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Nasdaq on the prowl
September 17, 1997: 4:23 p.m. ET

Regulators to scan websites, chat areas for false investor information
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NEW YORK (CNNfn) - Online investment sites just gained an important, new reader.
     Concerned about potential fraud in public chatrooms and other places on the Internet, the National Association of Securities Dealers is readying a new system that will scan those areas and hopefully warn regulators of fraud before investors get taken.
     "We're very concerned about any investor fraud. We wanted to find technology that would help us be more proactive and discover situations before they affected the marketplace and hurt investors," said Beth Weimer, vice president of Nasdaq's Marketwatch online surveillance group.
     After looking at a variety of software solutions, the NASD chose technology from Fairfax, Va.-based SRA International. SRA won a $500,000 contract to take existing technology, known as NetOwl Extractor, and custom-tailor the system to search for possible fraud situations.
     SRA delivered a prototype of the system late last year to prove the technology could be adopted for this purpose. The final version of the system will be installed in January.
     "[NetOwl] is artificial intelligence technology that understands things in context. It allows us to parse text for proper nouns, names and places. We surround that capability with additional software that knows what kinds of trends might be adversely affecting the market," said Emerson Thompson, SRA's senior vice president and general manager for financial services.
     In addition to Net Owl Extractor, NASD will employ the company's Name Tag search engine, which will be customized to examine market-oriented areas.
     Weimer said the system will only be part of the Nasdaq's overall effort. After it alerts regulators to possible improprieties, they will check the accuracy of the information identified to determine if further action is needed.
     "We'll program it with a list of all Nasdaq companies and several catch phrases that have been known to inflate or deflate stock prices, such as 'double your money in 20 days.' The search engine will have those phrases loaded in it, so when it goes out, it will search for them. We will take a look at what's being said and look deeper into its accuracy," she said.
     Both Thompson and Weimer are quick to point out that the system won't involve snooping since only public areas will be targeted.
     "For someone to adversely affect the market [through public postings], it has to be pretty easy to find. People have to be able to see it. We're not involved in any kind of clandestine activity here. We're simply trying to discover what we believe is inappropriate activity," Thompson said.
     Weimer said well-known investor sites will be reviewed more frequently. Over time, the list of sites will be expanded as problems are identified.
     She said the NASD isn't implementing the system out of concerns that fraud is spreading, only to stop potential situations before they mushroom into larger problems.
     "We're interested in being more proactive because the Internet is such a powerful informational tool and gets to so many people so quickly. It's not being done because we believe there's anything nefarious going on. It's just such a different age now that we want to be at the beginning point of stopping fraud," Weimer said.
     Since the NASD's jurisdiction only extends to brokers and dealers, it will work closely with the Securities and Exchange Commission if actual cases of fraud are identified.
     Weimer said there hasn't been a backlash over concerns that the system might be too intrusive. In fact, several well-known investor sites are working with the NASD to raise awareness of potential scams and improve investor education.Back to top
     --Cyrus Afzali


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