A classic fraud has become the Internet’s most prevalent investment scam.
First, the price of a thinly-priced stock is pumped up by shareholders who spread false information on Internet message boards, chat rooms, etc. Next, the con artists dump their overpriced shares at inflated prices, victimizing buyers.
Online investment newsletters may perpetrate scams, too. Some newsletters drive up the price of stocks with spurious recommendations and then sell their own holdings at hefty profits.
Therefore, do your homework before acting on an Internet stock tip. Start with the “Edgar” database on the SEC’s Web site http://www.sec.gov, which carries the required filings of most public companies. The SEC site features a tutorial on how to use Edgar. In addition, visit the site of the North American Securities Administrators Association (www.nasaa.org), the group that represents state securities regulators. There, you’ll be able to get information about your state’s regulatory agency and follow up on any company whose stock is offered for sale within your state.
