The "Mis-Information" Highway?

Accurate and timely information are two keys to making solid investment decisions. One of the major benefits the Internet provides to investors is the ability to transmit and receive information. The World Wide Web is arguably the most widely tool that the Internet provides to investors, but other services like chat rooms, e-mail and Usenet news allow users to quickly access information.

  • Types of Internet Services

    • Online Investment Newsletters

      There are hundreds, if not thousands, of online investment newsletters. Like their paper counterparts, online newsletters provide their subscribers with information about companies, and usually offer "stock picks of the month."

      Some companies will pay newsletter authors to "tout" their companies' stocks. This is not illegal, but federal securities law requires the authors to disclose this information in their newsletters. However, many fraudsters fail to do this, and stand to profit handsomely if their newsletters convince investors to buy and sell certain stocks. In October 1998, the SEC filed charges against 44 promoters, who failed to tell investors that companies had paid them millions of dollars in exchange for touting their stock on the Internet.

      While a legitimate online newsletter can be a powerful tool, relying on a fraudulent newsletter's information can be costly to an investor.

    • E-mail

      Another Internet tool that is widely used by investors is e-mail. Many financial web sites offer users the ability to create e-mail alerts. E-mail alerts are designed to notify investors when a stock reaches a certain price level. While this service is a handy tool, investors should be cautious about relying solely on this service. Most of these web sites have disclaimers, which absolve them from responsibility should the service fail.

      There are also numerous "listservs" available on the Internet, where subscribers communicate with each other about questions or stock tips. Again, this Internet service can be a powerful tool for investors. However, it is important to note that e-mail spams (junk e-mails) are widely used by fraudsters to find investors for bogus investment schemes or to spread inaccurate information about companies.

    • Bulletin Boards/Usenet News Services

      Online bulletin boards have become a popular forum for investors to share information. While some of this information can be useful, a lot of it is inaccurate or even related to scams. The ability of users to hide behind aliases makes it relatively easy to create the illusion of widespread interest in a stock, possibly driving up the price of a worthless stock.

    • Chat Rooms

      The majority of financial web sites offer chat rooms, where users can exchange information. Chat rooms offer users a "real-time" method of communication. They have been described as a "high-tech version of morning gossip or advice at the company water cooler." The difference is that it is easy to identify a co-worker at the water cooler. However, similar to bulletin boards, chatters often use aliases --- giving fraudsters the ability to hide their identities. SEC Chairman Arthur Levitt said, "I encourage investors to take what they see over chat rooms - not with a grain of salt - but with a rock of salt."

  • Web publishing is cheap

    The moral of this story is always do independent research before investing in any securities! Never rely solely on information uncovered on the Web. Publishing on the Internet is relatively cheap, and it's fairly easy to build a glitzy, sophisticated web page --- Don't be fooled!

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