The increased incidence of online financial fraud tracks the internet's explosion as a popular share-trading platform. Nevertheless, while the internet imparts a patina of sophistication to online stock fraud, classic web cons are as hoary as the three-card trick. Once it is sufficiently inflated, the stock is quickly sold, leaving the price to collapse and investors out of pocket. To promote stocks online, criminals gravitate to the slew of websites that have sprung up to service teeming online investors. At investor chat rooms and bulletin boards, they tout stocks using anonymous postings.
Some internet scams take their cue from today's public investment market.
But this requirement has been overlooked by many internet start-ups bent solely on capitalising on investors' appetite for internet stocks, with little immediate intention of going public. The SEC and Federal Bureau of Investigations nabbed the suspect in the Emulex case, for instance, using Internet Protocol addresses to trace the computer from which he allegedly sent the fake press release. The SEC's cyberforce of more than 200 lawyers, accountants and investigators has mounted four dragnet operations, each focused on different types of online stock fraud. Offenders are typically served with cease and desist orders and stripped of their assets, while the SEC joins forces with the FBI in serious cases to seek criminal prosecutions carrying jail terms. The SEC has also assembled a formidable technology arsenal to combat online stock fraud.