Another "Opportunity" from a Caribbean Promoter:
Want to Invest Without Risk?
This Site Says, 'No Problem'
By JASON ANDERS
THE WALL STREET JOURNAL INTERACTIVE EDITION
December 4, 1998
Like playing the stock market, but don't like losing money? Wish you could buy shares of companies that only go up? Want to see stock prices published a month in advance?
A new Web site operated from the Caribbean says it can deliver all that, and more.
Stock Generation (www.stockgeneration.com) bills itself as "a new way to gamble on the Web." At the site, players can buy and sell shares of imaginary companies in a virtual stock market where it seems making money is a sure thing. "Profit without risk? No problem," the site says. "Would you like to get rich quickly and absolutely legally? Then welcome to SG!"
But the Web site is cloaked in anonymity, and it's impossible to verify any of its lofty claims. What's more, potential players in the U.S. may want to consult the law before they open accounts. States assert that collecting winnings from online gambling is illegal, and efforts have been made in Congress to clamp down on the companies that operate gambling sites.
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To play Stock Generation's virtual stock market, players must register with a credit card, or send money directly to the Web site. Players may then trade shares of 11 virtual companies with names like "Golden Nuggets" and "Fountain of Youth," whose share prices are controlled by the site.
The site says it aims for benign market conditions. "In the virtual world of virtual companies ... everything is always stable and calm. There are no disasters, no catastrophes here. Virtual companies doing virtual business can never go bankrupt. Their virtual managers can never get involved in any kind of financial scandals. They can be fully trusted. [Stock Generation] is a real island of financial stability in our unstable world."
Most of the companies have share prices that fluctuate randomly, rising and falling "like at an ordinary stock exchange," the site says. But for users afraid of losing money, the site promotes its so-called privileged company. This company's shares only increase (a solid 10% a month, the site says). What's more, the share prices for the privileged company are published a month in advance. The site says these guaranteed profits may not last forever, but says if the 10% return is ever in jeopardy players will be notified in advance so they won't lose any money.
"Play only with the ... privileged shares ... and you will never lose!" the site says.
Stock Generation says it makes its money by charging a 1.5% commission on every trade, and the site also profits from the spread -- the difference between the bid and the ask price on its virtual market. Those profits help subsidize the ever-climbing price of the privileged company, the site says.
It's difficult to find out who runs the Web site. The site's domain name -- its address on the Web -- is registered to Valver Kftarsasag in Budapest, Hungary. Mr. Kftarsasag says he can't talk about the site or its owners because he signed a confidentiality agreement with the company. He says he does translating work for the company, and has placed some advertisements for Stock Generation, but has nothing to do with its operation. The Web site, meanwhile, didn't reply to numerous electronic-mail messages that were sent seeking comment.
Stock Generation advertisements are now running on the popular Silicon Investor stock-discussion Web site (www.techstocks.com). A spokesman for Go2Net, which owns Silicon Investor, says the company hasn't received any complaints about the advertisement. "Our policy is that if there is something going on related to a business or client of ours that is illegal we would immediately pull the advertisement," says Mark Peterson, director of public relations for Go2Net.
Stock Generation says it is operated from the Commonwealth of Dominica, a small island in the Caribbean home to about 71,000 people -- and several online gambling businesses. Regulators say the Caribbean is known for hosting online gambling businesses.
"The problem with these types of games is that you are at the mercy of the promoters as to whether the game is fair or fixed, and based on our experience, most of the games are fixed," says Bill McDonald, enforcement director for the California Department of Corporations. "And like the old penny stock games, if you know the right people and get in and out at the right time, you might make some money. But most don't."
Mr. McDonald says he isn't familiar with the Stock Generation site, and declines to comment on it specifically.
Mr. McDonald says anonymity is one of the Internet's greatest dangers for consumers, and says it's often impossible for individuals to get their money back when they've been duped online by a foreign company. "My investigative reach stops at the state line, and the [U.S. Securities and Exchange Commission's] stops at the Atlantic and the Pacific," Mr. McDonald says.
"The fact that someone in the Commonwealth of Dominica says this is OK doesn't give me a lot of sense of security that my money is safe," says Carolyn Ham, assistant attorney general in Minnesota.
It's not clear just how rich virtual investors are getting by playing the market on Stock Generation. According to a list of big winners on the site, James from "Forktown, USA," turned a $12,750 investment into almost $1.6 million with just one trade. Kevin from "Fargo, USA," made more than $500,000 in just over a month. And John from "Arizona, USA," parlayed his $240 investment into $240,730.
In most states, James, Kevin and John broke the law just by playing the game, and they certainly broke the law if they accepted their winnings, says Ms. Ham. "Obviously, the popularity of these things is exploding, so people aren't deterred by the fact that it's illegal," she says.
It's impossible to know just how much is being wagered -- and lost -- on gambling Web sites, but regulators estimate it's in the billions of dollars each year. Cracking down on the games has been difficult, because almost all of the companies operate from foreign countries.
State attorneys general believe that online gambling is covered by the same laws that make other unsanctioned gambling illegal, Ms. Ham says.
Efforts to toughen the rules were made in Washington earlier this year. The Senate approved a bill in July that would have meant stiff fines and jail time for anyone who participates in or operates online gambling Web sites. The proposal met opposition in the House of Representatives, but some have vowed to revive it next year.
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