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To: Andre Daedone who wrote (10872)	3/28/1999 8:31:00 AM
From: Frank Fontaine	Respond to of 12043

Senator to up SEC's fraud-fighting muscle By Bloomberg News Special to CNET News.com March 23, 1999, 10:40 a.m. PT WASHINGTON--The head of a U.S. Senate panel plans to introduce bipartisan legislation next month to give the U.S. Securities and Exchange Commission more enforcement power to help fight Internet securities fraud. "Both the SEC and many state regulators have been inundated with consumer complaints alleging securities fraud on the Internet," said Senator Susan M. Collins (R-Maine), who leads the Senate Government Affairs Committee's investigations subcommittee. "I'm working on legislation to help regulators." Collins said the bill would contain at least two provisions that SEC enforcement director Richard H. Walker said would help the agency's efforts to rein in unscrupulous investment scams that are peddled over the Internet through online bulletin boards, chat rooms, newsletters, and "spam." Do you want to know more? Read related news View story in The Big Picture Go to Message Boards Search News.com The first would give the SEC greater authority to base federal enforcement actions on the findings of investigations by state regulators. Currently, the SEC must investigate each allegation itself instead of relying on evidence that states gathered in similar cases, Walker said. "We'd be able to bring faster cases based on how successfully we have seen it work the other way," Walker said. State securities regulators can, and do, use SEC-gathered data for their enforcement actions. A second provision would extend the SEC's penalty powers, letting the SEC bar people from becoming stock promoters if they've been banned by the agency from working as brokers or investment advisers, Collins said. Walker said some individuals who have been barred from the brokerage business then become stock promoters, who team up with a broker who pushes those stocks on customers. The legislative package is "in the works," and Collins hopes to introduce it next month, she said. Senator Carl Levin of Michigan, the committee's ranking Democrat, yesterday said he supports "shoring up enforcement mechanisms" and recommended a look at penalties as ways of stopping Internet securities fraud. Levin thinks legislation may be needed to give regulators the tools to better protect investors from fraudulent investment scams on the Internet, a member of Levin's staff said. The Michigan senator plans to work with Collins, Levin's aide said. In addition to the two provisions Collins plans to introduce, Levin said he is interested in requiring financial investment sites to provide links to Internet sites of regulatory agencies such as the SEC or state organizations.

To: Andre Daedone who wrote (10872)	3/28/1999 8:39:00 AM
From: Frank Fontaine	Read Replies (1) \| Respond to of 12043

Senate targets online financial fraud By Jeffry Bartash, CBS MarketWatch Last Update: 6:02 PM ET Mar 22, 1999 Internet Daily Net Headlines WASHINGTON (CBS.MW) -- U.S. lawmakers on Monday considered ways to combat online financial fraud, but easy solutions appeared out of reach. Though politicians and industry experts alike agreed on the need for beefed-up law enforcement, greater investor education and more vigilance on the part of investment-oriented Web sites, they danced gingerly around the idea of greater regulation of the Web. Senators on the Government Affairs subpanel that sponsored the hearing made it clear they have little interest in putting shackles on online commerce, stock trading and other financial activities. Still, they're clearly worried by what they believe is a proliferation of fraud on the Internet. Just as the Web gives individuals greater control over their finances, it also gives would-be "cybercrooks" greater opportunities to swindle investors "Using scams that have been committed through the mail and over the phone for many years, such as 'pump and dump,' con artists have found the Internet a cheaper and easier way to access millions of potential targets in a very short time," said Sen. Carl Levin (D-Mich.). "It costs only about $100 to send bulk e-mail -- known as Spam -- to 1 million people." Big obstacles During the Senate session, lawmakers heard from several individuals who had lost thousands of dollars to online scam artists. In one case, a woman invested in a company that solicited through the Web participation in an initial offering sold directly to the public. In the other, a man lost $20,000 after investing in a company whose stock was touted by several Web sites that offered hot stock tips. The investor later learned that the sites had been paid to tout the stock. The two examples made clear the difficulty Congress and law-enforcement agencies face. In each case, apparently well-educated and experienced investors fell prey to get-rich-quick schemes and weren't savvy enough to see through the false online pitches. Greed and ingnorance Professor Howard M. Friedman of the University of Toledo cautioned against the "victimization of investors." "In examining what additional preventive efforts are needed to protect investors, we must remember that risk inheres in our securities markets," he said. "The potential for high profits is inevitably accompanied by the risk of loss as well." While some panel participants suggested heightened attempts to boost financial literacy in schools and the advent of a big media campaign against Internet fraud, others said huge hurdles would remain. "(A) great number of Americans are never taught basic principles of personal finance either in school or at home," said Thomas Gardner, head of The Motley Fool, a popular online investing-information site. "Many people graduate from high school without knowing how to balance their checkbooks, let alone understand the effects of compound credit card debt or how to plan for retirement." See text of speech. Burden on brokers Another suggestion was to make online brokers monitor the investments of customers to ensure they weren't deviating too sharply from their stated investment goals or putting in more money than they could afford. "Just as an automobile owner should not be permitted to lend a vehicle to a person who does not know how to drive safely," Friedman said, "the broker-dealer perhaps should be liable if it lends to one who does not know how to trade safely." Such a requirement, however, would face stiff opposition from the brokerage industry and others. It did not appear to elicit strong support from lawmakers. Concerns about day trading were also a focus of the hearing. Cheaper online trading, combined with the decade-long U.S. bull market, reportedly are drawing more individuals to buy and sell shares repeatedly through the day, hoping to make small profits on the movement of stock. Lawmakers likened day trading to gambling in Las Vegas and worried that it would exacerbate market volatility. "They are turning the most trusted market in the world into a gambling casino," grumbled Sen. Carl Levin (D-Mich.). Legal challenge Legal enforcement, meanwhile, needs to be intensified, lawmakers said. While state and federal agencies are increasing oversight, they still remain relatively underfunded. The Securities and Exchange Commission, for example, only has three full-time staffers working on Internet-related fraud along with 125 part-time volunteers, said Richard J. Hillman, a top official at the federal General Accounting Office. He worries that enforcement agencies will fall behind owing to lack of manpower and technical prowess. Job turnover is a another problem, he said. Fighting fraud isn't the only job of regulators, industry experts said. It's also important that the SEC and self-regulatory bodies such as the National Association of Securities Dealers ensure that online traders can handle high-volume trading periods. In recent months, E-Trade and other online brokers have experienced outages during peak trading hours, outraging thousands of investors. See E-Trade outage story. "It is during such periods of extreme market activity that it is particularly important to maintain investor confidence in the market system," Friedman said. "Capacity breakdowns undermine the confidence at the most critical periods." The panel meets again Tuesday morning at 9:30 a.m. EST. It will hear from state and federal regulatory officials. The hearing can be seen live on the Internet at Government Affairs Senate site.