Legal Definitions - Investor Protection Guide: Internet Fraud

Internet fraud is when someone uses the internet to trick people into giving them money. The internet is a great tool for investors, but it's also a great tool for fraudsters. They can use websites, online bulletin boards, chat rooms, and emails to reach thousands of people and make their scams look real.

One common scam is called "pump and dump." This is when someone spreads false information about a company to make its stock price go up. Then they sell their own shares at the higher price, leaving other investors with worthless stocks.

To avoid falling for internet investment fraud, investors should be careful about where they get their information. They should never rely solely on unsolicited information from online sources. Instead, they should research companies using legitimate sources like the SEC's EDGAR database.

For example, a fraudster might create a fake investment newsletter and send it to thousands of people. The newsletter might claim that a certain company is about to make a big breakthrough and its stock price will skyrocket. But in reality, the company is a scam and the fraudster just wants to trick people into buying its worthless stock.

Another example is a fraudster who creates a fake website for a real company. The website might look just like the real company's website, but it's actually a fake. The fraudster might use the fake website to promote a fake investment opportunity and trick people into giving them money.

These examples illustrate how fraudsters can use the internet to trick people into investing in fake companies or buying worthless stocks. Investors need to be careful and do their research before investing any money.