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Watch
for False Claims
on Internet Bulletin Boards
by Andrew Leckey
Talk
is cheap, especially on one of the popular Online bulletin boards.
you can jabber about stocks to your heart's content, soak up
the pithy observations of others and perhaps learn something
new in the process.
But behind the fun
of chatting up stock investments on the Internet lurks the possibility
you'll receive misinformation stemming from fraud or a hoax.
Scam artists or pranksters sometimes pump up companies or pretend
to share "inside" information. On some investment bulletin
boards, they can hide their real identity behind aliases, creating
the illusion of widespread interest in a small, thinly traded
stock. They may claim to be unbiased observers when, in fact,
they're either company shareholders or paid promoters.
Questionable tactics
sometimes take place in Online newsletters as well. So it always
makes sense to consider as many sources as possible before making
a decision and to seek out those that are reputable.
Consider these Internet-related
events of recent months:
Two California men
pleaded guilty to criminal charges that they engineered an Internet
fraud scheme involving a tiny shell company, NEI Webworld Inc.
They used phony "screen names" to post bogus information
and sold their shares as the stock's price rose, making an illicit
gain for themselves of $364,000.
A Washington, DC law
student settled Securities and Exchange Commission charges that
he used a stock-recommendation Web site to manipulate the prices
of four thinly traded stocks, generating $345,000 in profits
for himself and his associates.
Credit Suisse First
Boston filed a federal suit in New York City against 11 individuals
for posting "false and defamatory" messages about one
of the brokerage firm's analysts.
The SEC filed civil
fraud charges against a New York-based stock market guru, contending
he manipulated the market on Online bulletin boards, making hundreds
of thousands of dollars in illegal gains by encouraging people
to buy certain stocks and then sell them as soon as the buying
began.
"While other people
are watching `Survivor' on television, I'm reading Internet bulletin
boards, such as the Silicon Investor," said Mary Calhoun,
president of Calhoun Consulting Group in Waltham, MA, which advises
firms involved in securities litigation. "Although it's
rare that posted messages are trying to manipulate stocks or
move markets, it does happen."
The biggest mistakes
average investors reading the bulletin boards make involve penny
stocks, she believes, because the unsophisticated "really
believe that a 50-cent stock is headed to $10 a share."
Of course, most people
reading bulletin boards are just looking for an edge wherever
they can find it, or seeking something new to research.
"I own stocks
such as Intel, Cisco Systems and Sun Microsystems, but I never
read the boards about them because they're such solid companies,"
explained Judy Muldawer, owner of Silicon Heights Computers in
Albuquerque, NM, and member of the Silicon Investor (www.siliconinvestor.com)
bulletin board site since 1996. "When I actually want to
read about something is when I've found a stock that somehow
looks interesting to me."
For example, Muldawer
recently stumbled upon a stock simply because it had split. With
her interest piqued, she went to the bulletin boards to learn
more about it. The bulletin boards definitely want a reputation
for helping, not hindering, the investment process.
"We really caution
people that they should never rely on a single piece of information
to make an investment decision, whether it's from a Wall Street
analyst, a cocktail party, a newspaper article or a message board,"
said Tara Burgess, manager of community development for the investment
bulletin board Raging Bull (www.ragingbull.com) in Andover, MA.
"View the message boards with a cautious eye and understand
how they fit into your overall due diligence process."
Raging Bull has "community
advocates" who respond to complaints from members that message
information may be wrong, Burgess said. If they find the information
is false, it will be taken off the message board.
With the growth of
the Internet and greater public interest in investing, expect
greater problems in the future.
"We receive 200
to 300 e-mails every single day from people who believe that
some sort of suspicious conduct is going on," said John
Reed Stark, director of the Securities and Exchange Commission's
Office of Internet Fraud in Washington, DC. "Although it
sometimes takes a little longer, most of these messages leave
all kinds of footprints and we can generally track them down
within a day or two."
The SEC's enforcement
division has brought more than 140 actions involving the Internet
over the past two years, Stark noted. His advice is to never
base an investment decision on what you read in a message board.
That's because credibility and integrity are the two major considerations
when considering advice, he added.
Before you put money
in any company's stock you've found out about on a bulletin board
posting or an Online newsletter, Stark recommends that you get
financial information from the company recommended and analyze
it; verify the claims of new products or lucrative contracts;
call suppliers and customers of the company and ask if they really
do business with it' and check out the people running the company.
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