NDSU Extension - Ramsey County


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Internet Fraud

Internet Fraud


          The Internet is a useful way to reach a mass audience without spending a lot of time or money.  A website, online message, or “spam” e-mails can reach large numbers with minimum effort.  These same characteristics make it easy for fraudsters to send Internet messages that look real and credible. It can be hard for investors to tell the difference between fact and fiction.  That's why you should think twice before you invest your money in any opportunity you find online.  Here are some of the ways investors can be tricked online:       

          Online Investment Newsletters - While legitimate online newsletters may contain valuable information, others are tools for fraud.  Some companies pay online newsletters to "tout" or recommend their stocks.  Touting isn’t illegal as long as the newsletters disclose who paid them, how much they’re getting paid, and the form of the payment, usually cash or stock.  But fraudsters often lie about the payments they receive and their track records in recommending stocks.

          Online Bulletin Boards - Online bulletin boards are a way for investors to share information.  While some messages may be true, many turn out to be bogus – or even scams.  Fraudsters may use online discussions to pump up a company or pretend to reveal "inside" information about upcoming announcements, new products, or lucrative contracts.

          Pump and Dump Schemes - "Pump and dump" schemes have two parts.  In the first, promoters try to boost the price of a stock with false or misleading statements about the company.  Once the stock price has been pumped up, fraudsters move on to the second part, where they seek to profit by selling their own holdings of the stock, dumping shares into the market.

          These schemes often occur on the Internet where it is common to see messages urging readers to buy a stock quickly.  Often, the promoters will claim to have "inside" information about a development that will be positive for the stock.  After these fraudsters dump their shares and stop hyping the stock, the price typically falls, and investors lose their money.


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