|
The Internet Crime Complaint Center or IC3, a partnership of the FBI and the National White Collar Crime Center, in 2007 released its latest annual report on victims’ complaints received and referred to law enforcement.
Among the results:
“Internet auction fraud was by far the most reported offense, comprising 44.9% of referred complaints. Non-delivered merchandise and/or payment accounted for 19.0% of complaints. Check fraud made up 4.9% of complaints. Credit/debit card fraud, computer fraud, confidence fraud, and financial institutions fraud round out the top seven categories of complaints referred to law enforcement during the year.”
For the full report, go to the IC3 webpage on statistics.
Listed below are tips to protect yourself and your family from various forms of Internet fraud:
Avoiding Internet Auction Fraud
- Understand as much as possible about how the auction works, what your obligations are as a buyer, and what the seller’s obligations are before you bid.
- Find out what actions the web site/company takes if a problem occurs and consider insuring the transaction and shipment.
- Learn as much as possible about the seller, especially if the only information you have is an e-mail address. If it is a business, check the Better Business Bureau where the seller/business is located.
- Examine the feedback on the seller.
- Determine what method of payment the seller is asking from the buyer and where he/she is asking to send payment.
- If a problem occurs with the auction transaction, it could be much more difficult if the seller is located outside the US because of the difference in laws.
- Ask the seller about when delivery can be expected and if there is a problem with the merchandise is it covered by a warranty or can you exchange it.
- Find out if shipping and delivery are included in the auction price or are additional costs so there are no unexpected costs.
- There should be no reason to give out your social security number or drivers license number to the seller.
Top of Page
Avoiding Non-Delivery of Merchandise
- Make sure you are purchasing merchandise from a reputable source.
- Do your homework on the individual or company to ensure that they are legitimate.
- Try to obtain a physical address rather than merely a post office box and a phone number, call the seller to see if the number is correct and working.
- Send them e-mail to see if they have an active e-mail address and be wary of sellers who use free e-mail services where a credit card wasn’t required to open the account.
- Consider not purchasing from sellers who won’t provide you with this type of information.
- Check with the Better Business Bureau from the seller’s area.
- Check out other web sites regarding this person/company.
- Don’t judge a person/company by their web site.
- Be cautious when responding to special offers (especially through unsolicited e-mail).
- Be cautious when dealing with individuals/companies from outside your own country.
- Inquire about returns and warranties.
- The safest way to purchase items via the Internet is by credit card because you can often dispute the charges if something is wrong.
- Make sure the transaction is secure when you electronically send your credit card numbers.
- Consider utilizing an escrow or alternate payment service.
Top of Page
Avoiding Credit Card Fraud
- Don’t give out your credit card number(s) online unless the site is a secure and reputable site. Sometimes a tiny icon of a padlock appears to symbolize a higher level of security to transmit data. This icon is not a guarantee of a secure site, but might provide you some assurance.
- Don’t trust a site just because it claims to be secure.
- Before using the site, check out the security/encryption software it uses.
- Make sure you are purchasing merchandise from a reputable source.
- Do your homework on the individual or company to ensure that they are legitimate.
- Try to obtain a physical address rather than merely a post office box and a phone number, call the seller to see if the number is correct and working.
- Send them e-mail to see if they have an active e-mail address and be wary of sellers who use free e-mail services where a credit card wasn’t required to open the account.
- Consider not purchasing from sellers who won’t provide you with this type of information.
- Check with the Better Business Bureau from the seller’s area.
- Check out other web sites regarding this person/company.
- Don’t judge a person/company by their web site.
- Be cautious when responding to special offers (especially through unsolicited e-mail).
- Be cautious when dealing with individuals/companies from outside your own country.
- The safest way to purchase items via the Internet is by credit card because you can often dispute the charges if something is wrong.
- Make sure the transaction is secure when you electronically send your credit card numbers.
- You should also keep a list of all your credit cards and account information along with the card issuer’s contact information. If anything looks suspicious or you lose your credit card(s) you should contact the card issuer immediately.
Top of Page
Avoiding Investment Fraud
- Don’t invest in anything based on appearances. Just because an individual or company has a flashy web site doesn’t mean it is legitimate. Web sites can be created in just a few days. After a short period of taking money, a site can vanish without a trace.
- Don’t invest in anything you are not absolutely sure about. Do your homework on the investment to ensure that it is legitimate.
- Do your homework on the individual or company to ensure that they are legitimate.
- Check out other web sites regarding this person/company.
- Don’t judge a person/company by their web site.
- Be cautious when responding to special investment offers (especially through unsolicited e-mail).
- Be cautious when dealing with individuals/companies from outside your own country.
- Inquire about all the terms and conditions.
- If it sounds too good to be true it probably is.
Top of Page
Avoiding Business Fraud
- Purchase merchandise from reputable dealers or establishments.
- Try to obtain a physical address rather than merely a post office box and a phone number, call the seller to see if the number is correct and working.
- Send them e-mail to see if they have an active e-mail address and be wary of those that utilize free e-mail services where a credit card wasn’t required to open the account.
- Consider not purchasing from sellers who won’t provide you with this type of information.
- Purchase merchandise directly from the individual/company that holds the trademark, copyright, or patent.
- Beware when responding to e-mail that may not have been sent by a reputable company.
Top of Page
Avoiding the Nigerian Letter Scam
- Be skeptical of individuals representing themselves as Nigerian or foreign government officials asking for your help in placing large sums of money in overseas bank accounts.
- Do not believe the promise of large sums of money for your cooperation.
- Guard your account information carefully.The Nigerian Letter Scam is described on the Common Fraud Schemes webpage.
|
|
Internet Fraud: How to Avoid Internet Investment Scams
The Internet serves as an excellent tool for investors, allowing them to easily and inexpensively research investment opportunities. But the Internet is also an excellent tool for fraudsters. That’s why you should always think twice before you invest your money in any opportunity you learn about through the Internet.
This alert tells you how to spot different types of Internet fraud, what the SEC is doing to fight Internet investment scams, and how to use the Internet to invest wisely.
Navigating the Frontier: Where the Frauds Are
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 web site, posting a message on an online bulletin board, entering a discussion in a live “chat” room, or sending mass 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.
Online Investment Newsletters
Hundreds of online investment newsletters have appeared on the Internet in recent years. Many offer investors seemingly unbiased information free of charge about featured companies or recommending “stock picks of the month.” While legitimate online newsletters can help investors gather valuable information, some online newsletters are tools for fraud.
Some companies pay the people who write online newsletters cash or securities to “tout” or recommend their stocks. While this isn’t illegal, the federal securities laws require the newsletters to disclose who paid them, the amount, and the type of payment. But many fraudsters fail to do so. Instead, they’ll lie about the payments they received, their independence, their so-called research, and their track records. Their newsletters masquerade as sources of unbiased information, when in fact they stand to profit handsomely if they convince investors to buy or sell particular stocks.
Some online newsletters falsely claim to independently research the stocks they profile. Others spread false information or promote worthless stocks. The most notorious sometimes “scalp” the stocks they hype, driving up the price of the stock with their baseless recommendations and then selling their own holdings at high prices and high profits. To learn how to separate the good from the bad, read our tips for checking out newsletters.
Bulletin Boards
Online bulletin boards – whether newsgroups, usenet, or 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. 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 who you’re dealing with – or whether they’re credible – 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.
E-mail Spams
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.
How to Use the Internet to Invest Wisely
If you want to invest wisely and steer clear of frauds, you must get the facts. Never, ever, make an investment based solely on what you read in an online newsletter or bulletin board posting, especially if the investment involves a small, thinly-traded company that isn’t well known. And don’t even think about investing on your own in small companies that don’t file regular reports with the SEC, unless you are willing to investigate each company thoroughly and to check the truth of every statement about the company. For instance, you’ll need to:
- get financial statements from the company and be able to analyze them;
- verify the claims about new product developments or lucrative contracts;
- call every supplier or customer of the company and ask if they really do business with the company; and
- check out the people running the company and find out if they’ve ever made money for investors before.
And it doesn’t stop there. For a more detailed list of questions you’ll need to ask – and have answered – read Ask Questions. And always watch out for tell-tale signs of fraud.
Here’s how you can use the internet to help you invest wisely:
Start With the SEC’s EDGAR Database
The federal securities laws require many public companies to register with the SEC and file annual reports containing audited financial statements. For example, the following companies must file reports with the SEC:
- All U.S. companies with more than 500 investors and $10 million in net assets; and
- All companies that list their securities on The Nasdaq Stock Market or a major national stock exchange such as the New York Stock Exchange.
Anyone can access and download these reports from the SEC’s EDGAR database for free. Before you invest in a company, check to see whether it’s registered with the SEC and read its reports.
But some companies don’t have to register their securities or file reports on EDGAR. For example, companies raising less than $5 million in a 12-month period may be exempt from registering the transaction under a rule known as “Regulation A.” Instead, these companies must file a hard copy of the “offering circular” with the SEC containing financial statements and other information. Also, smaller companies raising less than one million dollars don’t have to register with the SEC, but they must file a “Form D.” Form D is a brief notice which includes the names and addresses of owners and stock promoters, but little other information. If you can’t find a company on EDGAR, call the SEC at 
(20… to find out if the company filed an offering circular under Regulation A or a Form D. And be sure to request a copy.
The difference between investing in companies that register with the SEC and those that don’t is like the difference between driving on a clear sunny day and driving at night without your headlights. You’re asking for serious losses if you invest in small, thinly-traded companies that aren’t widely known just by following the signs you read on Internet bulletin boards or online newsletters.
Contact Your State Securities Regulators
Don’t stop with the SEC. You should always check with your state securities regulator, which you can find on the website of the North American Securities Administrators Association, to see if they have more information about the company and the people behind it. They can check the Central Registration Depository (CRD) and tell you whether the broker touting the stock or the broker’s firm has a disciplinary history. They can also tell you whether they’ve cleared the offering for sale in your state.
Check with the Financial Industry Regulatory Authority (FINRA)
To check the disciplinary history of the broker or firm that’s touting the stock, use FINRA’s BrokerCheck website, or call FINRA’s BrokerCheck Program hotline at (800) 289-9999.
Online Investment Fraud:
New Medium, Same Old Scam
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, online newsletters, 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 or to use an “infallible” combination of economic and stock market data to pick stocks. 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.
Off-shore Frauds
At one time, off-shore 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.
The SEC Is Tracking Fraud
The SEC actively investigates allegations of Internet investment fraud and, in many cases, has taken quick action to stop scams. We’ve also coordinated with federal and state criminal authorities to put Internet fraudsters in jail. Here’s a sampling of recent cases in which the SEC took action to fight Internet fraud:
Francis A. Tribble and Sloane Fitzgerald, Inc. sent more than six million unsolicited e-mails, built bogus web sites, and distributed an online newsletter over a ten-month period to promote two small, thinly traded “microcap” companies. Because they failed to tell investors that the companies they were touting had agreed to pay them in cash and securities, the SEC sued both Tribble and Sloane to stop them from violating the law again and imposed a $15,000 penalty on Tribble. Their massive spamming campaign triggered the largest number of complaints to the SEC’s online Enforcement Complaint Center.
Charles O. Huttoe and twelve other defendants secretly distributed to friends and family nearly 42 million shares of Systems of Excellence Inc., known by its ticker symbol “SEXI.” Huttoe drove up the price of SEXI shares through false press releases claiming non-existent multi-million dollar sales, an acquisition that had not occurred, and revenue projections that had no basis in reality. He also bribed co-defendant SGA Goldstar to tout SEXI to subscribers of SGA Goldstar’s online “Whisper Stocks” newsletter. The SEC obtained court orders freezing Huttoe’s assets and those of various others who participated in the scheme or who received fraud proceeds. Six people, including Huttoe and Theodore R. Melcher, Jr., the author of the online newsletter, were also convicted of criminal violations. Both Huttoe and Melcher were sentenced to federal prison. The SEC has thus far recovered approximately $11 million in illegal profits from the various defendants.
Matthew Bowin recruited investors for his company, Interactive Products and Services, in a direct public offering done entirely over the Internet. He raised $190,000 from 150 investors. But instead of using the money to build the company, Bowin pocketed the proceeds and bought groceries and stereo equipment. The SEC sued Bowin in a civil case, and the Santa Cruz, CA District Attorney’s Office prosecuted him criminally. He was convicted of 54 felony counts and sentenced to 10 years in jail.
IVT Systems solicited investments to finance the construction of an ethanol plant in the Dominican Republic. The Internet solicitations promised a return of 50% or more with no reasonable basis for the prediction. Their literature contained lies about contracts with well known companies and omitted other important information for investors. After the SEC filed a complaint, they agreed to stop breaking the law.
Gene Block and Renate Haag were caught offering “prime bank” securities, a type of security that doesn’t even exist. They collected over $3.5 million by promising to double investors’ money in four months. The SEC has frozen their assets and stopped them from continuing their fraud.
Daniel Odulo was stopped from soliciting investors for a proposed eel farm. Odulo promised investors a “whopping 20% return,” claiming that the investment was “low risk.” When he was caught by the SEC, he consented to the court order stopping him from breaking the securities laws.
If you believe that you have been the victim of a securities-related fraud, through the Internet or otherwise, or if you believe that any person or entity may have violated or is currently violating the federal securities laws, you can submit a complaint using our online complaint form or email us at enforcement@sec.gov.
As of the writing of this post, the ILS membership roster has reached the staggering number of 3,926. Some of the members are ILS staff, but the vast majority of the people hidden behind carefully selected nicknames that make up this list are victims of romance scams.
I think we all know what it means to be scammed. The vast emotional impact of being on the receiving end of a romance con is often hard to describe, but never difficult to feel once you have gone through it. As much as our respective situations may differ, we all have one thing in common – we seek support.
Support can mean many things. For some of us it means reading about the experiences of other people and comparing notes. It helps to know that we are not alone in this. For some others, it’s active participation in a community like ILS, and sharing their thoughts with others who were affected by the same emotional and\or financial turmoil. Sometimes, support means just coming to the forum, posting about what happened to us, and just letting our thoughts pour out in hope that someone else will read them, understand and offer a kind word. We all have our reasons for being here.
Reading about the experiences of others, and sharing kindness with those affected by the same crime that has hurt us shows that we have a lot of compassion. One only needs to take a cursory look at the forums to see how much relief and support one member can provide to another by just typing a few paragraphs in response. For many ILS members, that is all they need. Member support, backed up by the research abilities of the ILS staff has already helped many people and has demonstrated that communities like ours can be successful, and can render aid to those in need.
Support is a relative word – it means something different to each and every one of us. Alas, there is one kind of support that one should never attempt to deliver to anyone just for asking – financial support.
Requests for financial support come in many varieties – some are direct, some thinly veiled, and yet others are so well disguised that even veteran members of anti-scam communities have difficulty in classifying them on sight.
Not all of those requests are outright scams, at least not from the onset. Someone who is in serious financial dire straits may resort to pleading their case to you in hopes that you send them some money. Such requests should always be answered with a polite but firm ‘NO’. ILS Staff is always willing to provide victims in need with government and charity resources in their locality, and all such a victim needs to do is PM one of the Staff with a request for aid. You, as a member of ILS, have no obligation to either aid anyone financially, or to even continue to communicate with the person after you receive such a request from them. Should you find yourself on the receiving end of such a request, please let the ILS Staff know.
Some requests do not come through as requests for money at all. Someone may approach you and engage in PM and e-mail exchanges with you, describing their own financial disaster in great detail and seeking your advice on what to do. While such a request for advice may be legitimate, it may also be a veiled attempt at feeling you out and figuring out if you’re willing to fork over some cash. If you are engaged in such an exchange and you begin to feel uncomfortable at any time, please let the ILS Staff know.
Yet other requests do not appear to be pleas for money at all. Someone that you’re in contact with may one day offer you the ‘opportunity of a lifetime’ that will solve all your financial problems. Someone may invite you to join in an investment scheme, put your money down for a new business or offer you insurance services. Those are just a few examples, but they have a common theme – you are the one parting with your money. Should you receive such an offer from anyone here, please let the ILS Staff know.
It is the job of the ILS Staff to make sure that members of our community are safe while on premises. We do weed out scammers as soon as we see them, and we’ve been quite successful at eliminating quite a few of those lowlifes from the ILS members roster. However, we can only react to what we see. We are not privy to the messages you exchange with other users via the Private Messaging system and\or e-mail\messenger outside of ILS. If another member makes you uncomfortable in private, please do not hesitate to let
us know – we can and will take action against them if one is warranted.
And one final word for the scammers and opportunists who choose to join our community: Try your tricks here, and you will soon learn an interesting fact about Internet Love Scams – We Never Close.
