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Tips for Avoiding Stock Scams on the Internet

• Consider the Source

  When you see an offer on the Internet, assume it is a scam, until you can prove through your own research that it is legitimate. And remember that the people touting the stock may well be insiders of the company or paid promoters who stand to profit handsomely if you trade.

• Find Out Where the Stock Trades

  Many of the smallest and most thinly traded stocks cannot meet the listing requirements of the Nasdaq Stock Market or a national exchange, such as the New York Stock Exchange. Instead they trade in the "over-the-counter" market and are quoted on OTC systems, such as the OTC Bulletin Board or the Pink Sheets. Stocks that trade in the OTC market are generally among the most risky and most susceptible to manipulation.

• Independently Verify Claims

  It's easy for a company or its promoters to make grandiose claims about new product developments, lucrative contracts, or the company's financial health. But before you invest, make sure you've independently verified those claims.

• Research the Opportunity

  Always ask for — and carefully read — the prospectus or current financial statements. Check the SEC's EDGAR database to see whether the investment is registered. Some smaller companies don't have to register their securities offerings with the SEC, so always check with your state securities regulator, too.

• Watch Out for High-Pressure Pitches

  Beware of promoters who pressure you to buy before you have a chance to think about and fully investigate the so-called "opportunity." Don't fall for the line that you'll lose out on a "once-in-a-lifetime" chance to make big money if you don't act quickly.

• Always Be Skeptical

  Whenever someone you don't know offers you a hot stock tip, ask yourself: Why me? Why is this stranger giving me this tip? How might he or she benefit if I trade?

• Useful Links

  • SEC     - Warnings on Pump & Dumps and other Internet scams
  • SEC     - Information on investment fraud
  • NASD  - Investor Information About Online Fraud And Scams

For more information on how to use the Internet to invest wisely and avoid fraud, be sure to visit our Internet and Online Trading web page. There you'll find a vast array of tips, including Internet Fraud: How to Avoid Internet Investment Scams.