|
 Online cons to watch for
June 4, 1999
Web posted at: 2:25 p.m. EDT (1825 GMT) by Jeffrey Rothfeder
(IDG) -- Early one morning in April, a scam operation took
just a couple of hours to swindle dozens of investors out of
tens of thousands of dollars.
It all began with a message on a Yahoo stock board alerting
investors that PairGain Technologies, a Tustin, California,
maker of high-speed Internet products, was about to be bought
by an Israeli company for $1.35 billion, nearly twice its market
value. To reinforce its authenticity, the message contained
a link to a Bloomberg news story giving details of the deal.
That was enough proof for many investors, who dived into PairGain's
stock, immediately bidding it up more than 30 percent, from
$8.50 a share to over $11.
It was a hoax: PairGain wasn't being bought by anybody. The "news
story" was a phony article, written to mimic a Bloomberg
report and posted anonymously on Angelfire, a Web page service.
If eager investors had only stopped to do a little digging,
they would easily have uncovered the fraud. All someone had
to do was to look for a legitimate press release on www.pairgain.com,
for instance, or search for the announcement on any portal.
But the hoax went unchallenged for almost two hours before
anyone discovered the lie and warnings started appearing on
the Web. Thereupon, PairGain stock quickly tumbled to prehoax
levels, leaving bandwagon investors with stock of a much lesser
value.
One week later, federal authorities arrested Gary Dale Hoke,
a PairGain employee, on charges of stock manipulation. An FBI
task force had tracked Hoke down by following electronic footprints
from Angelfire and Hotmail.
"
This is the first case in which an individual has abused the
power of new technology to spread false news to millions of
investors at lightning speed," says Alejandro Mayorkas,
United States district attorney in Los Angeles, who is handling
the case.
Fraud on the rise
Illegal stock-touting is just one of the countless scams
executed on the Internet these days. Thousands of new surfers
plunge into the Web each week, but the same technology
that they find so attractive also makes it simpler for
scammers
to rook them. The Internet permits anyone selling good
or bad investments, business ideas, or products to reach
hundreds
of thousands of people at once with virtual anonymity.
For the unscrupulous, nothing is more mouthwatering than
an expanding
pool of potential victims.
The Securities and Exchange Commission currently gets more
than 100 complaints a day about illegal Internet activity--mostly
involving online stock scams and dubious investment touting,
known as pump-and-dump scams. In 1998, the National Consumers
League received 7752 Internet fraud complaints--up from
less than 2000 the year before. "These scam artists are waging
war," says John Reed Stark, the SEC's chief of the office
of Internet enforcement. "They're committing frauds
that can ruin lives."
The maliciousness of these acts is especially clear when
the criminals target the desperate and weak, according
to Federal Trade Commission officials. The proliferation
of
phony weight-loss plans and cheap fake Viagra pills that
are nothing more than placebos, official say, are the best
evidence of scammers' deviousness. "Deceptive health
claims and pseudocures are an epidemic on the Internet," says
Betsy Broder, the FTC's assistant director of the Bureau
of Consumer Protection.
To combat the alarming surge in Internet fraud, the FTC,
the SEC, and many state law enforcement agencies have set
up teams to police the Internet daily. The National White
Collar Crime Center and the National Fraud Center announced
the formation of the Internet Fraud Council recently. Later
this summer, the IFC promises to launch its Internet Fraud
Complaint Center for consumers, and the Federal Bureau
of Investigation will take on an advisory role. Despite
the
ongoing efforts of federal authorities and law enforcement
to curb crime, scammers continue to represent moving targets,
in an environment that's perfect for hit-and-run tactics.
Web scams made easy
"
Everything about the Internet makes it perfect for criminals
bent on perpetrating a scam," says Susan Grant, director
of the National Consumers League's Internet Fraud Watch program.
Of course for scams to work, the perpetrators must find gullible
people. In the past, contacting potential suckers required
expensive mass mailings of come-on literature or labor-intensive
hours calling from boiler-room telephone banks. Now, armed
with mass-marketing software and a CD-ROM of e-mail addresses,
a criminal can contact thousands of online targets with one
keystroke, relatively cheaply. Or by attaching press releases
to a few well-traveled portal sites, announcing a fantastic
ground-floor investment opportunity with a hot company, the
crook can lure potential victims to the scam's home page
for practically nothing.
As e-commerce thrives, more and more people use their
credit card numbers to order products over the Internet.
Consumers
like the protection of being able to cancel a charge
on their card if an item they buy doesn't match its specifications.
But hackers steal, collect, and sell credit card numbers
to "crammers," who in turn use the data to hit
the card owners with fraudulent billing charges.
And on the Internet, criminals can operate in relative
anonymity: Phony merchants tend to work without a fixed
address, relying
instead on various mail drops. Their modus operandi involves
maintaining multiple e-mail addresses and using a raft
of pseudonyms. Shysters can set up virtual shop, make
some money,
shut down, and relocate to another URL--all without leaving
a paper trail or risking detection.
What's more, as evidenced by the Bloomberg hoax, shoddy
products and false information can be digitally airbrushed
onto a
glossy Web site that looks as legitimate as Warren Buffet's
or IBM's.
Clearly, con artists are milking the Internet for all
it's worth, making stacks of quick bucks. Sometimes their
profits
depend on volume business--duping many people into losing
small sums of money, rather than bilking relatively few
out of large amounts. The more you open yourself up to
e-commerce,
the more likely you are to run into these kinds of scams.
Here's a look at the top four scams on the Net according
to the National Consumers League's Internet Fraud Watch.
- Online-Auction Fraud
- Pump-and-Dump Stock Scams
- Multilevel Marketing
- Credit Card Cramming
Consumers fight back
Law enforcement agencies can't catch all the scammers who
set up shop on the Web, but a growing grassroots
movement is working to unearth online scams, issue warnings,
and offer tips on how to avoid getting cheated in the first
place.
This information can be found on a number of sites,
including www.scambusters.com, www.scamwatch.com, www.stockdetective.com,
and www.bbb.com. Some sites offering products or
services
that tend to attract swindlers have a section for
consumer complaints, where buyers can expose scams. Two
such
helpful
sites are www.bestfares.com and www.creditinfocenter.com.
One tireless Internet-scam vigilante goes by the
screen name Steve Pluvia. He is often found on one
of the
Web's most
popular stock chat sites, Silicon Investor. Pluvia
has correctly identified several companies as engaged
in
deceptive activities
and has watched day traders scurry out of stocks
as their prices plunged.
One of Pluvia's favorite stories involves the unmasking
of Teletek, a now-defunct Las Vegas telecommunications
company,
which in 1996 boasted about its planned expansion.
On a hunch, Pluvia checked into Teletek's claims,
calling creditors
and
researching SEC documents. "To keep up the lie about
its growth, Teletek would offer long distance through MCI,
not pay the bills, get shut off, and then move on to another
carrier," says Pluvia. "Of course, none of this
was disclosed to the public."
One person taken in by Teletek's illegal touting
was Cliff Plas, owner of a Chicago printing firm,
who bumped
into
the company's phony claims on an AOL chat board.
He invested $10,000 in the stock, buying 5000 shares
at
$2 each.
The stock's value peaked near $10 per share in March,
at which
point Pluvia spread the word on the Net about Teletek's
deception.
"
Pluvia put out some vicious stuff, so I called the company
and they told me nothing negative was going on at the company
and that Steve Pluvia had it all wrong," Plas
recalls. Plas held the stock as its price per share
plummeted
to below $6 almost instantly and kept dropping. Shortly
thereafter,
one of Teletek's controlling shareholders was indicted
for
fraud, the firm's top management resigned, and the
company went bankrupt. "I ended up being right on about 99 percent
of what I said," says Pluvia. Plas never got out.
With so many scams and schemes on the Web waiting
to ambush victims, consumers' most effective shield
may
be skepticism.
A century ago, P. T. Barnum said a sucker is born
every minute. On the Internet, that birthrate is
a lot higher.
TOP OF THE PAGE
Find
a Crimiinal Defense Lawyer
|
|
