NEW YORK (CNNfn) - "STOCK ALERT!!!" the e-mail shouts. VICI is hot. "LAST TRADE: 7/16 ... SHORT TERM PRICE TARGET: 1 1/4. INTERMEDIATE TERM PRICE TARGET: 3 3/4 ... SEVERAL VERY LARGE CONTRACTS THE COMPANY INTENDS TO PURSUE AND PUBLICLY ANNOUNCE WHEN SIGNED."|
Victor Industries, a Nasdaq over-the-counter stock, is set for a 700 percent increase, according to the e-mail. The message points out that the company, which mines a chemical-cleanup mineral called zeolite, has a "worldwide market" and "prospects" that include large chemical companies, nuclear plants, petroleum companies, large nurseries, reservoirs and farms.
And Victor is purportedly lighting up the investment world -- the e-mails are a torrent as they flood in this month. The same stock alert zipped into CNNfn mailboxes, unprompted, from numerous addresses such as firstname.lastname@example.org and email@example.com, all allegedly tracing back to Access News Corp., a French company based in Paris.
So where do I sign up?
Is Victor really a hot tip? Far from it. Between 1977 and 1996, Missoula, Mont.-based Victor mined precious minerals "without notable success," according to a document filed with the Securities and Exchange Commission. In 1996, it started mining zeolite. But Victor has basically been out of business the past three years, since its owner contracted lymphatic cancer. Since 1997, it has averaged $6,000 in sales a year.
The company isn't dead -- new management is trying to pump new life into Victor, after the old owner sold it last December. Management claims it has meetings set up with possible customers, to get the business going again, though the company won't say with whom it is talking.
Zeolite is a good product, according to Ron Pellett, a management consultant who is working with Victor, "though you probably never heard of it." It can be used in nuclear cleanup, like the e-mail implied. But even he concedes the company is struggling back to its feet.
Pellett says no one with Victor has anything to do with the e-mails, as far as he knows. He has talked to public relations companies but hasn't hired any, so he doesn't know who would be sending them out. The purported originator, Access News Corp., doesn't have a Paris phone listing and didn't reply to an e-mail.
As far as the messages go, "I'd be suspicious of them probably," Pellett said.
Don't believe every e-thing you read
It's a wise reaction. Victor's stock hasn't moved rapidly since the e-mails came out and is still mired in penny stock land. Maybe it will take off; maybe it won't. But relying on anonymous, unsolicited tips is no way to invest.
Thanks to e-mail and the Internet, it's cheap and easy to lure investors into a mistake that could be anything but cheap and easy to rectify.
Junk, nonsense and fraudulent e-mails, along with bulletin board chatter and bogus or biased newsletters, are the new take on the boiler room phone scams and the "pump and dump" schemes of last decade and before.
The Securities and Exchange Commission launched its first "sweep" of online fraud in October 1998. It brought enforcement actions in 23 cases, charging 44 people with:
- lying about companies they were promoting to manipulate the price
- failing to reveal they were being paid to promote them, called illegal "touting"
- or illegally running a company's stock up with the intention of selling their own shares in it for a quick buck, known as "scalping."
The SEC gets around 300 complaints a day from the public, reporting suspicious Internet-related investment activity. There have been numerous sweeps since, and you can be sure many crooks go undetected, or at least uncaught. Modern communications make stock-touting fraud easy, fast to commit and hard to trace.
Cheap and easy, and that's just the e-mails
"The really problematic thing about spam is that, using the new technology, people can send what look like personalized messages to millions of people," said Susan Wyderko, director of the SEC's Office of Investor Education and Assistance. "It's a much more efficient, cheap method of defrauding people."
Who knows why people fall victim to the scams? Most everyone thinks they're smarter than that until it happens to them. Maybe it's the newness of the medium. Maybe people are used to going to the Internet or their e-mail to get information, so they trust other information they receive that way. Sometimes the scammers are very cunning.
Authorities say the most convincing scams personalize the information well, set up impressive-looking corporate Web sites, or create false press releases that seem to have come from the company. Others disguise e-mails touting a stock to look like they "mistakenly" made their way into your e-mail inbox on their way to some big shot investor -- "Thanks for the heads up, Gary, actually I've already put $40,000 in XYZ ahead of that merger," and so on.
Beware the out of this world
Sometimes the schemes are outlandish.
Last April, the SEC charged Howard Turney with trying to sell $350 billion in what the commission says were bogus bonds. Operating under the alias Lazarus Long, and claiming he was a prince, Turney ran a Web site that said he was building "new utopia," a new country and "tax haven" that was rising from the Caribbean on giant concrete platforms built on an underwater landmass, 115 miles west of the Cayman Islands.
Investors were to become "charter citizens" and were guaranteed a 9.5 percent note, the SEC says. It adds that Turney promoted buying the currency, too, by saying it could result in returns of up to 200 percent. The Web site received at least 100,000 hits.
"People seem to sometimes buy on the basis of spam e-mails in a situation where I'm not sure they would if it weren't coming over the Internet," Wyderko said. "If somebody found an anonymous tip in the mail, you'd throw it out, or it's junk mail. Culturally we know that."
Here are some tips authorities and other sources suggest you heed to avoid being taken in by Internet and e-mail stock scams:
- You never know who you are dealing with online or through the Internet. Check with the source -- if you are sent an earnings report from a company, check with the company's Web site.
- Treat anonymous or unsolicited e-mails like you would treat anonymous or unsolicited mail or phone calls.
- People using aliases or pseudonyms may have connections or a financial interest in the company concerned. It is illegal to tout a stock and get paid for touting it without noting that you were paid, how you were paid and the amount you were paid. But such fraud is still common.
- Many other fraudsters are not paid directly by the company but own stock in it or, in reverse, have shorted the stock hoping it will decline. It is not illegal to lie about a company but is illegal to manipulate a stock with the intent of profiting from it. Still, such fraud is also common.
- Even well-intentioned people give out misinformation. Be careful not to conflate opinion with fact. Check facts.
- Never make an investment decision based solely on what you read online, the SEC recommends. There have been instances of legitimate looking corporate or news items online that turned out to be fraudulent. Look for verification from a second source.
- Make sure the address of any information you are reading online meshes with where you expect to be reading it -- even if a release claims to be a company's Web site, make sure the Web address matches the company's Web address.
- It is illegal to trade on material, nonpublic information. If someone claims to be giving you such information, why are they giving it to you? Either they are willingly jeopardizing themselves, or they don't know anything of use.
- Be especially wary of small, thinly traded companies. These are the easiest to manipulate and the favorite targets of online and e-mail fraud.
- If you invest in companies that do not file financial statements with the SEC, you are taking your investment life into your own hands. On your own, you will have to: get and analyze the financials; verify claims about contracts or developments; call suppliers and customers to ask if they really do business with the company; check out management to see if they have made money for investors or, on the other hand, been convicted of fraud before.
- For companies registered with the SEC, you can research their filings for free through the EDGAR database for any company that has raised more than $5 million. Even companies that have raised less may file with the SEC. Call (202) 942-8090 to check for filings, particular for small companies not on EDGAR.
- No investment is without risk. Beware of promises of "guaranteed" returns or large, rapid gains.
- If there is pressure to invest or upfront fees, walk away.
- Be especially careful when investing outside the United States. While it used to be expensive and complicated for offshore conmen to target U.S. investors, the Internet has made it much easier. It is difficult to pursue and prosecute many offshore scam artists.
If you come across suspicious investment activity online, the SEC encourages you to contact it via e-mail at its investor education and assistance office (firstname.lastname@example.org) or its division of enforcement (email@example.com). You may also want to enter a complaint with the enforcement division's complaint center.