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Huge Payoff at No Risk: SEC Giving Scam Lesson

Fraud: Regulator is using bogus investment Web sites to lure and educate those looking for unbelievable deals.


The Securities and Exchange Commission is using bogus investment Web sites in an effort to slap a little sense into the terminally gullible, the securities watchdog agency said Wednesday.

The SEC last week created, a Web address for bogus company McWhortle Enterprises Inc. that supposedly makes battery-powered biohazard detection devices.

The site, replete with testimonials and audio feeds, promises that investments in McWhortle will be worth 400 times the initial offering price within three months.

But when investors hit the button to buy, up pops a page proclaiming: "If you responded to an investment idea like this, you could get scammed!"

The site received more than 150,000 hits late last week after a news release seemingly issued by McWhortle that was distributed to hundreds of Web sites.

McWhortle is one in a series of similar Web sites that the SEC is sponsoring as part of its investor education effort.

The SEC is borrowing a tactic that the Federal Trade Commission has used for several years. The FTC hosts several bogus business opportunity sites, which admonish those who click through several pages of over-optimistic claims that they're ripe targets for con artists with offers that are too good to be true.

"It is a low-cost, high-impact way to reach the people that we need to reach in the way that they want to be reached--over the Internet," said Susan Wyderko, director of the SEC's Office of Investor Education and Assistance.

Internet-based scams have become a growing problem in recent years. Although auction frauds are by far the most common complaint, Nigerian money scams, investment and business-opportunity frauds are becoming increasingly prevalent.

Earlier this month, Mission Viejo teenager Cole A. Bartiromo was accused by the SEC of using the Internet to swindle more than $1 million from investors.

The SEC won't reveal the names and locations of its other "investment" sites, but says several already have been launched in partnership with the FTC, the North American Securities Administrators Assn. and other law enforcement agencies.

Although regulators have no data indicating how successful these sites are in deterring investors from being taken by scams, agency officials say consumers responding by e-mail have been highly positive.

The McWhortle page includes links to sites run by the SEC and FTC, the securities administrators group and the National Assn. of Securities Dealers. It also urges consumers to check out company financial data on the SEC's Edgar site and includes a link to sites where investors can verify if a company is registered with the SEC or state securities regulators.

The site also warns investors that requests for Social Security and credit card numbers--as the McWhortle site does--are the hallmarks of identity fraud, the fastest-growing financial crime.

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