NCJ Number
189262
Journal
Journal of Financial Crime Volume: 8 Issue: 3 Dated: February 2001 Pages: 226-233
Date Published
February 2001
Length
8 pages
Annotation
The advent of Internet stock trading has increased the ease with which scam artists can manipulate the market and engage in many forms of fraudulent activity.
Abstract
The Securities Exchange Commission (SEC) has brought a total of 180 Internet-related cases since 1995, with 64 brought in the year 2000 alone. Among the different fraudulent schemes are: “pump and dump,” where false information is spread about a stock to manipulate its price; and “scalping,” where a promoter purchases stock before making a recommendation for the stock and then makes a quick sale following a rise in prices. Also there is posting false inside information about material developments within a company; and posting false information about a company creating a false impression among investors. The advantages of the Internet are many, including providing rapid automated execution of orders; lower commissions for the small investor; and making it financially profitable to engage in short-term day trading. However, online trading has eliminated the protection against fraud that trading in person or by telephone through a broker provides. Furthermore, it is easy for a fraud artist to conceal his identity and there are no geographical boundaries for the SEC and others to regulate problems. In 1998, the SEC issued two releases containing guidelines for offshore issuers of securities to assist them in determining how to offer securities over the Internet without becoming subject to the jurisdiction of the United States securities laws. This has hastened the trend towards globalization of world markets and has made the need for international coordination and cooperation greater than ever. 15 references.