SEC creating fake web sites to teach naive investors a lesson

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http://digitalmass.boston.com/news/2002/01/30/web_hoax.html

Government creates fake Web sites to teach a lesson to online investors

By David Ho, Associated Press, 01/30/02

WASHINGTON -- McWhortle Enterprises Inc. seems like the perfect investment for the post-Sept. 11 world: a solid company, praised by analysts and customers, selling a handheld biohazard detector guaranteed to beep and flash in the presence of anthrax or other deadly germs.

Only one problem: The company doesn't exist.

McWhortle Enterprises is a government hoax cloaked in respectability and planted on the Internet, waiting to deliver a lesson about the risks of online investing to unsuspecting consumers.

The Securities and Exchange Commission, the principal agency behind the fictitious company, was announcing Wednesday that it has seeded the Internet with a series of such Web sites laying in wait to say "gotcha" to naive investors, according to a source familiar with the project.

The SEC would only say that it was holding a news conference to discuss "investor education initiatives."

Barbara Roper, the Consumer Federation of America's director of investor protection, said she has no problem with the SEC's unorthodox methods.

"There's clearly no intent here to do anything but educate the public in a way that might actually catch people's attention and make them realize they were that close to being scammed," she said. "You need to make the risk real to people."

On Friday, the SEC issued a fake news release on behalf of McWhortle, saying the company would go public Wednesday, with company President Thomas McWhortle III holding a news conference at SEC headquarters. The release was distributed mainly to Web sites by a service for financial news. Financial news agencies that received the fake release were warned.

The release touted the company's "Bio-Hazard Alert Detector," described as a battery-powered device that fits in a jacket pocket and beeps in the presence of all known biohazards.

After the release was sent, the McWhortle Web site received more than 120,000 visits, the source said.

The site, www.mcwhortle.com, has glowing testimonials from an analyst with a "major investment banking firm" and the chief financial officer of a "Fortune 100 Company." The Web site also includes an audio interview with the company president.

Those who continued clicking to invest their money got the punchline: "If you responded to an investment idea like this . . . You could get scammed!"

The Web site notes that it was created by the SEC, the Federal Trade Commission, the North American Securities Administrators Association and the National Association of Securities Dealers to alert investors to potential online frauds.

Admitting to the hoax, the site says the agencies and groups created the site because of an increase in investment scams preying on fears of anthrax and other biohazards.

"This site shows some of the telltale signs of online investment fraud," the site says. "Promises of fast and high profits, with little or no risk, are classic red flags of fraud."

To avoid scams, the SEC advises potential investors to do their own research to make sure a company exists, that its products are genuine and its claims legitimate.

In August, 23-year-old Californian Mark Jakob was sentenced to nearly four years in prison for issuing a phony press release to manipulate the price of stock in the high-tech firm Emulex Corp. The SEC had said Jakob's actions defrauded investors out of $110 million.

Since the recent anthrax-by-mail scare, the FTC has warned more than 100 Web site operators to stop making unproven claims about devices for bioterrorism protection and treatment, including dietary supplements, gas masks that may not work as advertised and ultraviolet lights falsely touted as anthrax killers.

On the Net:

SEC: http://www.sec.gov

Fake McWhortle site: http://www.mcwhortle.com

-- Anonymous, January 30, 2002

Answers

Sounds like they are "poisoning" the well in order to gain enough public outrage to begin the process of putting controls on Internet usage. How else do authorities gain public support for further restrictions in any area of our lives? Create a problem, then offer the solution. Will we ever learn to be aware of such things and cut them off at the pass? I doubt it. Anyway, the SEC hasn't been protecting investors in any meaningful way for quite a few years now.

-- Anonymous, January 30, 2002

Diversification is such a basic rule of investing, particularly when it comes to overloading your retirement plan with your company's stock. I'm very concerned about how this will be resolved, at least it better not be some kind of .gov buyout, because investors have to take some level of responsibility for themselves. Not my fault if they're being morons.

-- Anonymous, January 30, 2002

Brooks, bet on some sort dot.Fed bailout attempt, to the tune of 100's of billions, maybe into the trillions. That's the way it has gone on all along now, so why would it change? The government isn't going to allow a financial crash without turning on all the money spigots first in order to try to salvage it. Ahhhh heck, this is all old hat stuff, been going on forever, all over the world. Government reactions to a monetary collapse are entirely predictable. You might want to consider having your "stock" investments in one of the better Precious Metals mutual funds, like Vanguard or Fidelity. During the economic crash of the 1930's the gold/silver stock did very well, gaining value for their holders.

-- Anonymous, January 30, 2002

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