Federal Internet Law & Policy
An Educational Project
Online Investing Reference Dont be a FOOL; The Law is Not DIY
- Ecommerce
- Advertising
- - Behavioral
- Alcohol & Tobacco
- Antitrust
- Crypto
- Delivery
- E-Medicine
- E Signatures
- Fraud
- Gambling
- Intellectual Property
- Online Investing
- Privacy
- Taxes
- Statistics



Proposed Rule: Exemption for Certain Investment Advisers Operating Through the Internet
Reporting Fraud Tell Us About it
Online Complaint Form

Consumer Information

Internet-Related SEC Interpretive Releases

Release No. Date Details
34-42728 Apr. 28, 2000 Interpretation; Use of Electronic Media: April 28, 2000. Effective date of interpretation: May 5, 2000. Comments due: June 19, 2000. [Release Nos. 34-42728, File No. S7-11-00].
33-7516 Mar. 23, 1998 Interpretation; Statement of the Commission Regarding Use of Internet Web Sites to Offer Securities, Solicit Securities Transactions, or Advertise Investment Services Offshore. March 23, 1998. Effective date of interpretation: March 23, 1998. [Release No. 33-7516].
33-7288 May 9, 1996 Interpretation; Solicitation of Comments; Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information; Additional Examples under the Securities Act of 1933, Securities Exchange Act of 1934 and Investment Company Act of 1940. May 9, 1996. Effective date of interpretation: when published in the Federal Register; Comments due: 45 days after publication in the Federal Register. [Release No. 33-7288; File No. S7-13-96].
33-7233 Oct. 6, 1995 Use of Electronic Media for Delivery Purposes; Action: Interpretation; Solicitation of comment. 17 CFR Parts 231, 241 and 271 [Release No. 33-7233; 34-36345; IC-21399 File No. S7-31-95].

Enforcement Actions

From US DOJ, Internet Fraud (May 2001):

Investment Schemes Online

Market Manipulation Schemes. Enforcement actions by the Securities and Exchange Commission and criminal prosecutions indicate that criminals are using two basic methods for trying to manipulate securities markets for their personal profit. First, in so-called "pump-and-dump" schemes, they typically disseminate false and fraudulent information in an effort to cause dramatic price increases in thinly traded stocks or stocks of shell companies (the "pump"), then immediately sell off their holdings of those stocks (the "dump") to realize substantial profits before the stock price falls back to its usual low level. Any other buyers of the stock who are unaware of the falsity of the information become victims of the scheme once the price falls.

For example, in one federal prosecution in Los Angeles, the defendants allegedly purchased, directly and through another man, a total of 130,000 shares in a bankrupt company, NEI Webworld, Inc., whose assets had been liquidated several months earlier. The defendants then allegedly posted bogus e-mail messages on hundreds of Internet bulletin boards, falsely stating that NEI Webworld was going to be taken over by a wireless telecommunications company. At the time of the defendants' alleged purchases of NEI Webworld stock, the stock was priced between 9 cents and 13 cents a share. Ultimately, in a single morning of trading, NEI Webworld stock rose in 45 minutes from $8 per share to a high of $15 5/16, before falling, within a half-hour, to 25 cents per share. The defendants allegedly realized profits of $362,625.

 In another federal prosecution in Los Angeles, a man who worked for a California company, PairGain Technologies, created a bogus Bloomberg news Web site which falsely reported that PairGain was about to be acquired by an Israeli company, and posted fraudulent e-mail messages, containing links to the counterfeit Bloomberg news site, on financial news bulletin boards. On the day that the bogus report was posted on the Internet, PairGain stock rose approximately 30 percent before PairGain issued its own press release stating that the report was false.

Second, in short-selling or "scalping" schemes, the scheme takes a similar approach, by disseminating false or fraudulent information in an effort to cause price decreases in a particular company's stock.

For example, in one recent federal prosecution, a man who described himself as a "day trader" allegedly posted (more than 20 times) a bogus press release falsely stating that a major telecommunications- and Internet-related company, Lucent Technologies, Inc., would not meet its quarterly earnings estimates. The day trader allegedly traded approximately 6,000 shares of Lucent stock the same day that he posted the bogus press release. The false reports allegedly drove the stock's price down 3.6 percent and reduced Lucent's market value by more than $7 billion.

Other Investment Schemes Other types of fraudulent investment schemes may combine uses of the Internet with traditional mass-marketing technology such as telemarketing to reach large numbers of potential victims.

In a federal prosecution in San Diego, a major fraudulent scheme used the Internet and telemarketing to solicit prospective investors for so-called "general partnerships" involving purported "high-tech" investments, such as an Internet shopping mall and Internet access providers. The scheme allegedly defrauded more than 3,000 victims nationwide of nearly $50 million.

Investment Schemes Online "Pump-and-dump" schemes, short-selling schemes, Ponzi schemes, and other fraudulent investment schemes have all been subjects of federal prosecution throughout the country.

Alexandria, Virginia In September 1997, a man was sentenced in the Eastern District of Virginia to one year's imprisonment and fined $20,000 on securities fraud conspiracy charges relating to his touting of a stock involved in a "pump and dump" scheme.

 Brooklyn, New York In August, 1999, four individuals were indicted in the Eastern District of New York on securities fraud charges for their alleged roles in the fraudulent promotion of eight stocks through misleading Internet Web site and e-mail newsletter profiles.

Charlotte, North Carolina In 1999, two individuals pleaded guilty in the Western District of North Carolina to securities fraud charges for their roles in offering securities in a nonexistent investment bank that purportedly offered, among other things, a "guaranteed" 20 percent return on savings.

Cleveland On March 22, 2000, four people were indicted in the Northern District of Ohio, on charges including conspiracy to commit and committing mail and wire fraud. The defendants allegedly devised and carried out a scheme to defraud "investors" in a "Ponzi" pyramid scheme. A company with which the defendants were affiliated allegedly collected more than $26 million from "investors" without selling any product or service, and paid older investors with the proceeds of the money collected from the newer investors.

Los Angeles On January 4, 2000, two men were indicted in the Central District of California on securities fraud charges for their alleged roles in the NEI Webworld scheme described earlier. In addition, on August 30, 1999, the individual who conducted the PairGain Technologies scheme mentioned earlier was sentenced in the Central District of California to five months' home detention and $93,000 restitution.

New York On August 9, 1999, a man was criminally charged in the Southern District of New York with securities fraud. The man allegedly conducted a scheme to unlawfully inflate the price of stock of a company involved in acquiring retail auto dealerships, by making various false claims that another company (located in the same office suite as the auto dealership company) had developed a cure for HIV infection and AIDS.

Federal Activity


© Cybertelecom ::