These stocks are increasingly exploited by perpetrators of fraud, including organized crime, as the potential profits are considerable. Often, their stocks are sold by unregistered brokers who call investors from boiler rooms, using elaborate scripts. Micro-Cap schemes involve violation of the SEC Rule 144 reporting requirements and market manipulation of the stock price, often concealing the fraudulent activities through the use of foreign bank and brokerage accounts. Micro-Cap fraud, though only one segment of the market, can and does cause catastrophic harm to individual investors, and if unchecked, could erode the confidence and overall operation of the securities market. Securities offered over the Internet have added an entirely new dimension to securities fraud investigations.
Investors are able to research potential investments and invest over the Internet with ease.
Investors are electronically linked to a number of services that provide stock and commodity quotations, and critical financial information. Both the low cost of setting up a web page and the anonymity available, have made the Internet especially vulnerable to crime. The Internet has helped democratize the investment process by providing widespread access to the most specialized information, giving the appearance to thousands of investors of having equal access to what was otherwise difficult to obtain data. There is a growing problem with chat rooms and newsletters that provide fraudulent information related to publicly traded stocks. The arrival of the Internet as a trading vehicle also may cause tragic harm to individual investors, and if unchecked, could erode the confidence and overall control and operation of the securities market.