Thursday, February 7, 2008

Legal Thriller Author Explains What Every Investor Should Know About Internet Stock Scams

--From spam to bulletin board and chat room, scam artists have found a new home.

A century ago P.T. Barnum sagely told us, "A sucker is born every minute." At the time he was, no doubt, correct.

No longer. In today's internet world, that time-span has been cut back to every nana second. Now that spam has been somewhat curtailed, scam artists have moved their operations, largely, to internet bulletin boards and chat rooms. That's all. A change of venue. Like maggots fried in hot grease, they have moved, jumped, spread out, occupied many of these new communications centers.

This up-the-ante, beat-the-street move was made necessary because state law enforcement agencies, the SEC, and the FTC have, in recent years, set up teams to daily police the worldwide web. With spam, being the most obvious and easiest to detect, the scam artists have been forced to a better, alternative outlet for their "avant-garde" visions.

With a chat room, nothing more than pulling all the old con-lines out of mothballs and reusing them is needed. With con-world tactics, they spiel out typical con-like jargon, and reel in the usual high percentage of suckers. Just like the good old days.

With bulletin boards--those Illusory walls seemingly profaned by graffiti--it's a little different. The scam artists are challenged. Tactics and timing take greater emphasis. Try this example on for size:

A clever scam artist left a message on a prominent stock board that a small U.S. hi-tech company was about to be bought up by a European firm for $900.000.000. This was a sum nearly double its market value. The posting had a link to another bulletin board which displayed a press release giving the details. The press release was a phony, placed there by the con man himself. His purpose was 1-track, to temporarily drive up the price of the stock. With the temptations stoked by the bargain-basement price, investors flew to the stock driving its price from $5 to $7.50 in minutes. With the aid of the many day traders on the exchange, who buy quickly on rumor, the scam artist walked off with a fast-buck haul of $520,000. Presto. Nothing more than a classic pump and dump, only taken out of the usual "pump" time frame, speeded up so that the whole thing would come to climax before law enforcement authorizes could even answer their phones to take the inevitable complaints. Real. But, like a classic page from a legal thriller book.

Take a long look sometime. Observe all of the stock boards and news boards hanging in cyberspace. As so many scam artists still dance on the internet in a perpetual spam-fest, this stock "guru" found a better way. Whereas legendary con man, the Music Man's Professor Harold Hill, gave us 76 trombones, he put a little cha-cha-cha into the sax section.

The SEC gets in upwards of 200 complaints a day about illegal activity on the web. Most pf these are stock scams. With fraud made this easy it should come as a heavy-booted reminder that this particular form of Scamology 101 should be featured in Scam School, for the benefit of all concerned watchdogs and law enforcers.It's textbook.

With his imposing presence, elegant sartorial style, and eloquent use of the language, the con man has evolved. And now, with his range so widely expanded, your life as a potential target has expanded right along with it. Unless you count your age in elephant years, you will most likely find yourself in his cross-hairs at some moment in your life.

Prepare. Learn. Now is the time. Be ready for that cure-all elixir when it comes.

19 comments:

Ted Berlin said...

The old double entry trick. Good example...lure from one bulletin board to another. It works, and sometimes the payoff is big.

Ellinger said...

That is true. The con artist's spiel is the same...they still pull all of the same old chestnuts out of the fire. Now they have a different stage setting...it is the internet. As a consumer protection agency watchdog I can confirm this.

Gene Kranik said...

Then I take it that it is best to be highly suspicious of any stock being touted over the internet. That sure puts the investor behind the eight ball. Who do you trust?

Jack Payne said...

Gene, you are right to trust nothing, at face value, that you see on the internet--or see on TV, hear on the radio or over the long distance phone, too, for that matter. Only relatively safe way is to consult with a broker with an established reputation, preferably in your own community.

warmer said...

I can't tell you how many times I have come across these suspicious situations in internet chat rooms.

Jack Payne said...

The stench of these offerings usually jumps out at me. It's surprising how many people actually bite on what seems to be outlandish sales pitches.

JesseTheCat said...

What an interesting post...its amazing how many people there are in the world willing to scam the innocent and gullible!
Actually,what does it say about society??

Terry said...

I've been a bulletin board addict for a long time...and will continue...but, I will never trust a bulletin board stock tip again.

Ariel J said...

An investor I know was doing business with some broker over the internet. A year went by, then someone in Texas mailed him a newspaper photo of this man being led down the steps of a courthouse in handcuffs. This investor lost interest in all stock dealings over the internet after that.

Aubrey Jones said...

Jack,
Thanks for the great tips. I spent years in the Financial Industry dealing with internet fraud. To this day it still amazes me how easily even otherwise intelligent people will fall for these scams.

There's a great, current collection of the latest Nigerian, Lottery, Phishing and other internet based scams available at

http://www.SecurePCnews.com/blog

Jack Payne said...

Glad to see that the alarm bell level imposed by the internet stock scams seems to be generally understood.

It goes far beyond just internet stock scams. As you can see, by perusing the archives here, the "reach" of con games comes from all angles to dig deeply into all of our pockets.

Must it be so? No. But, it is. As it is said, in a perfect world all the imposters would be dead, and Elvis would still be alive.

Tamera said...

Things like this make me so angry!!

FLOOG said...

A very interesting post Jack. I'm amazed how often, and how easily people fall for the numerous scams that abound these days.

Is it simply that we are desperate for that opportunity of making a quick buck, or just the fact that we can at times be weak and foolish in the decision making department?

Either way, I've seen acqauintances fall for every con imaginable, from obvious Ebay scams right down to the good old salesman who rolls up in a BMW and says he has some fur coats to sell quickly as he doesn't want to take them back to his warehouse!

Anonymous said...

It's great to see someone explaining this in a clear & concise way. I have the feeling that this is much more common than we want to believe -- reading between the lines of the message boards that follow pinksheet stocks shows a lot of back alley psychology in action. This whole area of discussion needs much wider attention.

Justin said...

some of these con artists have their own tv shows now...not naming any names.

legal thriller

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