Spinning a Web of lies

Share-rampers have hit the Internet. The question is: can they be stopped? By Teresa Hunter

They were called the Praetorians, the big, bad wolves who threatened to destroy the American economy by hacking into Wall Street - before they were outsmarted by a lonely anorak in the form of Sandra Bullock.

All very crass. Or it should have been, if recent events hadn't exposed just how uncomfortably close to reality the fantasy of Bullock's sci- fi film The Net had brushed.

The risks of investing on the World Wide Web were finally brought home when private investors lost tens of thousands of pounds each after a hoaxer placed a bogus website on Yahoo Finance, a share-trading-tip notice board.

His bulletin leaked rumours of a takeover bid by the Israeli company ECI for the small Nasdaq-listed PariGain Technologies of California.

Only there was no bid. But this didn't stop its share price rising sharply from $8.5 to $11.13 before falling back to $9.38 dollars on the back of the euphoria. More than 14 million shares changed hands, compared with a normal two million daily trades.

Share prices have always moved on whisper and rumour; with bogus speculation catalytic to investment disasters from the South Sea Bubble to the 1929 Wall Street Crash. But concerns are mounting that the Internet may be particularly vulnerable to illegal share- ramping operations, leaving the enthusiastic but guillible small investor most badly burnt.

Bloomberg's European managing director Lex Fenwick says: "This is the great joy but also the great danger of the Internet. It is so big that no one knows who is putting everything up or whether there is any truth in any of it. Anyone can make a website. That's what makes it so exciting, but so very, very scary."

Another industry insider, who does not wished to be named, goes much further. He says: "I suspect that what happened last week happens all the time. But on this occasion it got out of hand, the price rose higher than usual, people lost a lot of money and they got mad. That's why it became a story.

"But there are probably hundreds of smaller, similar stories going on all the time, which we never get to hear about. The truth is, we just don't know the scale of the deception, and anyone who says he does is a liar."

The temptation to spread unfounded rumours about a share is enormous. Pull it off and you can make a fortune as easily as printing money. You buy stock cheaply, post some hot gossip about a takeover or similar on a bulletin board, watch the share soar, sell high and pocket the difference.

Alternatively, if you bought some dud stock, and want to minimise your loss, spread some rumours in an Internet chat room, and if you're lucky the price will ease off its bottom, and you'll be back in the red.

But there are also strong reasons why companies would play this dangerous game. A predator might try to drive down the value of a company it wished to buy by spreading spurious scandal. Another in the doldrums might try to rachet up its share price by faking good news.

Naturally, all these activities are illegal throughout the Western world, and there are tough laws in place to guarantee stable markets.

Barclays Stockbrokers managing director Tom Sheridan says: "It is in the vital interests of all governments to ensure that capital markets are open, honest, transparent and secure. This is an absolutely necessary function of any economy.

"History tells us that in any industry there are people who will try to get something for nothing. But if markets are well regulated, such people will not succeed for very long."

In the UK it is a criminal offence to give financial advice without proper authorisation, and the Financial Services Authority, the City watchdog, says it will pursue anyone offering unauthorised advice which is available to a UK Internet user, wherever in the world it emanates from.

But the reality is a little more complex. A spokesman for the FSA admits that the nature of the Web means that enforcing the law is not always straightforward.

There are hundreds, if not thousands of Internet share-information lines, the most reliable of which include well-known names like Bloombergs, Barclays, Charles Schwab, American Express, Dow Jones, Standard & Poors or the Financial Times.

Then there are the racier yet nevertheless reputable services like Motley Fool, at fool.com, a gossipy tipster with chat rooms which is very popular in the States. Scores of similar tip sheets can be accessed through normal search facilities like Jeeves Money or Yahoo Financial.

Finally there are volumes of dubious "hot tips" circulating from unknown sources, which are almost impossible to trace and substantiate.

The difficulty is separating the wheat from the chaff, as the PairGain Technologies episode proved. The hoaxer had deliberately constructed his website to look like a Bloomberg report, to achieve maximum impact.

Counterfeiting in this way has never been easier than with the Net. You simply pull up some pages, and download a design. Nothing could be simpler to then change the information contained and repost the page.

As the neurotic Bullock said in The Net: "It's all there just begging for someone to screw with. They've done it to me and they'll do it to you."

HOW TO BEAT THE INTERNET CHEAT

l Never buy off an Internet tip any more than you would act on something you overheard in the pub.

l Never act on one source of information alone. Always get confirmation elsewhere.

l Study the website address carefully. A hoaxer may counterfeit a page, but only Bloomberg can use its website address. Check with the organisation behind the address whether a page with its name is bogus or not.

l Check any contact telephone numbers.

l Always deal through reputable organisations.