SEC cracks down on Internet fraud

The US Securities and Exchange Commission (SEC) is planning to get tough on online trading. Speaking in Washington, SEC chairman, Arthur Levitt, laid out measures to reduce the risk for investors and improve the integrity of online broking.

Among the measures is an $11m investment to combat fraudulent Internet stock practices. Levitt said the SEC will double its number of cyberforce attorneys to 250 - enabling it to bring more fraud cases to court.

Levitt also urged online brokers to take greater responsibility for the education of investors into the risks involved with Internet share trading. He highlighted four key misconceptions: that PCs are not directly linked to the markets; that price quotes are only for a limited number of shares; that orders are not immediately cancelled when the cancel button is hit; and that investors should understand the terms of margin payments.

A spokesman for the SEC said: "We need to create more informed investors - the majority of the complaints we get are to do with the private investor not being aware of the risks."

However, Guy Knight, head of European marketing at Charles Schwab Europe, said the risks mainly affect day traders and the UK private investor culture is unlikely to follow the same pattern. "Levitt is particularly talking about day trading where the risks of going in and out of the market using modern technology are far higher than for long term investors. But it will not be such an issue over here because the culture is very different and day trading will not be such a phenomenon."

Michael Walton, CEO at Internet consultancy, NVision, argued that investors could easily reduce the risks if they stick to using brand names. "Many of the larger brokers are policing themselves to some extent already and providing the necessary education. The small rogue brokers are the most dangerous ones for the online investor."