NCPA - National Center for Policy Analysis

Should SEC Take on Internet Fraud?

July 8, 1999

The Securities and Exchange Commission has for decades been on the lookout for fraud in the nation's stock markets. Now it is shifting its attention to scams on the Internet. But experts question whether the agency is capable of accomplishing that task. Also, they suspect that eliminating fraud on computer screens would be impossible.

To begin with, no one -- including the SEC -- knows how much fraud there is and how much it is costing investors.

  • There are 40 million Web sites and an endless array of Internet "chat rooms."
  • Of the SEC's 850 enforcers, just eight work full time on Internet fraud in the agency's year-old Office of Online Enforcement -- with another 200 agency attorneys, analysts and accountants volunteering to sweep the Net for scams a few times a month.
  • The SEC has brought 66 Internet-related cases since 1995 - - including 23 of them last year.
  • The commission receives 200 to 300 complaints daily about potential online securities fraud.

Experts estimate that the agency does not prosecute more than 5 percent of the fraud taking place online.

Last month, the Senate Appropriations Committee approved a 9 percent increase in the SEC's budget -- to $370.8 million. That includes a $10 million increase for fighting Internet-related investment fraud.

Source: Joseph Guinto, "SEC Highlights Internet Fraud," Investor's Business Daily, July 8, 1999.


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