Nowadays, it seems the stock market is more like a roller coaster than an investment. America’s unemployment rate is still about 10 percent and even some economists think we might be in store for a double-dip recession.
As average Americans attempt to do their best during these tough economic times, Internet criminals have a slew of investment scams ready to go as they attempt to scheme hard-working folks of their hard-earned dollars.
According to the Securities and Exchange Commission (SEC), the following are some of the possible methods cyber-muggers may use to try to swindle Americans:
1. Online bulletin boards: Newsgroups, Usenet, and 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. Bulletin board fraudsters often pump up a company or pretend to reveal "inside" information about upcoming announcements, new products, or lucrative contracts.
Also, you never know for certain whom you're dealing with because many bulletin boards allow users to hide their identity behind multiple aliases.
People claiming to be unbiased observers who've carefully researched the company may actually be company insiders, large shareholders, or paid promoters. A single person can easily create the illusion of widespread interest in a small, thinly traded stock by posting a series of messages under various aliases.
2. E-mail Scams: Because "spam" — 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.
3. Online Investment Fraud: The types of investment fraud seen online mirror the frauds perpetrated over the phone or through the mail. Remember that fraudsters can use a variety of Internet tools to spread false information, including bulletin boards, spam, or chat (including Internet Relay Chat or Web Page Chat). They can also build a glitzy, sophisticated web page. All of these tools cost very little money and can be found at the fingertips of fraudsters.
Consider all offers with skepticism. Investment frauds usually fit one of the following categories:
• The “Pump and Dump” Scam: It's common to see messages posted online that urge readers to buy a stock quickly or tell you to sell before the price goes down. Often the writers will claim to have "inside" information about an impending development.
In reality, they may be insiders or paid promoters who stand to gain by selling their shares after the stock price is pumped up by gullible investors. Once these fraudsters sell their shares and stop hyping the stock, the price typically falls and investors lose their money. Fraudsters frequently use this ploy with small, thinly traded companies because it's easier to manipulate a stock when there's little or no information available about the company.
• The Pyramid: Be wary of messages that read: "How To Make Big Money From Your Home Computer!!!" One online promoter claimed that investors could "turn $5 into $60,000 in just three to six weeks." In reality, this program was nothing more than an electronic version of the classic "pyramid" scheme in which participants attempt to make money solely by recruiting new participants into the program.
• The “Risk-Free” Fraud: "Exciting, Low-Risk Investment Opportunities" to participate in exotic-sounding investments — such as wireless cable projects, prime bank securities, and eel farms — have been offered through the Internet. But no investment is risk free. And sometimes the investment products touted do not even exist — they're merely scams. Be wary of opportunities that promise spectacular profits or "guaranteed" returns. If the deal sounds too good to be true, then it probably is.
• Offshore Frauds: At one time, offshore schemes targeting U.S. investors cost a great deal of money and were difficult to carry out. Conflicting time zones, differing currencies, and the high costs of international telephone calls and overnight mailings made it difficult for fraudsters to prey on U.S. residents. But the Internet has removed those obstacles. Be extra careful when considering any investment opportunity that comes from another country, because it's difficult for U.S. law enforcement agencies to investigate and prosecute foreign frauds.
Remember, 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 website, posting a message on an online bulletin board, entering a discussion in a live "chat" room, or sending bulk 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.
For more information on these scams and frauds, plus tips on how to use the Internet wisely when investigating potential investments, go to the Securities and Exchange Commission website at www.sec.gov, and check with your trusted legal and financial advisers.
My Final Thoughts: The classic maxim “if it sounds too good to be true, it probably is” undeniably applies to virtually all online investment schemes. By following the SEC’s advice, and by using good-old common sense, you can make it much harder for these heartless thugs to try to steal your hard-earned dollars.
Copyright 2010 by Bruce Mandelblit
Bruce Mandelblit (www.CrimeZilla.com) is a nationally known security and safety journalist, as well as a recently retired, highly decorated reserve law enforcement officer. His e-mail address is CrimePrevention123@yahoo.com.
This column is provided for general information purposes only. Please check with your local law enforcement agency and legal professional for information specific to you and your jurisdiction.
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