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SEC TO START ONLINE SURVEILLANCE SYSTEM

Source: CatalogAge

Posted on June 12, 2000

      Stepping up its fight against securities fraud on the Internet, the federal Securities and Exchange Commission (SEC) in April announced plans to launch an automated online surveillance system to search web sites, message boards, and chat rooms for online fraud. While some catalogers fear that the SEC's surveillance is too "Big Brother" in its approach, others believe that it's a legitimate means to crack down on Internet fraud.

      Though the automated system is still in the planning phase, the SEC currently employs a "Cyber Patrol" of about 240 people who comb the Internet daily for fraudulent practices, according to SEC spokesman Chris Ullman. "We search for exaggerated claims and catch phrases," such as "get rich quick," as telltale signs of fraud. He says the Cyber Patrol surfs "online public spaces, such as message boards and web sites," but does not currently visit chat rooms. The agency has brought more than 125 cases of online fraud to court since the surveillance's implementation in 1995, Ullman says.

      While Ullman says the SEC's primary focus is securities fraud, and that it spends little time searching e-commerce sites for fraudulent practices, some catalogers aren't so sure. "Many of the promotional offers on the Internet may contain words that are absolutely harmless in context, but could be construed as harmful if taken out of context," says Gary K. Landry, president/CEO of Fredericks.com, the Internet division of Hollywood, CA-based lingerie cataloger Frederick's of Hollywood.

      In fact, Landry believes the SEC's online surveillance could actually pave the way for stepped-up government efforts to monitor the Internet, and he questions just how far the SEC would go to protect the consumer. "Will the government send out a 'store patrol' to scour retail establishments? Will it send out a 'catalog patrol' to review all catalogs for questionable business practices?" But not all catalogers doubt the intentions of federal online surveillance.

      "We welcome any group that will clean up fraudulent practices," says Gabriel Ohayon, the director of new business development for Diabetic.com, a Deerfield Beach, FL-based Web cataloger of products for diabetics. "I don't feel like the surveillance is violating our privacy," he says, but rather that it's performing a service for consumers and vendors.

      But even Ohayon thinks that the role of the SEC or any government agency in monitoring the Internet should be limited. "The government shouldn't have a hand in regulation to the extent that it becomes cumbersome." He says that the government should continue to limit its focus to targeting fraud and nabbing get-rich-quick schemes.

      Fredericks.com's Landry believes that a more appropriate measure for the government to take would be to "implement a consumer awareness campaign to educate people about good and bad business practices on the Web." Landry also suggests that the government work with industry trade groups such as the Direct Marketing Association and the Association of Interactive Media to establish standards for business practices on the Internet.




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