Rise in Net Securities Fraud Could Overtax SEC, GAO Says

Securities regulators may be ill-equipped to stop the increasing number of fraudulentinvestment operators that use the Internet to lure unsophisticated investors, government auditors said Monday.

The Securities and Exchange Commission has seen a rise in Internet fraud complaints and the agency could reach a point at which it won’t have enough investigators to look into all credible allegations, the General Accounting Office told a Senate panel.

“The potential exists that the rapid growth in reported Internet securities frauds could ultimately place a significant burden on the regulators’ limited investigative staff resources and thereby limit the agency’s capacity to respond effectively to credible fraud allegations,” said Richard J. Hillman, GAO associate director for market issues.

The GAO, at the request of the Senate Government Affairs Committee’s investigations subcommittee, reviewed SEC and state efforts to protect consumers from fraudulent investment schemes peddled over the Net through online bulletin boards, chat rooms, newsletters and mass e-mailings.

Victims of illegal securities sales that used the Internet have suffered losses ranging from $18,000 to more than $100 million, said the GAO, the investigative arm of Congress that analyzed current regulatory efforts aimed at addressing Net securities fraud. The SEC’s 935-person enforcement staff includes three full-time people and about 125 volunteers who work part time to check for Net fraud-related activities, according to the GAO and SEC.