Net fraud alert

PUBLISHED : Sunday, 21 May, 2000, 12:00am
UPDATED : Sunday, 21 May, 2000, 12:00am

The Securities and Futures Commission (SFC) is stepping up efforts to protect investors from growing illegal activities on the Internet relating to securities and futures markets.

The local watchdog, a member of the International Organisation of Securities Commissions (Iosco), says the severity of illegal on-line activities in the securities and futures markets prompted the world securities watchdog body to step up its measures to protect hapless investors.

The SFC recently took part in an international Internet Surf Day arranged by Iosco. Iosco members worldwide simultaneously surfed the Internet in an attempt to identify possible illegal activities relating to the securities and futures markets.

About 220 representatives, with their own surveillance programmes, visited more than 10,000 sites during nearly 1,000 hours of global participation.

The SFC along with 20 securities and futures regulators from 17 countries identified more than 1,000 Internet sites for follow-up review. They included 250 sites which involved cross-border activity.

SFC officials, including chairman Andrew Sheng, have warned of investment frauds, which, they say, are flourishing on bulletin board services, informal Web sites and chat rooms.

'Investors who surf the Internet looking for good investments should keep a close eye out for sharks,' cautioned SFC executive director of enforcement Paul Bailey.

'It allows instant access to opportunity but the power of the Internet can be and has been abused by people who seek to prey on unsuspecting or unsophisticated investors,' he said.

Iosco technical committee chairman Michel Prada said: 'Regulators must be ready to act when necessary and investors must be mindful of those risks.' The SFC will strengthen its efforts in investor education and boost Internet surveillance on a continuous basis.

In addition, it said it would continue to work together with regulators in other countries to share information and technical expertise in the fields of detecting, deterring and investigating securities and futures frauds.

'We consider investor education key to investor protection, and have run a pro-active public education programme through all available media,' an SFC official said.

Its key messages include investment risks, rights of investors under the current regulatory regime and investors' responsibility to safeguard their own interests.

Iosco warned that investment fraud would reach epidemic levels in the next few years if it was not carefully monitored.

It said regulators should monitor the Internet for early detection of such activities, which have the potential to spread like a bushfire with many users still unaware of the major rip-off techniques.

The SFC used its Internet surveillance programme - which involves daily monitoring of Web sites, chat-rooms and bulletin boards - to detect activities which target Hong Kong and which may infringe on legislation the SFC has to enforce.

'We concentrated on fraudulent solicitation of investors, manipulation, the circulation of false or misleading information and insider trading. We found eight suspicious sites out of 115 surveyed. The sites were in seven jurisdictions, including one in Hong Kong that is being investigated,' an SFC official said.

One of the co-operative measures involves passing on information of any potential illegal activities, gleaned from the surveillance of the Internet, to regulators in other jurisdictions which could be involved.

When considering if Hong Kong is the target, the SFC takes into account factors such as the nature of the business and whether a local distribution agent is used.

It said Hong Kong's problem with on-line scams involving securities and futures products was, so far, not at such a serious level as the ones facing regulators in other countries such as the United States and Australia.

So far, Hong Kong had just two cases of Internet investment fraud, the SFC said.

The SFC has prosecuted an individual for carrying on a business of leveraged foreign exchange trading without being licensed, and is taking disciplinary action against a registered intermediary for attempting to recruit introducing agents.

However, the watchdog saidthere was a limit to any regulator's abilities to protect investors from Internet swindlers.

It said the best-possible protection was investors themselves to exercise vigilance over their interests.