You Can't Cheat an Honest Man - James Walsh [112]
In the early stages of the Internet, much of the financial fraud was based on hyping stocks. “When we see a stock fluctuating wildly, we go into the chat room and take a look at what’s being said,” said Mike Robinson, spokesman for NASDR, an independent regulatory arm of the National Association of Securities Dealers (www.nasd.com).
But, as more people logged on and technology advanced, the Ponzi perps started getting active.
Internet Fraud Watch (www.fraud.org), a project of the National Consumers League, was launched in the mid-1990s to discourage online fraud before it gets a hold in the workplace. “Our Web site alone has received more than 300,000 visits from consumers and averaged 25,000 hits a week,” said NCL president Linda Golodner.
Cleo Manuel, an Internet fraud specialist with NCL, offers an explanation for all the interest:
The Internet is the new frontier. For con artists, it’s the natural next step. It’s the evolution of fraud. People see a sense of credibility when they see something on the ‘net because they trust the technology and trust the people on there. It’s a new marketplace and people need to be as careful there as they are in other marketplaces.
“The Wild West of Fraudulent Schemes”
“Cyberspace is a new frontier for advertising and marketing,” said Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection. “But the Internet will not achieve its commercial potential if this new frontier becomes the Wild West of fraudulent schemes.”
Ponzi schemes crop up all the time. “It’s interesting that over the years, the scams remain the same,” says William McLucas, director of the SEC’s enforcement division. “It’s just the pitch that changes.”
The Internet combines various attributes of publishing, broadcasting, public space and private commerce. This melange confounds many legal theorists—to say nothing of law enforcement officials.
Among the specific issues that perplex law enforcement agents:
• the distinction between advertising and fact (and what this means for free speech) on the Internet,
• the liability of Internet Service Providers for fraud committed through their networks, and
• what constitutes a “clear and conspicuous” on-line consumeralert warning.
At the state level, some regulators are more aggressive about Internet Ponzi schemes than others. Larry Cook, director of the enforcement division of the Kansas Securities Commission, explains that his agency looks at three kinds of Internet frauds:
You have the scams, you have the misinformed who need to find legal advice in putting together an offering to solicit investors, and then you have the pie-in-the-sky people who are not necessarily [Ponzi perps], but they don’t have a clue how to run a business.
The dilemma for regulators and law enforcement officials: It’s an impossible task to monitor every investment-related posting in the dozens of chat rooms, news groups, bulletin boards and Web pages on the net.
The SEC and the North American Securities Administrators Association have set up informal Internet surveillance programs, often cruising around user groups and examining the messages posted there. But this is—at best—a random sampling process.
The SEC admits there’s no way of knowing how many scams are operating on-line, so there’s no way to know for sure whether the fraudulent offers are increasing or decreasing. The only thing the regulators do know is that complaints are rising as Internet use increases.
SEC regulators say that Ponzi-type fraud is well-suited for the world of on-line computing, because a perp can easily send messages to thousands of people with the touch of a button. One example: An ad titled “How to Make Big Money From Your Home Computer,” in which a promoter claimed investors could turn $5 into $60,000