Online Scams: Road Hazards on the Information Superhighway

• Cyberspace has become the new frontier for scam artists. The scams aren't new, just the medium.
• Fraudulent sellers use computer services to promote familiar schemes such as bogus stock offerings, high-tech investment opportunities, and credit-repair services.
• Treat all ads or would-be ads with skepticism and never make an investment or health-related purchase decision based solely on information obtained from a single source in any medium-- print, broadcast, or online.

"Cyberspace," a term used to describe this information superhighway and giant computer network, includes the Internet and a vast assortment of commercial online computer services. The Internet and the many commercial online services provide a valuable new information source for consumers. However, Cyberspace has a dark side: fraudulent sellers use these computer services to promote familiar schemes such as bogus stock offerings, credit-repair services, and exotic or high-tech investment opportunities such as ostrich farming, gold mining, gemstones, and wireless cable television. Promotions for ineffective weight-loss and health-related products and programs also appear online. The bottom line is: treat all ads or would-be ads with skepticism and never make an investment or health-related purchase decision based solely on information obtained from a single source in any medium-- print, broadcast, or online.

Types of Advertising on Online Services Most questionable online advertising falls into one of two categories: classified advertising and "disguised advertising."

Classified Advertising

Another hot area in the classifieds is "business opportunities." The traditional "work-at-home" schemes, such as making handcrafts or stuffing envelopes, have been replaced by offers to "use your home PC to make money fast in your spare time." Other ads encourage consumers to invest in communications technologies, such as "900" number telephone services, with promises of high returns and low-risk. The investment attraction of "900" number pay-per-call services is the potentially-high profits to be made--20% or more--from the $3-to-$5 per minute fee charged to callers by the 900 service provider. Again, the marketers' promises on these investments are likely to be false. "Disguised Advertising"

The second category, "disguised advertising," is difficult to recognize because it is not always clear if something is being advertised. There are at least two different areas--bulletin boards and chat forums--where comments or statements about the quality or the performance of products or services may be ads in disguise.

The Internet and the commercial online services all provide bulletin boards where interested parties can exchange information in general topic areas. In some cases, individuals contributing to the bulletin board have financial ties to companies or businesses that sell products or services related to the bulletin board subject area. But, this may not be obvious to the online user. What may appear to be an open discussion could be a disguised sales pitch. Because the full identities or affiliations of online bulletin board operators and participants are not always known, it could be difficult for you to detect disguised advertising.

Some commercial online services also provide live discussion groups called "chat rooms" or "chat forums." Service subscribers can "drop by" and engage in an online conversation by typing in their comments. These forums provide the opportunity to discuss a wide variety of things, including products and services. Some marketers have used these chat forums to promote their products without disclosing their interests. Growth of Cyberspace and Fraud Potential

The fast-growing arena of cyberspace has become the new frontier for scam artists. There are approximately 15 million Internet users in the United States and that number is increasing each month, according to industry sources. The largest commercial online services are estimated to have more than five million subscribers in the United States. All of these online users are potential targets from the scam artist's point of view.

Tip-offs to Fraud

• Overstated claims of product effectiveness, such as "Cures or improves 27 different conditions: Hypertension, some forms of cancer, age spots, ulcers, lowers weight..."
• Use of hype titles and frequent use of the word "hot" to describe an investment opportunity can indicate a scam.
• Exaggerated claims of potential earnings or profit, such as "We target a return of 2 to 5% per month (up to 60% per year)...on your protected principal. That is, YOUR PRINCIPAL IS GUARANTEED...no loss is possible."
• Claims of "inside" information. Such information is almost always false and, if true, trading on it is almost always illegal.
• "Pump and Dump" promotions of cheap stocks promising high returns.
• Promotions for exotic investments such as ostrich farming, gold mining, or wireless cable TV.

For More Information

Questions about whether or not an investment sales person is licensed, or if an offered security is registered, should be directed to the Office of Consumer Affairs, Securities and Exchange Commission, 202-942-7040.

The National Fraud Information Center maintains a toll-free Consumer Assistance Service, 1-800-876-7060, to provide consumers with answers to questions about telephone or mail solicitations and online scams. They also offer information about how and where to report fraud and give help in filing complaints.

The Federal Trade Commission publishes a series of free brochures that explain fraudulent sales practices and how you can avoid them. For a complete list of publications, write for Best Sellers, Public Reference, Federal Trade Commission, Washington, D.C. 20580; (202) 326-2222; TDD (202) 326-2502. You also can access FTC consumer and business publications on the Internet. FTC ConsumerLine is located on the Internet at CONSUMER.FTC.GOV or through the World Wide Web at http://www.ftc.gov