Interesting Read.....
cbs.marketwatch.com
Regulators eye attack on Internet fraud
By Jeffry Bartash, CBS MarketWatch
Last Update: 12:04 PM ET Mar 23, 1999 Internet Daily
Net Headlines
NewsWatch
WASHINGTON (CBS.MW) -- State and federal regulators agreed Tuesday that more work needs to be done to stymie "rogue" brokers, particularly in the area of penny stocks, and to give law-enforcement officials more resources to combat online fraud.
Under current state and federal laws, the Securities and Exchange Commission is unable to use state findings to take action against brokers who repeatedly break securities rules. Without coordinated action, that allows those brokers to move from firm to firm or state to state to avoid government-imposed restrictions.
Many violations, moreover, involve obscure penny or microcap stocks that are too small to trade over the major exchanges and for which little information is available.
Sen. Susan Collins, who headed a two-day hearing on online financial fraud, suggested a "one strike and you're out rule" under which a broker found guilty of severe securities violations would be banned forever from providing professional advice. See story on first day of hearings.
"It seems to me that we need to crack down on this whole area," the Maine Republican said.
Zero tolerance
G. Philip Rutledge, a high-ranking official of the Pennsylvania Securities Commission, said his state had enacted a similarly tough law in January. Regulators have the discretion to ban rogue brokers for life from securities-related activities. "This is our response to your zero-tolerance idea," he said.
While state and federal officials do not always see eye to eye on jurisdictional matters, officials from the SEC and the North American Securities Administrators Association, which represents the state securities agencies, were generally receptive to the crackdown. "I don't see any problem at all," said Peter C. Hildreth, president of the securities association.
Lawmakers also said they might consider giving the SEC powers to go after online scam artists that states already have.
Veiled threat
Under current law, the SEC is required to identify itself during investigations. Yet the states can use anonymous e-mails, aliases and fake Web sites in an attempt to catch "cybercrooks." In effect, the states can turn online scam artists' weapons on the scam artists themselves.
Another way of tackling rogue brokers, industry regulators said, is to make brokerages that hire them liable for whatever damage they cause. That would also force brokerages, like individual investors, to do their homework.
Other concerns among regulators are the proliferation of investment chat sites on which false information is distributed and the increasing popularity of day trading.
Some suggested that chat sites' hosts should either assign monitors to the boards or post disclosure notices to warn investors if sites are unmonitored. Yet lawmakers appeared concerned about imposing rules that would make chat hosts liable for damages.
Day trading
Regulators also said they are watching day traders carefully to see how they operate. Day traders buy and sell lots of shares each day, hoping to profit on small stock moves. They have become more prevalent with the advent of cheap online investing.
So far, however, few concrete proposals have been put forth on how to prevent day trading from careening out of control. Lawmakers are wary of overregulating the Internet, whose explosive growth has helped to prolong the current economic expansion |
