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|                                                                     |                                                                               | Avoiding Internet Investment Scams: Tips for Investors
      The Internet serves as an excellent tool for investors, allowing them 
      to easily and inexpensively research investment opportunities. But the 
      Internet is also an excellent tool for fraudsters. That's why you should 
      always think twice before you invest your money in any opportunity 
      you learn about through the Internet.This alert tells you how to spot different types of Internet fraud, 
      what the SEC is doing to fight Internet investment scams, and how to use 
      the Internet to invest wisely.Navigating the Frontier: Where the Frauds Are
      The Internet allows individuals or companies to communicate with a 
      large audience without spending a lot of time, effort, or money. Anyone 
      can reach tens of thousands of people by building an Internet web site, 
      posting a message on an online bulletin board, entering a discussion in a 
      live "chat" room, or sending mass e-mails. It's easy for fraudsters to 
      make their messages look real and credible. But it's nearly impossible for 
      investors to tell the difference between fact and fiction.Online Investment Newsletters
      Hundreds of online investment newsletters have appeared on the Internet 
      in recent years. Many offer investors seemingly unbiased information free 
      of charge about featured companies or recommending "stock picks of the 
      month." While legitimate online newsletters can help investors gather 
      valuable information, some online newsletters are tools for fraud.Some companies pay the people who write online newsletters cash or 
      securities to "tout" or recommend their stocks. While this isn't illegal, 
      the federal securities laws require the newsletters to disclose who paid 
      them, the amount, and the type of payment. But many fraudsters fail to do 
      so. Instead, they'll lie about the payments they received, their 
      independence, their so-called research, and their track records. Their 
      newsletters masquerade as sources of unbiased information, when in fact 
      they stand to profit handsomely if they convince investors to buy or sell 
      particular stocks.Some online newsletters falsely claim to independently research the 
      stocks they profile. Others spread false information or promote worthless 
      stocks. The most notorious sometimes "scalp" the stocks they hype, driving 
      up the price of the stock with their baseless recommendations and then 
      selling their own holdings at high prices and high profits. To learn how 
      to separate the good from the bad, read our tips 
      for checking out newsletters.Bulletin Boards
      Online bulletin boards � whether newsgroups, usenet, or web-based 
      bulletin boards � have become an increasingly popular forum for investors 
      to share information. Bulletin boards typically feature "threads" made up 
      of numerous messages on various investment opportunities.While some messages may be true, many turn out to be bogus � or even 
      scams. Fraudsters often pump up a company or pretend to reveal "inside" 
      information about upcoming announcements, new products, or lucrative 
      contracts.Also, you never know for certain who you're dealing with � or whether 
      they're credible � because many bulletin boards allow users to hide their 
      identity behind multiple aliases. People claiming to be unbiased observers 
      who've carefully researched the company may actually be company insiders, 
      large shareholders, or paid promoters. A single person can easily create 
      the illusion of widespread interest in a small, thinly-traded stock by 
      posting a series of messages under various aliases.E-mail Spams
      Because "spam" � junk e-mail � is so cheap and easy to create, 
      fraudsters increasingly use it to find investors for bogus investment 
      schemes or to spread false information about a company. Spam allows the 
      unscrupulous to target many more potential investors than cold calling or 
      mass mailing. Using a bulk e-mail program, spammers can send personalized 
      messages to thousands and even millions of Internet users at a time.How to Use the Internet to Invest WiselyIf you want to invest 
      wisely and steer clear of frauds, you must get the facts. Never, ever, 
      make an investment based solely on what you read in an online newsletter 
      or bulletin board posting, especially if the investment involves a small, 
      thinly-traded company that isn't well known. And don't even think about 
      investing on your own in small companies that don't file regular reports 
      with the SEC, unless you are willing to investigate each company 
      thoroughly and to check the truth of every statement about the company. 
      For instance, you'll need to: 
      get financial statements from the company and be able to analyze 
        them;verify the claims about new product developments or lucrative 
        contracts;call every supplier or customer of the company and ask if they 
        really do business with the company; andcheck out the people running the company and find out if they've 
        ever made money for investors before.And it doesn't stop there. For a more detailed list of questions you'll 
      need to ask � and have answered � read Ask 
      Questions. And always watch out for tell-tale 
      signs of fraud.Here's how you can use the internet to help you invest wisely:Start With the SEC's EDGAR Database
      The federal securities laws require many public companies to register 
      with the SEC and file annual reports containing audited financial 
      statements. For example, the following companies must file reports with 
      the SEC:All U.S. companies with more than 500 investors and $10 
        million in net assets; andAll companies that list their securities on The Nasdaq Stock Market 
        or a major national stock exchange such as the New York Stock Exchange.Anyone can access and download these reports from the SEC's EDGAR database 
      for free. Before you invest in a company, check to see whether it's 
      registered with the SEC and read its reports.But some companies don't have to register their securities or file 
      reports on EDGAR. For example, companies raising less than $5 million in a 
      12-month period may be exempt from registering the transaction under a 
      rule known as "Regulation A." Instead, these companies must file a hard 
      copy of the "offering circular" with the SEC containing financial 
      statements and other information. Also, smaller companies raising less 
      than one million dollars don't have to register with the SEC, but they 
      must file a "Form D." Form D is a brief notice which includes the names 
      and addresses of owners and stock promoters, but little other information. 
      If you can't find a company on EDGAR, call the SEC at (202) 942-8090 to 
      find out if the company filed an offering circular under Regulation A or a 
      Form D. And be sure to request a copy.The difference between investing in companies that register with the 
      SEC and those that don't is like the difference between driving on a clear 
      sunny day and driving at night without your headlights. You're asking for 
      serious losses if you invest in small, thinly-traded companies that aren't 
      widely known just by following the signs you read on Internet bulletin 
      boards or online newsletters.Contact Your State Securities Regulators
      Don't stop with the SEC. You should always check with your state 
      securities regulator, which you can find on the website of the North 
      American Securities Administrators Association, to see if they have more 
      information about the company and the people behind it. They can check the 
      Central Registration Depository (CRD) and tell you whether the broker 
      touting the stock or the broker's firm has a disciplinary history. They 
      can also tell you whether they've cleared the offering for sale in your 
      state.Check with the NASD
      The National Association of Securities Dealers, Inc. can also give you 
      a partial disciplinary history on the broker or firm that's touting the 
      stock. Call their toll-free public disclosure hot-line at (800) 289-9999 
      or visit their website at http://www.sec.gov.wstub.archive.org/cgi-bin/goodbye.cgi?www.nasdr.com.Online Investment Fraud:New Medium, Same Old Scam
      The types of investment fraud seen online mirror the frauds perpetrated 
      over the phone or through the mail. Remember that fraudsters can use a 
      variety of Internet tools to spread false information, including bulletin 
      boards, online newsletters, spam, or chat (including Internet Relay Chat 
      or Web Page Chat). They can also build a glitzy, sophisticated web page. 
      All of these tools cost very little money and can be found at the 
      fingertips of fraudsters.Consider all offers with skepticism. Investment frauds usually fit one 
      of the following categories:The "Pump 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.The Pyramid
      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.Off-shore Frauds
      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.The SEC Is Tracking Fraud
      The SEC actively investigates allegations of Internet investment fraud 
      and has, in many cases, has taken quick action to stop scams. We've also 
      coordinated with federal and state criminal authorities to put Internet 
      fraudsters in jail. Here's a sampling of recent cases in which the SEC 
      took action to fight Internet fraud:Francis A. Tribble and Sloane Fitzgerald, Inc. sent more 
      than six million unsolicited e-mails, built bogus web sites, and 
      distributed an online newsletter over a ten-month period to promote two 
      small, thinly traded "microcap" companies. Because they failed to tell 
      investors that the companies they were touting had agreed to pay them in 
      cash and securities, the SEC sued both Tribble and Sloane to stop them 
      from violating the law again and imposed a $15,000 penalty on Tribble. 
      Their massive spamming campaign triggered the largest number of complaints 
      to the SEC's online Enforcement Complaint Center.Charles O. Huttoe and twelve other defendants secretly 
      distributed to friends and family nearly 42 million shares of Systems of 
      Excellence Inc., known by its ticker symbol "SEXI." Huttoe drove up the 
      price of SEXI shares through false press releases claiming non-existent 
      multi-million dollar sales, an acquisition that had not occurred, and 
      revenue projections that had no basis in reality. He also bribed 
      co-defendant SGA Goldstar to tout SEXI to subscribers of SGA Goldstar's 
      online "Whisper Stocks" newsletter. The SEC obtained court orders freezing 
      Huttoe's assets and those of various others who participated in the scheme 
      or who received fraud proceeds. Six people, including Huttoe and Theodore 
      R. Melcher, Jr., the author of the online newsletter, were also convicted 
      of criminal violations. Both Huttoe and Melcher were sentenced to federal 
      prison. The SEC has thus far recovered approximately $11 million in 
      illegal profits from the various defendants.Matthew Bowin recruited investors for his company, 
      Interactive Products and Services, in a direct public offering done 
      entirely over the Internet. He raised $190,000 from 150 investors. But 
      instead of using the money to build the company, Bowin pocketed the 
      proceeds and bought groceries and stereo equipment. The SEC sued Bowin in 
      a civil case, and the Santa Cruz, CA District Attorney's Office prosecuted 
      him criminally. He was convicted of 54 felony counts and sentenced to 10 
      years in jail.IVT Systems solicited investments to finance the 
      construction of an ethanol plant in the Dominican Republic. The Internet 
      solicitations promised a return of 50% or more with no reasonable basis 
      for the prediction. Their literature contained lies about contracts with 
      well known companies and omitted other important information for 
      investors. After the SEC filed a complaint, they agreed to stop breaking 
      the law.Gene Block and Renate Haag were caught offering "prime 
      bank" securities, a type of security that doesn't even exist. They 
      collected over $3.5 million by promising to double investors' money in 
      four months. The SEC has frozen their assets and stopped them from 
      continuing their fraud.Daniel Odulo was stopped from soliciting investors for a 
      proposed eel farm. Odulo promised investors a "whopping 20% return," 
      claiming that the investment was "low risk." When he was caught by the 
      SEC, he consented to the court order stopping him from breaking the 
      securities laws.If you believe that you have been the victum of a securities-related 
      fraud, through the Internet or otherwise, or if you believe that any 
      person or entity may have violated or is currently violating the federal 
      securities laws, you can submit a complaint using our online 
      complaint form or email us at [email protected].
      Be 
            Alert for Telltale Signsof On-Line Investment Fraud
          10 
            Questions To Ask AboutAny Investment 
          OpportunityINVESTigate 
            Before YouINVEST
          Tips 
            for Checking Out On-Line NewslettersIf you are aware of an online fraud, tell 
      us about it!http://www.sec.gov/investor/pubs/cyberfraud.htmHome | Previous Page
          Modified:09/28/2000 | Be 
            Alert for Telltale Signsof On-Line Investment Fraud | 10 
            Questions To Ask AboutAny Investment 
          Opportunity | INVESTigate 
            Before YouINVEST | Tips 
            for Checking Out On-Line Newsletters | Home | Previous Page | Modified:09/28/2000
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| -------------------------------------------------------------------- | ----------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------------------------- | -------------------- | -------------------
|Be 
            Alert for Telltale Signsof On-Line Investment Fraud | 10 
            Questions To Ask AboutAny Investment 
          Opportunity
|INVESTigate 
            Before YouINVEST                           | Tips 
            for Checking Out On-Line Newsletters                      
|Home | Previous Page                                                 | Modified:09/28/2000