The Internet can provide a very useful means for investors to research potential investment opportunities, but it can also expose you to anything from pyramid schemes to forex scams. Clearly, it can really pay to do your homework before placing your money with an opportunity you find via the Internet to avoid falling victim to the various types of all-too-prevalent Internet based investment fraud.
An initial step you will want to take when presented with a potentially profitable investment opportunity over the Internet involves getting the facts about any company or investment plan you might be considering from an independent source.
Furthermore, do not base your investment decisions solely on what you read on any particular online website, newsletter, e-mail or discussion forum. This is especially important if the information pertains to a stock that is thinly-traded and from an obscure company or to an overseas investment.
Categories of Internet Investment Fraud
While Internet investment fraud has many different variations, most of them fall into one or more of the following basic categories:
• Pump and Dump or Short and Distort Stock Scams
• Pyramid Schemes
• Low Risk, High Reward Frauds, HYIP and Ponzi Schemes
• Overseas Investment Frauds
• Over-hyped forex software
Preventing Internet Investment Fraud
A good idea if you want to protect yourself from online scams would involve reading up on each of them in order to familiarize yourself with the ways that they are perpetrated, and how to avoid becoming just another victim of investment fraud. Another good idea if you are considering trading currencies is to make sure that your broker is regulated.
How Online Investment Frauds Spread
The ways that investment frauds are now perpetrated over the Internet are often similar to how such frauds were committed in the past using telephone calls or solicitation letters sent via snail mail.
A variety of Internet-based means can be used to find and entice potential fraud victims. These might include:
• Online newsletters
• Unsolicited spam e-mails
• Discussion forums
• User groups
• Bulletin boards
• Article websites
• Chat services
Remember, it usually does not take that much to use these techniques or to set up a fancy website these days, so do not be taken in by what you read online. Check out any investment advice thoroughly before committing any funds to help prevent Internet investment fraud.
Steering Clear of Stock-Related Frauds
One classic stock-related fraud is known as the boiler room scam. This generally involves a broker placing excessive pressure on clients to trade over the telephone, but this sort of pressure can also be found in communications made over the Internet, especially in chat rooms or e-mail. Boiler rooms are often used in microcap stock frauds that involve the high-pressure sale of distressed, non-existent or overvalued stock.
Accordingly, when it comes to preventing stock frauds, investors will generally want to look for those that have filed registration statements and periodic reports with the SEC. You can review these documents for the company by going to the SECís website and searching the SECís online and public EDGAR database for free.
Furthermore, you will want to avoid buying the stock of any company that is not listed with the SEC without thoroughly checking the validity of each any every material statement made about the company.
Basically, investing in unlisted stocks is really only for expert investors who will want to perform their due diligence by taking verification steps like the following:
• Obtaining and analyzing financial statements from the company.
• Verifying any important new product developments or contract claims.
• Calling the companyís suppliers and customers to find out if they do indeed have dealings with the company.
• Researching the background of the company officers to see if they have a criminal record or have given investors a good return in the past.
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(Posted date - 05 Oct 2012)