Financial scams have been sold a lot of ways - door-to-door,through the mail, over the telephone. Now they're going high-tech.
Through electronic mail, computer bulletin boards and on-lineservices, the purveyors of unregistered stocks, phony oil leases,bogus wireless cable partnerships, fantasy ostrich farms and thelike are harvesting a rich new crop of credulous investors.
A retiree in Texas sent $10,000 to a man in Minnesota who hadpromoted himself on a computer bulletin board as a skilled moneymanager. Unfortunately, according to regulators, it now appears hewas a skilled con man: The mutual fund that the retiree thought hewas buying into does not exist.
Many such victims are well-educated and intelligent people.They are certainly bright enough and well-heeled enough to buy andoperate a personal computer.
But as Iowa's chief securities regulator, Craig A. Goettsch,noted at a meeting with reporters last week, "Expertise in otherarenas does not translate into financial sophistication." Soregulators are attempting to sound the alarm.
Alhough access to such electronic media has only recentlybecome widespread, con artists are adapting to it rapidly, accordingto state securities regulators.
While there are no figures on the number of cyberspace schemes, "we think it's {an} enormously big" problem, said Goettsch, whoalso is president of the North American Securities AdministratorsAssociation, an organization of state regulators.
NASAA last week issued an urgent warning to the public aboutthe growing danger posed by investment scams and schemes incyberspace. "Unwary investors today are in danger of being taken fora ride on the information superhighway," Goettsch said.
The big web of computers linked into what's called theInternet, as well as major on-line services such as Prodigy,CompuServe and America Online, are being used by con artists.
Regulators don't want "to bash the on-line services or suggestthat people steer clear of the Internet," he said. Indeed, hecomplimented the commercial services on their cooperation withregulators.
But he cautioned users to understand that what they see andread over the modem is no more likely to be true than a pitch theymight get in the mail or hear over the phone.
Until recently, the computer networks have been clubby placeswhere computer users have been able to communicate with each otherand discuss topics of mutual interest. This atmosphere appears tofoster mutual trust that makes things easier for unscrupulous salespeople.
The instantaneous communication offered by computers has madesome scams, such as stock manipulation, far easier than before.
For example, there is "pump and dump." In this scam, fast-buckartists use computer hookups to hype stocks of tiny companies, knownas penny stocks, to persuade people to buy them and push up theprice. At that point the promoters sell, and the investors get afast ride down.
Earlier this year, a Canadian company known as Wye ResourcesInc. was the subject of heavy on-line promotion on the grounds thatit owned a diamond mine in Zaire where a major strike had beenreported, according to regulators. The stock rose from 20 cents ashare to $1.40 in a month before collapsing. Trading has since beenhalted by the Alberta Stock Exchange, which is investigating.
But in most cases, regulators say, the only thing new is thatthe con artists are using a computer. The scams themselves are quiteold-fashioned.
Missouri and New Jersey regulators announced last week theyhave have taken what they billed as the first major regulatoryaction against consumer fraud in cyberspace.
New Jersey shut down the operators of several electronic chainletters in which lists of names and addresses were passed along overcomputer links and recipients were asked to send money to eachperson on the list and then add their own name and pass the list on.Promoters promised a $60,000 return on a $5 investment, said stateregulator Jared Silverman.
"It was a typical chain letter. The only difference was it wason a computer," Silverman said.
In Missouri, a stockbroker unregistered in the state wastouting a penny stock that also was unregistered in the state, saidregulator John Perkins, adding that the state is investigating morethan a dozen other suspected computer-borne scams.
But Goettsch conceded that "the reality is there will never beenough `cybercops' to check out each and every investment scheme orclaim made on the information superhighway." The key to consumerprotection, he said, is consumers themselves. They must be educatedand cautious.
The NASAA offers some tips for consumers:
- Don't assume that on-line services police their bulletinboards. Most don't, allowing bulletin board participants to postpretty much what they want.
- If you see a stock hyped on a bulletin board, check it outindependently before you buy. Thinly traded obscure stocks are mosteasily moved through a small surge in buying and thus are the mostsusceptible to manipulation.
- Know whom you're dealing with. Most bulletin boards allowpeople to use aliases or nicknames, so it can turn out that theperson hyping a stock may own it or be in the pay of the company.
- Make sure any investment you consider or broker you may dealwith is registered in your state.
- If you don't know how to check in your state, call NASAA at202-737-0900 to find out how to reach your state securitiesregulator.
The NASAA has published an investor bulletin to help consumersavoid being taken. It is available free by writing Cyberschemes,NASAA, One Massachusetts Ave. NW, Suite 310, Washington, D.C.,20001.
You also may call NASAA at the number above or, for anabbreviated version of the bulletin, send an e-mail message on theInternet to schemes@nasaa.mailer.net.
To register comments on issue, direct e-mail messages tonasaa@holonet.net on the Internet.
No comments:
Post a Comment