NCJ Number
190211
Journal
American Criminal Law Review Volume: 38 Issue: 3 Dated: Summer 2001 Pages: 405-429
Date Published
2001
Length
25 pages
Annotation
This article discusses the current trends in civil and criminal enforcement of Internet securities fraud.
Abstract
The Internet has transformed the securities market and the process of investing. On the whole the Internet’s empowerment of investors has been a positive development, however, its unregulated channels of distribution have been subject to abuse. As a result of conduct ranging from pranks to fraud, false and misleading investment information is made available on the Internet. The features common to Internet securities fraud cases are the ease and cost-efficiency of usage, the relative anonymity of users, the powerful market-wide impact of communications, and the potential criminal consequences of fraud. The Securities Exchange Commission (SEC) has brought 209 Internet-related enforcement actions to date. Forty-two percent of the actions were filed in 2000. Until 1999, these cases were simply online versions of basic frauds that had plagued the securities markets. As the Internet has evolved, so too has the nature of Internet fraud with new online “momentum trading” and day trading websites. Among the various types of fraud, market manipulations have been criminally prosecuted most frequently. The most important factor in determining whether to make a criminal referral is the manipulator’s level of intent. The state of mind of the perpetrator is relevant to distinguishing conduct that may be a civil violation of the Federal securities laws from conduct that may also be a criminal violation. In addition to the level of intent, the SEC examines the effect the fraudulent statement had on the issuer’s stock price. Other categories of fraudulent content are offering frauds and illegal touts. The SEC has found that the misconduct witnessed to date is largely covered by existing prohibitions under the Federal securities laws and has made clear its commitment to prosecute fraud occurring over the Internet. 114 footnotes