How To Learn Internet Fraud Online

Feb. 1, 2011

The Internet is a useful way to reach a mass audition without spending a lot of fourth dimension or coin. A website, online message, or "spam" e-mails can reach big numbers with minimum attempt. It'due south piece of cake for fraudsters to make their messages look real and credible and sometimes difficult for investors to tell the difference between fact and fiction. That's why you should retrieve twice before you invest your money in whatever opportunity y'all find online.

Here are some of the ways investors can be tricked online:

Online Investment Newsletters

While legitimate online newsletters may contain valuable information, others are tools for fraud.

Some companies pay online newsletters to "tout" or recommend their stocks. Touting isn't illegal every bit long every bit the newsletters disclose who paid them, how much they're getting paid, and the form of the payment, usually greenbacks or stock. Just fraudsters frequently lie about the payments they receive and their track records in recommending stocks.

Fraudulent promoters may claim to offer independent, unbiased recommendations in newsletters when they stand up to profit from convincing others to purchase or sell sure stocks. They may spread imitation information to promote worthless stocks. To learn more, read our tips for checking out newsletters.

Online Message Boards

Online bulletin boards are a manner for investors to share information. While some messages may be true, many turn out to be artificial – or fifty-fifty scams. Fraudsters may use online discussions to pump upward a company or pretend to reveal "inside" information about upcoming announcements, new products, or lucrative contracts.

You lot may never know for certain who y'all're dealing with, or whether they're credible, considering many sites allow users to hide their identity behind multiple aliases. People claiming to exist unbiased observers may really be insiders, large shareholders, or paid promoters. One person can easily create the illusion of widespread interest in a small, thinly traded stock by posting numerous messages under diverse aliases.

Pump and Dump Schemes

"Pump and dump" schemes have two parts. In the first, promoters endeavour to boost the toll of a stock with faux or misleading statements about the company. In one case the stock price has been pumped up, fraudsters motility on to the 2d function, where they seek to turn a profit by selling their ain holdings of the stock, dumping shares into the market place.

These schemes often occur on the Internet where it is mutual to see letters urging readers to buy a stock rapidly. Often, the promoters will claim to have "inside" information nigh a evolution that volition be positive for the stock. After these fraudsters dump their shares and stop hyping the stock, the toll typically falls, and investors lose their money.

Pump and dump schemes typically involve little-known microcap companies. For more information, read Microcap Stock: A Guide for Investors.

Spam

"Spam" – junk electronic mail – oftentimes is used to promote bogus investment schemes or to spread imitation information about a company. With a majority e-mail program, spammers can send personalized letters to millions of people at once for much less than the cost of cold calling or traditional post. Many scams, including accelerate fee frauds, employ spam to reach potential victims.

To learn how to protect yourself online and other tips for investing wisely, visit world wide web.investor.gov.

We have provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.