Cyberspace was once inhabited largely by government agencies and academics linked through a decentralized computer network now known as the Internet.

The Internet's rise has coincided with a booming economy, one fueled in large part by consumer spending. At the same time, employers have shifted more responsibility for retirement savings to their employees. The economy and investors have found common ground in cyberspace.

With its instant access, speed and relatively low cost, the Internet understandably has drawn legitimate commerce. Some companies sell securities through their Web sites. Some offer online brokerage and banking services.

Our division recognizes the Internet's potential for good and evil. Technological innovation attracts legitimate businesses hoping to cash in on the cost savings. Invariably, this leads to the rise of illegitimate enterprises hoping to take advantage of the unsuspecting.

An investor can't see who's behind a particular Web site or a "tip" on an Internet bulletin board. Familiar trademarks and logos can be altered — and consumer confidence manipulated — by illegal tampering with trademarks of legitimate companies.

Just as Internet commerce escalates, so too does Internet securities fraud. "Prime bank" frauds, for example, promise investors high rates of return on fictitious financial instruments — often called "prime" bank notes by the scam artist — and traded by nonexistent international banks. In "pump and dump" schemes, insiders with cheap shares post glowing reports about a company to "pump" up the price solely for the purpose of "dumping" their shares at the inflated price on unsuspecting victims.

How an Investor Bulletin Board Scam Might Work

"Is anyone out there following Company X? " reads the first message on an online bulletin board. Responses follow.

"I heard that Company X is about to make a major announcement. E-mail me or call this toll-free number to get an information package."

"I spoke to Company X's CEO who confirmed details of next month 's big news. I've bought 10, 000 shares. Look for share price to double in next month! Get it now!"

"Big news is just around the corner. We hear from a friend who has visited Company X that it is going to be even bigger than we thought. There's still time to get in."

"Short-sellers are in the market! Keep the faith . . . This will bounce back. The smart money will use the price as an opportunity to buy more and dollar average. "

The original message in this hypothetical bulletin board might be posted by an unscrupulous company, market-making brokerage or large shareholder. Subsequent messages could be left by the same person using an alias or by accomplices posing as disinterested outsiders.

The goal would be to interest unwary investors, who then drive up the stock price through a buying surge. The schemers stand to make substantial profits when they sell their cheap shares. After the price collapses, talk of the company ceases and the schemers move on, hyping a new stock.

How to Protect Yourself

Beware and be realistic when it comes to the Internet:

1. Don't expect to get rich quickly. The online world is filled with timely and accurate information that can make you a smarter investor. Alas, it's also home to a growing amount of investment fraud and abuse. Keep your excitement and expectations in perspective: evaluate information as you would any magazine article, television report or whispered hot tip.
2. Don't assume that your investment bulletin board is policed. Most online computer services take a hands-off approach to claims made in message postings. Even the services that minimally police are swamped by the volume — literally millions of messages — each month. Nothing prevents a con artist from posting pitches for a swindle. Often the only check on abusive messages is "flaming" by other users.
3. Don't buy thinly traded, little-known stocks on the basis of online hype. These are the stocks that are most susceptible to manipulation. Unlike blue chips and other stocks with substantial numbers of shares available for buying and selling (called "float"), the price of low-volume stocks can be moved with relatively small strategic trades. This is why online hype usually involves previously unknown securities, often for companies involved in mining or high technology. Even if a hyped stock moves up, proceed with extreme caution, as this just may be part of the overall manipulation. Always do your own research using reputable sources, many of which are available online.
4. Don't act on the advice of a person who hides his identity. Many computer bulletin boards allow people to use aliases and nicknames. This is intended to protect privacy, but fast-buck artists also can exploit it. You may end up dealing with an undisclosed broker, investor or company insider intent on driving up (or down) the price of a stock through false information or baseless speculation that is difficult or impossible to disprove. Don't assume that two or more people talking up a stock are two distinct people.
5. Don't get suckered by claims about "inside information," including pending news releases, contract announcements and products. Investment bulletin boards and discussion groups are crammed with hot tips about impending developments sure to send a stock soaring in value. Just because these tips appear in cyberspace does not mean that they are exempt from federal insider-trading laws. It is extremely unlikely that genuine insider information will be broadcast on an investment bulletin board.
6. Don't assume that all claims have been proved by information or visits. People who hype stocks online make all sorts of claims about visiting companies, inspecting mining operations and having conversations with company officials. You might not be able to verify who is making these claims, much less whether any of the information is true or the supposed research took place. A tactic of investment schemers is to talk up companies located in remote corners of the globe, where it is impossible for you to visit or obtain meaningful information.
7. Don't forget to look for potential conflicts of interest. A growing number of online stock analysts receive cash or shares in exchange for glowing comments about the companies in question. Although federal law requires analysts to prominently disclose this fact, others make little or no mention of it. Make sure you always know why someone is so high on an investment opportunity.
8. Don't forget to make sure that an investment opportunity and the person promoting it are properly registered with the Virginia State Corporation Commission's Division of Securities and Retail Franchising (toll free in Virginia 1-800-552-7945). Laws designed to protect small investors from fraud and abuse do apply in cyberspace. Scam artists often fail to follow state requirements.