Define: Investor Protection Guide: Internet Fraud

The Internet can be a valuable resource for investors, but it can also be exploited by malicious individuals to deceive investors into giving them money. These individuals may create fraudulent websites, spread false information on forums, or send convincing emails. They may even fabricate stories to artificially inflate a company’s stock price and then sell their own shares for a profit, known as a “pump and dump” scheme. Investors should exercise caution and not blindly trust everything they encounter online. It is important to rely on information from trustworthy sources, such as the SEC’s EDGAR website. For more guidance on avoiding online investment fraud, consider exploring resources from the SEC, FBI, and USDOJ.

Internet fraud occurs when individuals use the internet to deceive others into giving them money. While the internet is a valuable tool for investors, it is also exploited by fraudsters who utilise websites, online bulletin boards, chat rooms, and emails to perpetrate their scams. One common scheme is known as “pump and dump,” where false information is spread about a company to inflate its stock price, allowing the perpetrator to sell their shares at a higher price, leaving other investors with worthless stocks. To avoid falling victim to internet investment fraud, investors should exercise caution in obtaining information and refrain from relying solely on unsolicited online sources. Instead, they should conduct thorough research using legitimate sources such as the SEC’s EDGAR database. For instance, a fraudster may create a phony investment newsletter and distribute it to thousands of individuals, falsely claiming that a certain company is on the verge of a major breakthrough and its stock price will soar. In reality, the company is a scam and the fraudster’s intention is to deceive people into purchasing its worthless stock. Another tactic involves creating a fake website for a legitimate company, which is used to promote a fraudulent investment opportunity and deceive individuals into providing money. These examples demonstrate how fraudsters exploit the internet to deceive people into investing in fictitious companies or purchasing worthless stocks, underscoring the importance of conducting thorough research before making any investments.

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This glossary post was last updated: 16th April 2024.