| BUSINESSWEEK ONLINE : MAY 24, 1999 ISSUE | ||||||||
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| COVER STORY
Investor Beware of Web Talk Internet buzz about a hot stock could be cause for alarm Thousands of investors must have thought they hit the jackpot when they found the message boards for Green Oasis Environmental. More than 8,000 posts on popular America Online and Silicon Investor message boards discussed the Charleston (S.C.) company that claimed its machinery could turn waste motor oil into diesel fuel. One particularly diligent investor, Ron Reece of Alexandria, Va., kept visitors abreast of test results on the machinery and contracts the company was likely to land, including one with a utility. As the buzz grew louder, Green Oasis' share price started moving. In a year, it went from below $2 to $10 by February, 1997--making it seem as hot as Reece intimated. According to the Securities & Exchange Commission, the machine didn't work as promised. SEC investigators say the potential contracts never existed, and Reece--despite his claims otherwise--was being compensated by Green Oasis. As the stock price soared, company officers dumped more than 700,000 Green Oasis shares they bought at an average of $1.13, taking home about $2.3 million. The stock recently was 12 cents a share. The SEC last September brought a civil action against Green Oasis, CEO William Carraway, his wife, Mary Ann, and Reece, accusing them of misleading investors. The suit, filed in U.S. District Court in Charleston, seeks a return of the profits from the trades. Carraway says he and his wife will contest the SEC suit. Reece did not return a message left on his answering machine. ABUSES. The Internet, with its bulletin boards, chat rooms, and electronic newsletters, makes it so easy to disseminate false and misleading information that even the smartest investor runs the risk of getting burned. ''Any con artist not on the Net should be sued for malpractice,'' Peter Hildreth, a New Hampshire state securities regulator told a Senate governmental affairs subcommittee at a hearing last March on Internet fraud. Indeed, cyber-securities abuses are so widespread that ''online, we get 200 to 300 complaints a day, mainly about bulletin-board advice and Web sites,'' says David Levine, senior adviser to the SEC's director of enforcement. With online trading accounting for 37% of all trades by individuals, complaints to the SEC have more than tripled in the past year. The SEC and state regulators are expanding Web policing, but enforcement is uncoordinated and spotty. The SEC has what it calls a ''cyberforce,'' some 240 employees who each surf the Net for suspicious postings two to three hours a week. They report to the Office of Internet Enforcement, which is staffed by four officers. The first SEC police sweep of the Web last October found 235 illegally promoted microcap stocks. The agency filed 23 actions against 44 people who were promoting the companies--generally cease-and-desist orders, which simply means a judge orders the company to stop breaking the law. Companies such as America Online and Yahoo! monitor their bulletin boards. But they also do little to miscreants, mainly posting warning information or, in extreme cases, canceling accounts. SLIPPERY TIPSTERS. While you never can be sure about any blind tip on the Net, scams do have typical earmarks. Recognizing them can keep you from being taken. Green Oasis investors, for example, already were taking a chance by playing a thinly traded stock, which are the easiest to manipulate. Many investors also overlooked such items as the same office address for the ''analyst'' who issued a ''Flash--Aggressive Buy Recommendation'' and the public-relations firm that published press releases on the company. Still, there's no sure way to know if an online tipster is just an interested party or a paid shill. Moreover, it's easy for one person to create a bulletin board full of posts under different identities--or even counterfeit Web sites to which posts can direct surfers to go to confirm a tip. Chat-room information is even more slippery than bulletin boards. These online chats don't readily leave a tidy trail back to a tipster. Although scamsters are likely to reach fewer people in a chat room than on a bulletin board, it's a good place to get a buzz going about a company and a good place to direct people to boards with bogus offerings. As for Web pages and electronic newsletters that promise hot stock picks, always check for a disclosure statement that may reveal if the newsletter is paid by the companies it writes about. A vague or blanket warning, such as ''Directors of this newsletter may hold stock or receive compensation from some companies we write about,'' should make you wary. And double-check with SEC (www.sec.gov) and state securities regulators, who can tell you if an online publication has been in trouble. Despite the pitfalls of getting stock information from the Net, there are those who swear by the boards. Take Bradford Hughes, a sales associate at Texas Instruments in Dallas, who began trading online four years ago as a college freshman. After some initial setbacks, he claims to have built a $65,000 portfolio from an initial stake of about $6,000. He pins his success partially on bulletin-board tips. His strategy? First, he looks for messages with header titles ''OT'' for ''off topic'' and a stock symbol. That means that while the message isn't directly related to the board's subject, it is urgent and worth checking out. When the tip is well-reasoned and detailed--or if the tip is by someone who has been good in the past--he considers it. But if he sees the same tip on several boards, it may be a ''pump-and-dump'' scheme, in which scamsters ramp up a stock, short it, and then profit by urging investors to sell. Even with these precautions, remember that without an independent third-party confirmation, ''free chat-room advice is worth what you pay for it,'' says Philip Feigin, executive director of the North American Securities Administrators Assn., which represents state securities regulators. In the end, all the hot tips in the world can't substitute for doing your homework. BY ROY FURCHGOTT _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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 Your Guide to Online Investing COVER IMAGE: Our Guide to Online Investing CHART: The Biggest Online Brokers TABLE: Broker Scoreboards TABLE: Online Brokers That Meet Your Needs Gotta Do the Legwork ``A Diversity of Thought'' Testing the Waters Commentary: Why Old-Line Firms Need New Online Tricks TABLE: Full-Service Dream The Right Tools for the Right Trades Street.Cop TABLE: Smart Investing on the Web TABLE: Web Resources for Online Investors Rocket Science Made Simple TABLE: Quant for a Day How to Seal a Great Bond Deal TABLE: Where to Buy...And Get Info What to Read: The Good, the Bad, and the Terrible TABLE: Wired-Up Investing Books Investor Beware of Web Talk TABLE: Separating Fact from Fiction TABLE: Cross Checkers Smells Fishy? Tell the SEC This EDGAR Is a Real Know-It-All TABLE: Searching the SEC Commentary: Analyst Calls: Let Investors Listen TABLE: Calling All Netizens The Barker Portfolio: A Battle Plan for Accidental Investors Inside Wall Street: Wells Fargo Online CHART: The Rise Trails Other Banks Inside Wall Street: Bidding for 3COM? CHART: Prior Takeovers Fizzled Out Inside Wall Street: A TV-To-Net Linkup CHART: ACTV's Rise Is Due to E-Commerce INTERACT E-Mail to Business Week Online | |||
