SEC mulls unit to combat securities fraud

With the Internet becoming a haven for many con artists, the Securities and Exchange Commission (SEC) is looking at forming an electronic monitoring and detection unit to combat all forms of securities and corporate fraud on the Web.

Securities fraud, also known as stock fraud and investment fraud, is a practice in which investors make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of securities laws.

With the Internet providing a medium for cheap and easy access to a vast number of potential investors, the SEC’s Compliance and Enforcement Department (CED) has underscored the need to establish a cybercrime unit to handle the investigation of enforcement related leads generated from investor tips and other sources.

“The advancement in computer technology and the Internet has grown rapidly through leaps and bounds. The CED has encountered an alarming increase in Internet-related investigations, complaints, tips, from the public or other agencies here and abroad over the year. As the global economy moves to more paperless transactions, collecting evidence has become a challenge to law enforcement due to lack of personnel, training and resources and laws to prosecute high-tech criminals,” the CED said.

“The relentless proliferation of websites of Internet-based Ponzi investment schemes, online high yield investments, public offering of unregistered securities or futures platforms, just shows how the Internet is teeming with schemes, as swindlers learn how easy it is to exploit innocent victims via this semi-anonymous medium,” it added.

The CED said securities fraud and other white collar crimes are likely to increase as the number of Internet users are expected to hit two billion by 2010.  

The CED pointed out that the process of identifying and prosecuting digital criminals entails a lot of time, effort and resources since the evidence are mostly in the form of sensitive electronic data messages or electronic information stored in computers and other electronic devices. 

“The Commission now needs the help of a new breed of fraud examiners and investigators equipped with the latest knowledge, technology and skills in digital or computer forensics… to identify and catch the perpetrator while he is online,” the CED said.

Based on the CED’s proposal, the cybercrime unit shall organize and maintain a computer lab to conduct online monitoring for possible white collar and financial crimes.

The Ponzi and pyramid schemes are two of the classic fraudulent schemes that have found their way into the Internet. In a pyramid scheme, participants attempt to make money solely by recruiting new investors to the program.