It's such an efficient distribution channel for products, schemes, and frauds. Last year the Securities and Exchange Commission launched a high-profile effort to let the bad guys know that Internet crime doesn't pay. Stark and his boss, SEC enforcement director Richard Walker, say that in its short life, cyberfraud has already undergone a transformation. But many crooks have since graduated to touting microcap stocks in which they have stakes, generating investor interest by posting phony news or rumors and then selling their shares as the price climbs. Last October the SEC made front-page headlines when it took action against 44 individuals, most of them for touting.
Officials point to two cases that typify the methods of Internet fraud.
In the second case, against the public relations firm Sloan Fitzgerald, a flack allegedly sent out several million e-mails hyping two companies, Eventemp and JT's Restaurants, without disclosing that he was paid to promote the securities. Stark and Walker say the sweep was intended to generate publicity-and it did. The SEC is the big dog in this fight, but it's not alone. At the National Association of Securities Dealers, which regulates brokerage firms and runs Nasdaq, programmers are doing final testing of an antifraud system called NetWatch. Every evening the system will cruise the Net, stopping at the most popular sites and scrolling through text.