SEC sets up new team to battle net fraud schemes

The Securities and Exchange Commission has created a new office to help chase down a
growing number of financial fraud complaints tied to the Internet.


The Office of Internet Enforcement will also train law enforcement officials in other
agencies to search for and recognize online fraud, said John Reed Stark, director of the
office and special counsel for Internet projects in the Enforcement Division.


“With the launching of this new unit, we hope to beef up our Internet presence and
continue the success of our Internet program,” said Richard H. Walker, director of
the Enforcement Division.


The Enforcement Division investigates possible violations of federal securities laws
and recommends appropriate legal action. The division has dozens of employees who sit at
PCs and monitor the Internet for fraud, Stark said.


The division receives the bulk of its tips from the public. Its Web site exhorts
citizens to let SEC officials know when they suspect a scam. “We want to know about
it, especially if it relates to the Internet,” the site notes.


SEC receives about 120 complaints each day alleging illegal financial scams in
cyberspace. “Unfortunately, the Internet is a burgeoning area for fraud,” Stark
said.


Most Internet scams are replays of typical fraud schemes, including phony stock
offerings, market manipulations, affinity scams that target ethnic or religious groups and
pyramid schemes, Stark said.


“Internet fraud focuses on all sorts of other violations, too, from money
laundering to wire and mail fraud,” he said.


SEC has filed more than 30 complaints of alleged online securities fraud since 1995. In
one case, SEC halted an online scam that guaranteed a 20 percent return to anyone who
invested in an eel farm.


A priority of the Internet Enforcement Office, which has five employees, will be
training federal law enforcement officers. The office will provide tips on trends in
Internet securities fraud and surveillance techniques, Stark said.


The division and the new office will share responsibilities, Stark said.
“It’s a little like triage,” he said.


The division often works closely with law enforcement on cases and exchanges
information with the FBI, IRS, Federal Trade Commission, Royal Canadian Mounted Police and
other agencies, Stark said.   

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