WIRED ON FRIDAY: The US government has set up scam websites to teach would-be victims not to be so trusting regarding investment opportunities on the Web, writes Carol Power
For more than 200 years, people have been investing in the New York stock market and for probably just as long there have been scams to swindle people out of their money. However, the proliferation of the internet has meant there are more investing scams than before.
Recently, three scam sites were set up by the United States government: not to dupe people out of their money but to educate them not to invest so trustingly in companies online.
At the end of January, the Securities and Exchange Commission (SEC), in association with the Federal Trade Commission, the North American Securities Administrators Association and the National Association of Securities Dealers, announced they had set up three fake websites.
The first, and the only one whose name has been made public, is about a fictitious biological defence company called McWhortle Enterprises Inc, and can be accessed at www.mcwhortle.com. The site purports to sell a product called the new Bio-Hazard Alert Detector to the general public. The small, battery-powered device emits an audible beep and flashes in the presence of all known biohazards. It plays on people's fears of further bioterrorist attacks in the wake of the anthrax scare.
A January 25th hoax press release stated that McWhortle Enterprises was going public on January 30th and that it would conduct a news conference at SEC headquarters in Washington DC at 10 a.m. that day. The site advertised that it would accept new investors for stage two of the McWhortle Enterprises pre-IPO offering. Estimated share value is about $10, which, upon conclusion of the IPO offering in three months, would be worth more than 400 times the initial investment.
Anyone who clicks on a button to say he is ready to buy now and is willing to provide his credit card and social security numbers, is shown a page that says McWhortle Enterprises does not exist and is a hoax in order to teach investors a lesson.
The punchline says: "If you responded to an investment idea like this . . . you could get scammed!"
Susan Wyderko, director of the office of investor education at the SEC, said: "We set up the fake websites because we had an idea that a lot of folks were looking for investment tips but they were not stopping to check out educational tips on the sec.gov site before investing."
The McWhortle site was designed to illustrate graphically what a lot of scam sites look like. "If it sounds to good to be true, it is," Ms Wyderko said. "Promises of high and fast profits, with little or no risk, are classic red flags of fraud."
Since the McWhortle site was exposed as a hoax, it has received 1.5 million hits and the contact email address on the site, webmaster@mcwhortle.com, which redirects email to the SEC, has received 500 messages, all of which have been answered. Most comments were positive.
One said: "Congratulations on taking the initiative to prevent people from being scammed. I imagine you have probably saved some people a lot of money. This was an ingenious idea and my compliments to the person who thought of it."
Another said: "I especially liked the testimonials page. It's sad how exactly your bogus ones match the ones offered by real product-sellers . . . which are probably also bogus most of the time."
The site also includes an audio interview with company president, Thomas McWhortle III. The investor-relations manager, Kelly Green, is also fictitious. A call to her number is answered by a recording. The SEC picks up the messages and calls people back.
Ms Wyderko said the site emulated some scam sites the SEC has shut down.
To avoid scams, the SEC advises potential investors - online or offline - to do their research to make sure the company exists, that its products are genuine and its claims legitimate.
Another of the SEC's fake sites (whose Web address the SEC asked me not to publish) offers people the opportunity to participate in an exclusive offshore investment programme. The site says investors can enjoy guaranteed returns of up to 20 per cent per month (240 per cent per year), all tax-free, with little or no risk to principal.
The company pools clients' assets to purchase financial instruments such as prime bank notes and international certificates of deposit.
The site says someone should consider investing if he has at least $1,000 in savings. The investor is then asked to fill out an online application form and to provide a social security number or primary credit card number.
The SEC created this site in partnership with Scotland Yard because they had heard too many stories about online investment scams touting so-called prime bank securities that don't exist.
"We're trying to educate investors so that the next time they click on a real scam, they'll understand what they're looking at," Ms Wyderko said.
The SEC, she added, has plans to put up a few more hoax sites.
