ECONOMIC FRAUDS
DETECTION   &   PREVENTION   INC.
Our goal is to educate, warn and protect our clients
about frauds which can negatively impact their lives.

Go Back

Good to know

Online Touts and Promotions

Online bulletin boards, news groups and discussion groups dedicated to investment topics can be effective forums for investors to share ideas about personal finance. Unfortunately, some con artists have used these forums to tout specific securities for their own enrichment. Frequently using aliases, these con artists post messages calculated to spark interest in a security, usually one that is traded on a venture capital or over-the-counter market.

The messages sometimes take the form of testimonials or fake conversations. They often include unsupported share price predictions or 'hot tips' about important news that has not been publicly disclosed. What the messages do not disclose is that the person is hyping the security only for personal gain.

Misrepresentations

Information that appears on a computer is not necessarily true. Regulators are receiving an increasing number of complaints about misrepresentations in investment information distributed through the internet or by email.

Often the misinformation has been posted anonymously or through an alias, making it difficult to determine its origin. In other cases, the misstatements are made by companies or financial advisers who do not take the same care in preparing electronic communications as they would in preparing an official filing for regulators.

Manipulation

Through anonymous online touts and misrepresentations, cyber-schemers have used the internet to help them artificially run-up the price of thinly traded securities.

Unwary investors read about hot tips, huge potential profits and limited risk, but they aren't told that the vast majority of shares are held by a small group of people who are behind the hype and promotion. As investors rush to the market to 'get in on the ground floor,' the inside group cashes in, selling its cheap shares into the rising market.

When the hype-fueled share price falters, the promoters may blame unnamed short sellers and may inflict even more damage on victims by urging them to 'average down' by buying additional shares as the price drops. The security often disappears from sight soon after, and investigators are left to post plaintive messages: "Whatever happened to Company X?"

These manipulative schemes have been played out for decades, but the internet makes it easier for fraudsters to reach a wide audience of unsuspecting investors.

Illegal Distributions

The power of the internet has tempted many new ventures to try to sell securities to the public illegally. The general rule is that securities can be distributed to the public only after the regulators have vetted the company's. Even then, the securities must be distributed through a registered dealer.

New schemes are being uncovered regularly in which companies are advertising and selling securities to the public via the Internet without having filed a prospectus and without fulfilling the legal requirement to provide investors with detailed information about the company and its securities.


© Copyright 2017 - All rights reserved