Internet Securities Fraud

Internet Securities Fraud Related Information:

The Internet, with its huge growth, actual and potential, has impacted the financial world like no other medium or technology ever has. From a few thousand users in the 1980s to the millions of users to date, internet usage has increased by leaps and bounds and continues to do so. From changing the way a lot of things are done, the internet has also changed the way people trade in securities.

It is estimated that more than half of all securities trading and transactions are now being done online. Because of the relative ease of use, and the convenience that it provides, the internet has become a huge medium for securities investment. The increasing number of online trading companies has lead to an immense increase in competition among brokerage houses and brokers. This has in turn led to a decrease in the rates being charged by online brokers, even as less as single digit rates, which is why securities trading on the internet has seen such large numbers.

There is no doubt that new technology can be great, but it also brings with it some dangers. And in the case of internet securities trading, the danger has been that of Internet Securities Fraud.

Internet Securities Fraud Explained

Because of the internet, it is easier than ever before to access information about the securities markets, company profiles, investor trends, and other information relating to securities. The internet never shuts down or takes a day off, and thus people can have access to such information 24/7, and 52 weeks a year.

This has made it easier for conmen to target people and swindle them. There are many securities scams prevalent on the internet, and the scamsters are so ingenious and professional, that it is impossible to tell them apart from the real people. Through bulletin boards, forums, chat rooms, and e-mail, the fraudsters can reach millions of investors in a very short amount of time and very cheaply.

They use these mediums to impart supposedly ‘hot tips’ to people looking to invest in securities. Many of their own people post messages encouraging people to buy or sell securities at particular times, so as to make huge profits. But the only thing that such ‘pump and dump’ securities fraud does is to make the fraudsters richer and the investors poorer.

Other types of internet securities fraud:

In addition to the pump and dump schemes, the ‘pyramid’ scheme is also a very common form of internet securities fraud. In such schemes, the investor is lured into buying a particular stock with promises of huge gains, and is then encouraged to get more and more people into the scheme, so as to earn more money. Initially, you may even be given some kind of return so that you think the scheme is credible and will naturally get more people into the pyramid. But eventually you realize that the whole thing was nothing but a very cleverly done scam, which even got you to scam others, albeit unknowingly. The fraudsters are the only ones who get rich quick, with the rest being left holding nothing.

Avoiding Internet Securities Fraud

Due to the increase in instances of internet securities fraud, the federal government has set up an entity known as the Securities and Exchange Commission (SEC), which has been established to prevent internet securities fraud by regulating internet securities transactions, and making investors aware of the risks associated with trading in securities online.

The SEC also provides many suggestions, which can prevent investors from being victimized by internet securities fraud. Some of these suggestions are:

• Research the securities thoroughly before you invest in them.
• Do not invest in any securities, based exclusively on online information.
• Avoid putting your money in securities of companies that do not regularly report their activities to the SEC.