on online bulletin boards.
While forums such as the Silicon Investor or Yahoo! are themselves above reproach, and the overwhelming majority of people posting messages are well intentioned and speaking only for themselves, there's nothing preventing scammers or their paid touts from posing as legitimate message posters in order to promote stocks.
4) Do your own research.
If you read about a stock that sounds terrific, check it out on your own before you invest. This can be difficult with microcap stocks, but that's all the more reason to thoroughly research them. Find out where the company is incorporated.
Call the company. Request audited financial statements and information about their business. Check to see if the company is registered with the SEC.
The same holds true for the newsletter itself. The SEC Enforcement Division's home page posts a list of newsletters and stock promoters that it has sued.
5) Use Common Sense.
Obvious as it seems, this is the most important rule to protect yourself from getting stung on the Internet. As John Stark, the head of the Security and Exchange Commission's Web enforcement unit observes, "People seem too willing to automatically believe what they see on the Internet. You wouldn't take a stranger's advice about something important, would you? Well that's what you're doing if you invest based solely on the recommendation of one of these Internet investment sites."
Finally, if you think have been defrauded in a securities-related scam:
Contact the SEC's Enforcement Complaint Center. The SEC can seek an order for 'disgorgement' against the swindler, requiring that the fraudulent party attempt to return all or part of the money taken from the victim.
To submit a complaint: Email enforcement@sec.gov Or call toll free: 1-800-SEC-0330
Click here for advice from investment author Doug Gerlach
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