Online Scams:

Potholes on the Information Highway

March 1996
Published By The Consumer Information Center

There are approximately 15 million Internet users in the United States. That number is increasing each month, according to industry sources. The largest commercial online services have an estimated five million subscribers nationwide. All are considered potential targets from the scam artists' point of view.

The latest "hazards" on the information highway are scams broadcast over computer networks and electronic bulletin board services. The scams aren't new, just the medium. Some con artists who used telemarketing, infomercials, newspapers, magazines, and the mail to attract consumers are turning to the Internet and the online services of cyberspace to promote their scams.

The Internet and the many commercial online services provide a valuable new information source for consumers. However, cyberspace has another side: fraudulent sellers use these computer services to promote bogus stock offerings, credit repair services, and exotic or high-tech investment opportunities. Promotions for ineffective weight-loss and health-related products and programs also appear online. The bottom line is: treat all ads with skepticism. Never make an investment or major purchase decision based on information from one source -- whether it's print, broadcast, or online.

Advertising on Online Services
Most questionable online advertising is either classified advertising or "disguised advertising."

Classified Advertising
No matter where you find classified ads online, you are likely to find some false and misleading claims. For example, many classified ads promote quick and easy weight-loss products and programs. It is unlikely that any of them can deliver what they promise.

Another hot area in the classifieds is "business opportunities." Traditional "work-at-home" schemes, such as making handcrafts or stuffing envelopes, have been replaced by offers to "use your home PC to make money fast in your spare time." Other ads encourage consumers to invest in communications technologies, such as "900" number telephone services, with promises of high returns and low-risk. The investment attraction of "900" number pay-per-call services is the potentially high profit to be made -- 20 percent or more -- from the $3-to-$5 a minute fees charged to callers by the 900 service provider. The marketers promises on these investments are likely to be false.

"Disguised Advertising"
"Disguised advertising," may be difficult to recognize. Bulletin boards and chat forums may include areas where comments about the quality or performance of products or services may be ads in disguise.

The Internet and the commercial online services provide bulletin boards where interested parties can exchange information in general topic areas. In some cases, individuals contributing to the bulletin board have financial ties to companies or businesses that sell products or services related to the bulletin board subject area. This may not be obvious to the online user. What may appear to be an open discussion could be a sales pitch in disguise. Because the identities or affiliations of online bulletin board operators and participants may not be known, it could be difficult to detect disguised advertising.

Some commercial online services also provide live discussion groups called "chat rooms" or "chat forums." Service subscribers can "drop by" for an online conversation by typing in their comments. These forums provide the chance to discuss a variety of subjects, including products and services. Some marketers have used these chat forums to promote their products without disclosing their interests.

Tip-offs to Fraud
Read online ads and "conversations" with a healthy dose of skepticism. The same signals that tip you off to potential frauds in print and on television are apparent in cyberspace. Here are some warning signs of questionable online advertising:

  • Overstated claims of product effectiveness. Use of hype titles and frequent use of the word "hot" to describe an investment opportunity can indicate a scam.
  • Exaggerated claims of potential earnings or profit.
  • Claims of "inside" information.
  • " Pump and Dump" promotions of cheap stocks promising high returns.
  • Promotions for exotic investments such as ostrich farming, gold mining, or wireless cable TV.

When you make any decisions about investments or products, be careful. Check a variety of sources and references before you buy.

For More Information
If you have a question or complaint about an online ad or promotion, contact your commercial service provider. You also may file a complaint with your local consumer protection office, state Attorney General, or the Federal Trade Commission. Write to:
Consumer Response Center
Federal Trade Commission
Washington, DC 20580

Or, contact:
National Advertising Division of the Council of Better Business Bureaus,
845 Third Avenue
New York, NY 10022

If you have questions about whether an investment sales person is licensed or an offered security is registered, contact the
Office of Consumer Affairs
Securities and Exchange Commission
(202) 942-7040

The National Fraud Information Center maintains a toll-free Consumer Assistance Service, 1-800-876-7060, to provide information about telephone or mail solicitations and online scams. They also tell consumers how and where to report fraud and how to file complaints.

The Federal Trade Commission publishes free brochures that explain fraudulent sales practices and how you can avoid them. For a complete list of publications, write for a copy of Best Sellers at:

Consumer Response Center
Federal Trade Commission
Washington, DC 20580
(202) 326-2222
TDD (202) 326-2502

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