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U.S. Securities and Exchange Commission

Regulators Launch Fake Scam Websites To Warn Investors About Fraud


Washington, D.C., January 30, 2002 — The Securities and Exchange Commission today announced its launch of a series of Web sites designed to warn investors who rush into investment opportunities on the Internet without fully investigating the offers.

Borrowing from the tactics of stock market con artists, the Web sites appear to be investment opportunities offering tremendous financial gains. But anyone who tries to invest is instead led to a page that warns, "If you responded to an investment idea like this…you could get scammed!" The page also tells investors how to research investment offers and where to call for help.

The SEC quietly launched the first of the fake scam sites, www.mcwhortle.com, earlier this month, then issued a "spoof" press release, www.mcwhortle.com/ipogreenlight.htm, to promote it. The press release, seemingly issued by McWhortle Enterprises Inc., boasted that SEC had "pre-approved" the fictitious company's initial public offering. In reality, the SEC does not "pre-approve" IPOs.

The press release was distributed by PR Newswire to hundreds of websites and Internet portals on Jan. 25 as part of the SEC project. As a result, the McWhortle site received more than 150,000 "hits" in just three days.

"We're thrilled with the response," said SEC Chairman Harvey L. Pitt. "In a perfect world, everyone would read our educational brochures before they ran into a scam, but they don't. What we're trying to do is warn investors while their guard is down. The next time, when they encounter a real scam, these investors won't let excitement cloud their better judgment."

The McWhortle site purports to be that of McWhortle Enterprises, Inc., a fictitious company that claims to have developed a handheld, battery-powered biohazard detection device that "emits an audible beep and flashes when in the presence of all known biohazards." The site solicits investments in the company that, in three months, will be "worth more than 400 times the initial investment."

The site features an audio interview, www.videonewswire.com/mcwhortle/012502/event.html, with the CEO and President of McWhortle Enterprises, Thomas J. McWhortle III. SEC staffers provided the voices. The site also features fictitious "testimonials" from a Wall Street securities analyst, a Fortune 100 CEO and a company customer.

The McWhortle site was launched with the assistance and support of the National Association of Securities Dealers, Inc., the Federal Trade Commission, and the North American Securities Administrators Association (NASAA). Other government agencies and law enforcement organizations will assist the SEC with similar sites. The SEC does not intend to publicly identify the additional sites, some of which have already been posted on the Internet.

"The Internet's like a big city, with good neighborhoods and bad neighborhoods, so you've got to be careful," said Joseph Borg, NASAA President and Director of the Alabama Securities Commission. "If you're tempted by an investment on the Internet, call your state securities regulator to make sure the investment and the person pushing it are properly registered. If they're not, forget it." (To contact your state securities regulator, go to www.nasaa.org and click on "find regulator.)

In addition to announcing the fake scam Web sites, the SEC also issued an Investor Alert, www.sec.gov/investor/pubs/investorfraud.htm, to warn investors about investments that promise to pay sky-high returns for what are at best extremely risky propositions -- and at worst are pure frauds. The alert, "High Yields and Hot Air," lists the "red flags" in a solicitation that often send a signal that fraud may be involved. To read the alert, visit www.sec.gov and click on "Investor Information".

The SEC gratefully acknowledges the assistance of PR Newswire, which volunteered its services to support this investor education effort.



Modified: 01/30/2002