You Can't Cheat an Honest Man - James Walsh [111]
For the Internet, two vulgar applications are driving the fullest technological uses of on-line commerce. One is, as with VCRs, sex. Pornography (usually still photos) and on-line sex talk are big applications on the net. The other is get-rich-quick schemes, most of which are simple variations on the basic Ponzi premise.
Through the mid-1990s, two key characteristics of the Internet have acted as partial checks on fraud. Unfortunately, both of these checks may weaken over time.
First, Ponzi perps who use traditional media (telemarketing, direct mail, MLM) seek out investors aggressively. Perps on the Internet make offers on their websites—and then wait for consumers to find them—clearly, a much slower way of reaching people. This check is likely to weaken as so-called “push technology” makes it easier to send junk mail on the net.
Second, most users remain reluctant to give out their credit card numbers and other personal information over the Internet. This check is likely to weaken as legitimate businesses refine transaction security and people have a higher level of general comfort with the system.
Trust is a difficult Issue
While many investors know the Internet contains a wealth of investment information, they often don’t know how to find what they’re looking for and have no way of knowing whether the information is reliable when they do find it.
Overall, few people—only about one in eight—say they would invest money based on anything they read or heard on the Internet. But, according to a 1996 survey by Massachusetts-based Dalbar Associates, demographic groups that tend to use the Internet the most trust what they read on it more. And another factor troubles many regulators. Heavy users of the Internet share a libertatrian, frontier mentality that is conducive to investment frauds.
And more than a third of people under 35 years old—Generation Xers—told the Dalbar survey that they considered the Internet a reliable source of investment information. This level of trust is music to Ponzi perps’ ears. From a crook’s perspective, there are suckers born every time a new person goes on-line. And more are going on-line all the time.
In 1995, about 40 million people used the Internet at least once in a while. That number was only a hint at what could be, though. Some marketers were predicting that by the new millennium, the number could be several hundred million.
The SEC has dedicated an entire unit to investigate and prosecute on-line investment fraud and is stepping up its own on-line presence to raise consumer awareness and access to the agency.
“It’s becoming a bigger and bigger problem,” says John Stark, who oversees Internet fraud for the SEC. “But they’re just the same old swindles with a new medium.... These [perps] are not like hackers, who can be difficult to track down. As long as they’re located in the U.S., it’s no different from any other fraud case. They need to advertise to lure victims, which means they need to post a phone number or an address or a post office box.”
On a more optimistic note, Internet regulars don’t yet seem to have developed the shame that shuts up burned Ponzi investors in other environments. The SEC has been surprised by the amount of information some web users are willing to disclose about themselves and their experiences.
“This is a very sophisticated group of self-policing individuals, and they’re willing to identify themselves to help us because they don’t like fraud,” Stark says.
He tells the story of one group of crooks that not only created a professional-looking web site, it even created links to bogus investment newsletters that touted the offering as a good investment. Some of the people conned by the set-up showed a refreshing outrage at having been ripped off.
Cyberspace Ponzi Perps Learn Quickly
Jeff Herig, a computer evidence analyst for the Florida Department of Law Enforcement,