Online Scams: Road Hazards on the Information Superhighway
fast facts
* 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.
The latest "roadhazards" on the information superhighway are scams
broadcast over rapidly-growing computer networks and electronic bulletin
board services. The scams aren't new, just the medium. Some con artists
who always used telemarketing, infomercials, newspapers and magazines,
and the mail to attract consumers to their products, services, or
investment schemes, now have turned to the Internet and the online
services of Cyberspace as the new medium to promote their scams.
"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
Classified advertising has the greatest number of questionable ads. No
matter where you look in classified ads online, chances are they will
contain some false and misleading claims. For example, many classified
ads promote quick and easy weight-loss products and programs. It is
highly unlikely that any of them can deliver on their promises.
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
The same things that cause concern in traditional print and broadcast
media should be viewed with skepticism online. Here are some of the
warning signs of questionable online advertising:
* 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.
Remember, the bottom line is: never make a purchase decision for these
kinds of investments or products based solely on information obtained
from a single source--electronic bulletin board, online chatroom,
newspaper or direct-mail ad, or broadcast commercial. Be skeptical and
check sources and references.
For More Information
If you have a question or complaint about a suspect online ad or
promotion, contact your commercial service provider. In addition, you
can file complaints with your state attorney general, consumer
protection office or with the Federal Trade Commission (write to:
Correspondence Branch, Federal Trade Commission, 6th St. & Pennsylvania
Ave., NW, Washington, DC 20580). Also, contact the National Advertising
Division of the Council of Better Business Bureaus, 845 Third Avenue,
New York, New York 10022.
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
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