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.
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.
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."