SEC charges bad 'Net tippers
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October 28, 1998: 2:14 p.m. ET
Internet sweep gathers complaints of online securities fraud, touting, 'spam'
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NEW YORK (CNNfn) - As part of its struggle to clean up online securities fraud, the U.S. Securities and Exchange Commission said Wednesday it has charged 44 individuals and companies with committing securities fraud over the Internet.
The SEC's complaints include alleged violations of anti-fraud and anti-touting laws in which the individuals and companies circulated what they claimed were unbiased investment opinions.
In actuality, the SEC said, the accused parties had received more than $6 million in insider stock and options from 235 companies in return for recommending the securities to outside investors.
"In all of these cases, the Internet providers gave ostensibly independent opinions about microcap companies that in reality were bought and paid for," said Richard H. Walker, SEC director of enforcement. "Not only did they lie about their own independence, some of them lied about the companies they featured, then took advantage of any quick spike in price to sell their shares for a fast and easy profit."
The charged parties were Internet "spammers," propagators of large volumes of junk e-mail -- in some cases, millions of unsolicited messages - and had circulated their "advice" through that medium.
How to avoid being taken
In order to prevent investors from being taken in by similar practices, the SEC issued an investor alert outlining common characteristics of Internet securities fraud.
"Never, ever make an investment based solely on what you read in an online newsletter or Internet bulletin board, especially if the investment involves a small, thinly-traded company that isn't well known," said Nancy M. Smith, director of the SEC's office of investor education and assistance.
As part of the alert, the SEC recommended that would-be investors take the following steps before opening their wallets:
- be wary of Internet aliases or "handles." The comparative anonymity of the Internet makes it easy for scammers to pose as company insiders or impartial experts, so ask for credentials before acting on advice.
- do your own research. Analyze a prospective investment's financial statements. If someone tells you a company is a "hot pick," ask the SEC or other authorities for more information.
- be on the lookout for earmarks of traditional securities scams like the pyramid scheme or offshore fraud. Even though stock picks come to you through a high-tech medium like the Internet, they aren't necessarily more valid.
- take your time. Crooked investors have an easier time manipulating stock movements if they can get you to rush into buying. If someone wants you to hurry, don't.
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