The SEC recently initiated enforcement action against 44 individuals and companies for committing frauds over Internet.

The modus operandi is simple. Online newsletters, junk mails and special sites are used for the purpose. The SEC found that the authors touted over 235 micro-cap companies to millions of investors. The Internet touts had received over $ 6 million and two million shares of cheap insider stock and options from the companies in exchange for touting services.

In some cases, they sold the stocks after recommending them to investors or exercised their options, a deceptive practisecommonly referred to as `scalping'. The Internet promoters gave ostensibly independent opinions about microcap companies that in reality were bought and paid for.

One Internet newsletter called `The Future Superstock' recommended 25 stocks to over one lakh subscribers, predicting they would double or triple following the recommendation. In this case, over $ 1.6 million was received as compensation in cash and stock from the issuers of the stock.

In another case, called Stockwatch, five publicly-traded stocks were touted and the authors made a cool $ 1 million in profit by selling those stocks in the markets later.

In all, the SEC sweep cracked down on 23 such cases. Besides, the enforcement action, the SEC has also issued an investor alert to help investors evaluate investments promoted on the Internet. It has a site called `Internet Fraud' which tells investors how to spot fraud and how to use the Internet to invest wisely and avoid costly mistakes.