Against Investment Scams on the Internet
The Internet has become
the communication channel of choice for many investors. It is a convenient
way to communicate with investment providers and investigate investment
The Internet has also
become a popular place for thieves and scam artists to find victims.
- Emails promoting
investment ideas can be sent to millions of people very cheaply instead
of cold calling over the phone or using regular mail.
- Fraudsters can
lure investors by building websites that looks very similar to legitimate
- Investment newsletters
claiming to provide honest and unbiased advice have become popular as
illegal vehicles for some promoters to hype specific stocks.
- Online bulletin
boards may have messages from those trying to promote a stock with "inside"
or "secret" information about a company's results or new products.
Using the Internet
It is always important to get the facts before making an investment. The
Internet can make it difficult to distinguish between facts and what someone
what you believe are facts.
- Never make an investment
only based on what you may have read in an online newsletter or from
an online bulletin board posting.
- Be very wary of
small or very thinly traded stocks you read about on the Internet.
- Beware of companies
that do not file regular reports with the Securities and Exchange Commission.
You can access the SEC's database of reports at http://idea.sec.gov.
- Be wary of offshore
investment ideas, especially if they involve some form of tax avoidance.
- Do not be lured
by promises of high returns with no risk or very little risk.
- Be wary of ideas
that promise fast returns.
- Be wary of investments
in alternative investments like commodities, real estate, coins, artwork
- If you see words
like "guarantee, high return, limited offer or safe as a CD",
be very careful.
Common Types of
Internet Investment Scams
The Securities and Exchange Commission reports that most Internet scams
follow the same formats that have been around for years. Here is a portion
of an article from the SEC's website:
And Dump" Scam
It's common to see messages posted online that urge readers to buy a
stock quickly or tell you to sell before the price goes down. Often
the writers will claim to have "inside" information about
an impending development or to use an "infallible" combination
of economic and stock market data to pick stocks. In reality, they may
be insiders or paid promoters who stand to gain by selling their shares
after the stock price is pumped up by gullible investors. Once these
fraudsters sell their shares and stop hyping the stock, the price typically
falls and investors lose their money. Fraudsters frequently use this
ploy with small, thinly-traded companies because it's easier to manipulate
a stock when there's little or no information available about the company.
Be wary of messages that read: "How To Make Big Money From Your
Home Computer!!!" One online promoter claimed that investors could
"turn $5 into $60,000 in just three to six weeks." In reality,
this program was nothing more than an electronic version of the classic
"pyramid" scheme in which participants attempt to make money
solely by recruiting new participants into the program.
The "Risk-Free" Fraud
"Exciting, Low-Risk Investment Opportunities" to participate
in exotic-sounding investments - such as wireless cable projects, prime
bank securities, and eel farms - have been offered through the Internet.
But no investment is risk-free. And sometimes the investment products
touted do not even exist - they're merely scams. Be wary of opportunities
that promise spectacular profits or "guaranteed" returns.
If the deal sounds too good to be true, then it probably is.
At one time, off-shore schemes targeting U.S. investors cost a great
deal of money and were difficult to carry out. Conflicting time zones,
differing currencies, and the high costs of international telephone
calls and overnight mailings made it difficult for fraudsters to prey
on U.S. residents. But the Internet has removed those obstacles. Be
extra careful when considering any investment opportunity that comes
from another country, because it's difficult for U.S. law enforcement
agencies to investigate and prosecute foreign frauds.
Using Common Sense
Skepticism and common sense should play large roles in evaluating investment
ideas found on the Internet. Here are two questions to always ask:
- Does this sound
too good to be true?
- What makes me so
lucky to get this offer?