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Opinion: Widespread panic about Net fraud ignores common sense

March 26, 1999
Web posted at: 12:58 p.m. EST (1758 GMT)

by Megan Santosus


Do you think the Internet makes it easier or harder to commit monetary fraud?

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(IDG) -- On Oct. 28, 1998, the Securities and Exchange Commission (SEC) announced an unprecedented, nationwide bust. The focus of the high-profile sweep was 44 companies and an assortment of culprits who defrauded investors over the Internet. While the SEC's action was notable because it represented the first attack on Internet-based rip-offs, the publicity surrounding it has contributed to hysteria about the Internet. And for legitimate businesses hoping to capitalize on the Internet's arguable strengths of convenience and ubiquity, any hysteria concerning the integrity of the Net is bad news.

Yes, the Internet is new and as such offers those intent on committing fraud a new outlet for doing so. (In fact, several of those busted in the October sweep have committed investment frauds the old-fashioned way in the past, either through the mail or by phone.) But for fraud to succeed, unwitting consumers must take the bait.

In that respect, the Internet is no different from late-night infomercials, fast-talking telemarketers or too-good-to-be-true direct mail pitches. The SEC essentially busted violators for the same kind of scams they perpetrated in the real world, only the swindles had a virtual twist: phony or misleading stock offers or information purveyed through junk e-mail, online newsletters and Web sites.

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But despite the similarities, Internet fraud garners a different kind of attention. On a regular basis, The Wall Street Journal prints a list of SEC violators in minuscule type often buried deep within its Money & Investing section. If stock fraud is such a dangerous thing, why is Internet stock fraud the only kind emblazoned across the front pages of Web sites and newspapers?

In such cases, the Internet is tainted more than the fraudulent acts themselves. It's a shame to portray the Internet as an omnipotent, somehow malignant force that will not only steal our privacy but rob us blind. As powerful as the Internet is, it doesn't have a mind of its own.

Any violation of privacy or fraud that occurs online or otherwise requires the active participation of consumers. At a retail site, consumers have to submit their e-mail addresses and credit card numbers. At Web sites touting IPOs, consumers have to put faith in the prospectus of a company they may never have heard of.

The Internet is no more or less devious than other means used by the unsavory to steal people's money. That message gets lost in all the hype about the Internet's Big Brother-like capabilities.

That's not to say that victims should be blamed. But a little due diligence on the part of consumers can go a long way in preventing fraud.

In a press release posted on the SEC's site, Nancy M. Smith, director of the SEC's Office of Investor Education and Assistance, offers some sound advice: "Never, ever make an investment based solely on what you read in an online newsletter or Internet bulletin board, especially if the investment involves a small, thinly traded company that isn't well known. Assume that the information about these companies is not trustworthy unless you can prove otherwise through your own independent research."

In this respect, too, the Internet is no different from anything else where common sense and a little homework are the best defenses against getting taken. Executives charged with crafting an Internet strategy must remind their customers of this to avoid being shut out by the panic.

Megan Santosus is a senior editor for CIO.

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