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HolidayBuyer's Guide
Internet

Pitfalls of the trading pit

Next time you see that sweet stock offering online that looks too good to be true, it probably is.

Next time you see that sweet stock offering online that looks too good to be true, it probably is.

Mary L. Schapiro, president of National Association of Security Dealers (NASD) Regulation, the body which regulates the nation's brokers and firms, today announced that the NASD is launching an educational program to inform investors about the benefits and pitfalls of using the Internet and online services as investment tools.

"The Internet is one of the most important communications tools ever developed," Schapiro said in a written statement. "But it's absolutely critical for investors to understand that information and messages posted anonymously online should be viewed with caution and a healthy dose of skepticism."

With the lightening speed that the Internet provides, as well as virtually unlimited potential for contacting individuals behind the eyes and ears of regulators, policing investments over the Net has become a burgeoning issue.

Problems have ranged from inflated information that has drawn unsuspecting investors to unscrupulous brokers accused of intentionally selling stock to clients at higher prices--and pocketing the difference.

The Motley Fool, a popular investor's forum on America Online, is the first online investors forum to offer NASD Regulation help in educating the public.

Motley Fool has posted a warning message on its boards and set up an email link to NASD regulation that investors can use to get help. CompuServe's Investor's Forum and Prodigy's Money Talk Bulletin Board have also posted warning messages.

By mid-September, investors will be able to file on-line complaints about brokers through the Web site, according to Bloomberg news service. Other online forums will be contacted and also asked to help. Many firms also will help distribute the information.

"The very thing that makes the online medium so fresh and effective--the ability for thousands of people to talk with each other at will--presents a problem as old as speech itself: beware the one who puts the 'con' in conversation," said David Gardner, editor of The Motley Fool.

"Trading over the Internet has become a greater issue for all of the states as well as the nation," said Damian Jones, a spokesman for the Department of Corporations in California.

NASD has printed a free brochure which is available by calling 800/289-9999 or, in the future, through its Web site.