Web Investment Con Artists Prove Elusive, Insufferable to Regulators By RIVKA TADJER Special to THE WALL STREET JOURNAL INTERACTIVE EDITION When it comes to con artists who target individual investors, none are proving to be more elusive -- or more infuriating -- to federal regulators than Internet scammers. The explosion of Internet investment fraud has prompted the Federal Trade Commission, in cooperation with the Securities and Exchange Commission, the Department of Justice, and Federal Bureau of Investigation, to coordinate elaborate surveillance tactics to combat these on-line con artists, says Paul Luehr, attorney and chairman of the FTC Internet Coordinating committee, which oversees law enforcement. Although many investors are becoming more savvy about dubious investment claims posted on the Web, fraud still abounds. Investors who use the Internet for research and discussion need a healthy dose of skepticism when visiting any investment Web site. Barry White, a 40-year-old CPA in Charlotte, N.C., and, ironically, now a fraud examiner, says he learned this lesson the hard way. Last year, he became the victim of what the FTC called "an elaborate, electronic version of a chain letter" called Fortuna Alliance. But he thought his nightmare was finally over when the FTC in the spring of 1997 nabbed the operators of Fortuna Alliance and shut down its Web site. Customers of Fortuna Alliance, the Bellingham, Wash., company charged with conducting the operation, were told that if they "invested" between $250 and $1,750 a month, they could get back $5,250 monthly. Fortuna Alliance took in at least $5 million from people like Mr. White, according to the FTC. Mr. White had been optimistic that with the FTC on the case, he might actually get back some of the $5,000 he sunk into Fortuna Alliance's pyramid scheme. But now he's losing hope. And he has discovered that the operators of the on-line scam are back in business. The principals of Fortuna are now living offshore in Antigua and have set up a new Web site (www.fa2.com), says Susan Grant, director of the National Consumers League Internet Fraud Watch in Washington, whose mission is to use collective consumer opinion to influence business practices. The Fortuna site's operators are so brazen that they haven't even bothered to change the name, she says. Fortuna officials would not return phone calls. "One thing is true about Web scammers -- they are so arrogant. Fortuna just put up a new Web site recently and went back in business," she says, lamenting that "there will always be plenty of people who don't check with us or the FTC to see whether there are law suits against an investment site." "I think it's pretty poor that the FTC can't get them," says Mr. White, who says he testified before a Senate committee hearing on the matter of Internet fraud last month "more for community service at this point than to actually get my money back. I don't want other people to get screwed." Indeed, law enforcement in cyberspace may be one of the toughest challenges government agencies face. "We're out there and making headway, but a global community where scams can pop up today and disappear tomorrow is a big job," says Mr. Luehr. The Fortuna Alliance Web site is a classic example. It's cheap to set up a new Web site under a slightly different name, and since there is no legal recourse for Internet service providers to judge what sort of sites they are hosting, the Fortuna principals could theoretically continue to operate indefinitely. One of the most frustrating problems for regulators is that individual investors often overlook important warning signals that are universal in scam Web sites. Mr. White, the investor, says he wasn't uncomfortable at all with sending his money order for $5,000 to Fortuna Alliance, even though he'd never once spoken to a Fortuna official about the details. "There were very detailed on-line documents that promised a 90-day money-back guarantee," he said. "They said they were launching a huge ad campaign ... and my return on investment would be quick." Two months later, Mr. White quite unexpectedly discovered he'd been scammed. "I just happened to put in the keyword 'fraud' on one of the [Internet] search engines ... and news that the FTC had just shut them down popped up." Looking back, Mr. White says, he should have been tipped off that it was an Internet scam by one red flag: After many attempts he was never able to get a Fortuna representative on the phone after he made his initial investment. The good news for consumers, however, is that conducting due diligence on investment sites is extremely easy using the Internet. The National Consumers League, and the FTC, SEC, and FBI Web sites all have fraud watch updates that allow consumers to e-mail questions and file complaints on-line. This kind of interaction is crucial, experts say, to detecting Web fraud. "We follow leads and need as many tips ads we can get," says Mr. Luehr. The bad news, however, is that on-line cons can go undetected for years and new mutations of old cons that take advantage of the Internet technology are popping up all the time. "One way we see the investment scams mutating is the combination of loan fraud and pyramid schemes," says the National Consumers League's Ms. Grant. "The con artists make use of spam to get investors." She cites a recent Las Vegas pyramid scheme that promised a $59,000 loan for those who mail in $20. It works like this: An e-mail arrives offering a chance to apply for a loan that you'll never have to pay back. All you have to do is mail in a $20 "processing fee." Mr. Luehr of the FTC says investors who have already fallen for one on-line scam should be especially cautious. "These scammers sell lists of names -- like any marketers -- and the ones that have already been suckered are considered prime targets," Mr. Luehr says. Mr. White will vouch for that. "I get phone calls all the time now for new 'get-rich' investment opportunities," he says. He says other red flags for investment fraud are sites that demand money upfront, and those touting "money-making opportunities" that promise a quick return with minimal risk. Ms. Grant agrees these are the two top signs of an investment scam. But it is not always so simple. Con artists understand all too well the appeal of high-tech investments to investors world-wide as scammers capitalize on investors' desire to be in on the ground floor of the next Netscape. So many are turning to cloaking pyramid schemes in high-tech language, Mr. Luehr says. "FutureNet was a perfect example," he says. "They used buzzwords like WebTV to lure investors and give the products a legitimate-sounding air." Similar sounding technology names add to the confusion. For example, the name "WebTV" is so familiar to the average consumer that many fraud schemes involve giving products or companies names such as NetTV. "This is such a problem we have set up 'Operation Net Opp', which is a surveillance task force to watch out for precisely this sort of high-tech fraud," says Mr. Luehr. - Igor.