State securities regulators are driving home a message to senior citizens: Beware scam artists peddling bogus investments on the Internet.
The warning by the North American Securities Administrators Association is a response to perceived and actual abuses, a spokesman said. It was sent Tuesday to media and regulators in 50 states, and it comes as an estimated 50 million to 70 million people use the Internet, many of whom are elderly.
Industry data from 1997 showed that investors are handling more than $100 billion on-line. Information available on-line, though, is not always reliable. And the elderly-who typically have money to invest but tend to be less computer-savvy-are especially susceptible to abuse, the regulators group said.
"In fact the only people getting rich are company insiders, brokers, and stock promoters who control the bulk of the shares," the association said in a press release. "They drive up the price through hype on the Internet, by issuing bogus or misleading press releases and quoting from fraudulent or nonexistent analyst reports, and then dump the shares on the unsuspecting public."
The association said it is doing its part to change this. In addition to the warning, it plans to launch on-line question-and-answer sessions with regulators in the next few months, the spokesman said. Moreover, a committee is working to develop a search engine designed to detect fraudulent home pages before trouble occurs.
"The Internet is so broad it's just difficult to police. That's the problem with it," said Irving L. Faught, the administrator of Oklahoma's securities commission, who heads the committee. He said he does not know when the product would be available.
Elderly people are particularly susceptible to several types of Internet fraud, NASAA warned. One relies on Internet-related services such as "spam," unsolicited junk mail, to bait the unsuspecting. People may, for example, be lured into giving their names and phone numbers to a high- pressure stockbroker.
Another kind of fraud is rampant in chat rooms, where PC users "converse," and on bulletin boards, where they post questions and comments. In this medium, it is difficult to tell whether the people posting messages are credible.
The potential for misuse is one reason some bank brokerages are wary of on-line services. "Although we understand that the Internet presents great opportunity, we also want to ensure maximum protection of the company and the shareholders," said a vice president of a large regional bank broker- dealer that does not offer Internet-related products.
John Markese, president of the American Association of Individual Investors, said there is a tendency for unsophisticated Internet users and investors-not all of whom are elderly-to believe that if information is on the Internet, then it is legitimate. "And that of course is not the case," he said.
Still, he conceded, elderly people are particularly vulnerable. "The elderly are easier marks in some ways because they have more money and they can be either frightened or goaded into unsafe investments."