If you use the Internet and commercial computer networks such as Prodigy, American Online and CompuServe, you know that they can be tremendous sources of information and entertainment. You can read the day's news almost as it happens, find out about upcoming movies or hold electronic "conversations" with people thousands of miles away. Unfortunately, you can also get ripped off.
Professional con artists regularly run online investment scams. They often promote highly speculative "penny stocks" without issuing legally required prospectuses. They bill themselves as brokers without being licensed. And they claim "product breakthroughs" that are often more fiction than fact. Unwary people have lost thousands of dollars to cyberspace crooks, whose operations are hard to monitor and difficult to squelch. The online service providers generally take no responsibility for the accuracy of what appears on their electronic bulletin boards, although they have erased some messages that make clearly far-fetched claims relating to investments.
However, you can avoid being victimized by using common-sense:
Don't believe outlandish claims. If an offer looks too good to be true, it probably is. When you're browsing through an investment board on the Internet and you catch a headline that promises "easy money or guaranteed high returns," just keep on browsing. In the real world of investments, there's no such thing as easy money, and the only "guaranteed" returns usually come from relatively low-yielding vehicles such as Certificates of Deposit or Treasury bills.
Never send money without checking out a claim. If your only source of information about a investment comes from an electronic bulletin board, don't send a penny. If the company is legitimate, it will provide you with audited financial reports at your request. And if a company just has a highly touted "product" along with minuscule current income, you'll almost certainly be taking on ill-advised risk.
Verify legitimacy of "brokers." When representing themselves online, people can call themselves by any name and title. Fortunately, you don't have to take them at their word. By calling the North American Securities Administrators Association (202-737-0900), you can get the phone number of your state's securities agency. From this agency, you can find out whether people on bulletin boards are legitimate, licensed securities dealersand you can learn if their stock offering is even registered in your state.
Ignore demands that you "act quickly." If you come across a message that says an investment opportunity will disappear if you don't immediately take action, then just let it vanish. This same high-pressure tactic exists in the flesh-and-blood world, as well, and it's lust as bogus there. If an investment is sound enough to put money in, it'll be around for a while.
Don't give out your name and address. By putting your address on an investment bulletin board, you'll guarantee yourself a steady stream of offers from pesky "brokers" who have gotten your name from lists obtained through people who prowl the bulletin boards. In the world of investments, time is your biggest ally. For one thing, your investments need time to grow. You need time to research financial professionals and their offerings. Online services, by their very nature, are geared to the "here and now." Don't be rushed into anything. It's your moneyand you're in control.
Valerie Meisel lives in Wilmington, DE and works as a Personal Financial Advisor in the Advanced Planner Group of American Express Financial Advisors, Inc. She may be reached at (800) 220-2190 ext. 226.
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3/28/97 Issue. Copyright 1997 by CAMP Rehoboth, Inc. All rights reserved.