LOL
This is interesting, last paragraph first;
Of course, the only way people ever get rich in the stock market is by being extremely lucky, extremely diligent (and skeptical), or some combination of both. Investing your hard-earned money can be scary even under the best of circumstances -- but a little investment savvy can go a long way.
Avoid Stock Scams
By Charles Pappas, FamilyPC
While many companies struggle to make their Web sites profitable, there is one group of online entrepreneurs getting rich fast: stock scammers.
"Investors are losing about $1 million an hour from stock fraud," according to Marc Beauchamp of the North American Securities Administrators Association (www.nasaa.org).
On October 28, 1998, the U.S. Securities and Exchange Commission (www.sec.gov) charged 44 individuals and companies with fraud on the Internet, alleging that they pretended to be independent securities analysts when in fact they were paid representatives of the companies whose stocks they were hawking. According to the SEC, representatives of a company or large shareholders used Web sites, e-mail, online newsletters, and message board postings to push 235 "microcaps" -- tiny companies whose stocks can sell for as little as a few pennies. Since the SEC doesn't require microcaps to file periodic reports, and few in the financial press bother to cover them, investors who think they can make a killing on even a small uptick on their stocks are hungry for information. And that leaves investors like you and me vulnerable to manipulation by scammers.
Here's how a typical scam worked on unwary investors: StocksToWatch.com (www.stockstowatch.com), a Florida-based Web site operated by Steven A. King, praised and plugged stocks to its estimated 200,000 subscribers. On April 21, 1998, King sent his readers a glowing review of Surgical Safety Products ("SURG" on the New York Stock Exchange). Part of the "review" predicted that SURG should surge from its then-price of about 96 cents to $20 within 18 months. Within 48 hours SURG stock, fueled by this recommendation, jumped to $3.13 a share. Good for SURG and good for investors who followed King's advice, right? Well, not exactly.
In his "review," King failed to mention the fact that he and his associates owned stock in SURG -- so much stock, in fact, that when they sold off their shares after SURG hit $3.13, they made a profit of more than $500,000. As for anyone who bought the stock hoping for that 20-fold return in 18 months, at press time the price was actually down to 59 cents a share. This kind of scam, called "pump 'n' dump," is probably the most popular one online, because just about anyone can do it.
"Con artists love to use the Internet," Beauchamp said. "The Net reduces their costs. With chat rooms, e-mail, and Web pages, they can obviously scam people for much less than it costs to cold-call them. The bull market, the general belief that huge returns are normal, and the assumption that you can uncover hidden information from sources you never heard of before on the Net makes people vulnerable."
What can you do to drive a stake through the heart of market-manipulating crooks like these before they bleed you dry?
First, shed some sunlight on your stockbroker. You can run an online search to find out his or her employment history, approved registrations, and possibly any disciplinary history at the NASD's Web site (www.nasdr.com).
Never under any circumstances buy a stock solely on the basis of information that you've read in an e-mail message or a chat room or a message board -- even if it's at reputable sites like Motley Fool (www.motleyfool.com) and Silicon Investor (www.siliconinvestor.com). Scammers know that investors trust these sites, and they litter the sites' message boards with their come-ons. Make sure you double- and triple-check your information before you open your checkbook.
Any time you see words like "guarantee," "high return," "limited offer," or "as safe as a CD," hold on to your wallet. The only thing guaranteed by these kinds of promises is that you'll lose money.
If you know which state the company whose stock you want to buy is incorporated in, contact that state's securities regulator and ask if they have OK'd the offering for sale. The Web has a list of these regulators that you can visit (www.sec.gov/consumer/state.htm).
Before you gamble your children's college fund on a penny stock that someone just sent you a "hot tip" on, read the SEC's Ten Questions to Ask About Any Investment Opportunity (www.sec.gov/consumer/10quest.htm). If the answers to those questions make you suspect that a company or individual is trying to scam you out of your hard-earned cash, get in touch with the SEC's Division of Enforcement Complaint Center (www.sec.gov/enforce/comctr.htm).
Check often with The Stock Detective (www.stockdetective.com), a site that attempts to uncover underlying, unstated motivations of stock scammers. You'll find lots of scams listed here, as well as advice about how to best handle a scammer and evaluate stock information.
Of course, the only way people ever get rich in the stock market is by being extremely lucky, extremely diligent (and skeptical), or some combination of both. Investing your hard-earned money can be scary even under the best of circumstances -- but a little investment savvy can go a long way.
Charles Pappas is a senior editor at Yahoo Internet Life. E-mail him at charles_pappas@zd.com. |
