Internet investment scams and how to avoid - newsletters, bulletin boards, forums, email spam, chat rooms

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This page discusses internet investment securities fraud, where to look out, and a few real examples of online stock scams.

We also have books below that cover the subjects of fraud, investing, stocks, and the stock market.

INTERNET FRAUD - AVOID INTERNET INVESTMENT SCAMS

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.

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.

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.

E-mail Spams
Because 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 WISELY

If you want to steer clear of frauds, you must get the facts. Never 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. Don't even think about investing on your own in small companies that don't file regular reports with the SEC, unless you investigate each company and to check the truth of every statement about the company.

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; and
Check out the people running the company and find out if they've ever made money for investors before.

We highly recommend using the links that we provide on the OldStocks.com Fraud Page.

RECENT CASES OF INTERNET FRAUD

Francis A. Tribble and Sloane Fitzgerald, Inc.
They 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
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. 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
He 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
They 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
They 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
He 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.

We also provide an extensive investment book store where you can read on past Wall Street frauds as well as how to protect yourself from investment schemes.

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