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Someone IS falling for these scams!
Web Investment Con Artists Prove
Elusive, Insufferable to Regulators
By RIVKA TADJER
Special to THE WALL STREET JOURNAL INTERACTIVE EDITION
When it comes to con artists who target individual investors,
none are proving to be more elusive -- or more infuriating
-- to federal regulators than Internet scammers.
The explosion of Internet investment fraud has prompted
the Federal Trade Commission, in cooperation with the
Securities and Exchange Commission, the Department of
Justice, and Federal Bureau of Investigation, to coordinate
elaborate surveillance tactics to combat these on-line con
artists, says Paul Luehr, attorney and chairman of the FTC
Internet Coordinating committee, which oversees law
enforcement.
Although many investors are becoming more savvy about
dubious investment claims posted on the Web, fraud still
abounds. Investors who use the Internet for research and
discussion need a healthy dose of skepticism when visiting
any investment Web site.
Barry White, a 40-year-old CPA in Charlotte, N.C., and,
ironically, now a fraud examiner, says he learned this lesson
the hard way. Last year, he became the victim of what the
FTC called "an elaborate, electronic version of a chain
letter" called Fortuna Alliance. But he thought his
nightmare was finally over when the FTC in the spring of
1997 nabbed the operators of Fortuna Alliance and shut
down its Web site.
Customers of Fortuna Alliance, the Bellingham, Wash.,
company charged with conducting the operation, were told
that if they "invested" between $250 and $1,750 a month,
they could get back $5,250 monthly. Fortuna Alliance took
in at least $5 million from people like Mr. White, according
to the FTC.
Mr. White had been optimistic that with the FTC on the
case, he might actually get back some of the $5,000 he sunk
into Fortuna Alliance's pyramid scheme. But now he's
losing hope. And he has discovered that the operators of the
on-line scam are back in business.
The principals of Fortuna are now living offshore in Antigua
and have set up a new Web site (www.fa2.com), says Susan
Grant, director of the National Consumers League Internet
Fraud Watch in Washington, whose mission is to use
collective consumer opinion to influence business practices.
The Fortuna site's operators are so brazen that they haven't
even bothered to change the name, she says. Fortuna
officials would not return phone calls.
"One thing is true about Web
scammers -- they are so arrogant.
Fortuna just put up a new Web site
recently and went back in business,"
she says, lamenting that "there will
always be plenty of people who don't
check with us or the FTC to see
whether there are law suits against an
investment site."
"I think it's pretty poor that the FTC
can't get them," says Mr. White, who
says he testified before a Senate
committee hearing on the matter of
Internet fraud last month "more for
community service at this point than
to actually get my money back. I don't
want other people to get screwed."
Indeed, law enforcement in
cyberspace may be one of the toughest challenges
government agencies face. "We're out there and making
headway, but a global community where scams can pop up
today and disappear tomorrow is a big job," says Mr. Luehr.
The Fortuna Alliance Web site is a classic example. It's
cheap to set up a new Web site under a slightly different
name, and since there is no legal recourse for Internet
service providers to judge what sort of sites they are hosting,
the Fortuna principals could theoretically continue to
operate indefinitely.
One of the most frustrating problems for regulators is that
individual investors often overlook important warning
signals that are universal in scam Web sites. Mr. White, the
investor, says he wasn't uncomfortable at all with sending
his money order for $5,000 to Fortuna Alliance, even
though he'd never once spoken to a Fortuna official about
the details.
"There were very detailed on-line documents that promised
a 90-day money-back guarantee," he said. "They said they
were launching a huge ad campaign ... and my return on
investment would be quick."
Two months later, Mr. White quite unexpectedly discovered
he'd been scammed. "I just happened to put in the keyword
'fraud' on one of the [Internet] search engines ... and news
that the FTC had just shut them down popped up."
Looking back, Mr. White says, he should have been tipped
off that it was an Internet scam by one red flag: After many
attempts he was never able to get a Fortuna representative
on the phone after he made his initial investment.
The good news for consumers, however, is that conducting
due diligence on investment sites is extremely easy using the
Internet. The National Consumers League, and the FTC,
SEC, and FBI Web sites all have fraud watch updates that
allow consumers to e-mail questions and file complaints
on-line. This kind of interaction is crucial, experts say, to
detecting Web fraud. "We follow leads and need as many tips
ads we can get," says Mr. Luehr.
The bad news, however, is that on-line cons can go
undetected for years and new mutations of old cons that take
advantage of the Internet technology are popping up all the
time.
"One way we see the investment scams mutating is the
combination of loan fraud and pyramid schemes," says the
National Consumers League's Ms. Grant. "The con artists
make use of spam to get investors."
She cites a recent Las Vegas pyramid scheme that promised
a $59,000 loan for those who mail in $20. It works like this:
An e-mail arrives offering a chance to apply for a loan that
you'll never have to pay back. All you have to do is mail in a
$20 "processing fee."
Mr. Luehr of the FTC says investors who have already fallen
for one on-line scam should be especially cautious. "These
scammers sell lists of names -- like any marketers -- and
the ones that have already been suckered are considered
prime targets," Mr. Luehr says.
Mr. White will vouch for that. "I get phone calls all the time
now for new 'get-rich' investment opportunities," he says.
He says other red flags for investment fraud are sites that
demand money upfront, and those touting "money-making
opportunities" that promise a quick return with minimal
risk. Ms. Grant agrees these are the two top signs of an
investment scam.
But it is not always so simple. Con artists understand all too
well the appeal of high-tech investments to investors
world-wide as scammers capitalize on investors' desire to be
in on the ground floor of the next Netscape. So many are
turning to cloaking pyramid schemes in high-tech language,
Mr. Luehr says.
"FutureNet was a perfect example," he says. "They used
buzzwords like WebTV to lure investors and give the
products a legitimate-sounding air." Similar sounding
technology names add to the confusion. For example, the
name "WebTV" is so familiar to the average consumer that
many fraud schemes involve giving products or companies
names such as NetTV.
"This is such a problem we have set up 'Operation Net Opp',
which is a surveillance task force to watch out for precisely
this sort of high-tech fraud," says Mr. Luehr.
- Igor.