• Manipulation of obscure, thinly traded stocks. Most commercial bulletin board services allow individuals to post messages not only under an alias... but multiple aliases. Since it may be impossible for another subscriber to ascertain the true identity of the individual behind the message (or even if a series of messages are being entered by just one individual under various aliases), there is enormous potential for manipulation of little-known companies that have a small float (the number of shares available to be bought and sold). Acting alone or with accomplices, one company insider, broker, public relations executive or even just a large shareholder can leave numerous messages calculated to spark interest in an obscure stock. Once a "thread" (in this case, a series of related messages about a stock) is started, it will show up on the computer bulletin board and be readily accessible by anyone who enters the bulletin board.
  
  
• Misconduct by phony and unlicensed brokers/investment advisors. States are concerned that brokers may be attempting to drum up new business... without the supervision of their employers and while making liberal use of illegal assurances about the potential for profit in certain investments. The problem here goes far beyond the oral comments that an aggressive broker might make to a sophisticated client, since an online message is available to be read by, not one, but hundreds of thousands of investors. Additionally, states are concerned about brokers who may try to rope in new clients without regard for the clear state interest in keeping individuals with a history of fraud and abuse outside of their borders.
  
  
• Undisclosed interests of promoters. Schemers who promote fraudulent and abusive investment schemes exploit the anonymity of cyberspace. In reading a bulletin board message about a stock, you have no way of knowing if the person involved is a company official, PR representative or market-making brokerage firm. Has the person hyping the stock been paid to do so and, if so, has that fact been disclosed? 
  
  
• Promotion of "exotic" scams. The manipulation of the stock of publicly traded companies and misconduct by professionals are just two types of problems that state securities agencies have detected on commercial bulletin board services and on the Internet. In hundreds of other cases, messages have been posted promoting a wide variety of highly suspect, unregistered investment deals (e.g., wireless cable television "build-out" schemes, ostrich farming, and viatical settlements), as well as flat-out rip-offs (e.g., pyramid schemes, including a number of twists on "chain e-mail letters," and Ponzi scams). These so called "exotic" securities may pose a greater threat to consumers than other cyber-schemes, since out-and-out scams often appeal to individuals who do not feel sophisticated enough to speculate in stocks. The experience of state securities regulators is that "exotics" are often just as costly to burned investors, since many schemes involve minimum investments of $5,000 or more.

Protecting Yourself Against Online Investment Schemes

What are the rules of the road for investors who decide to travel the information superhighway? Perhaps the most important thing to keep in mind is that there will never be enough "cybercops" to keep the online world free from fraud and abuse.

Even though state securities agencies and other investment regulators have mounted serious efforts in recent months to spot and stop cyber-fraud, the simple truth is that there are far too many places in the online world (particularly in the almost entirely unregulated Internet) for swindlers to set up shop.

This does not mean that you should avoid cyberspace. Rather, it means that investors who venture into the online world should do so with caution, being mindful of the danger of fraud and abuse.

The good news is that there are self-defense steps that you can take to fend off cyber-fraud: