The National Association of Securities Dealers kicked off a campaign yesterday to warn consumers of the dangers of relying on Internet hype to pick stocks.
"The Internet is one of the most important communications tools ever developed," said Mary Shapiro, head of the NASD's regulatory arm. "But it's absolutely critical for investors to understand that information and messages posted anonymously on line should be viewed with caution and a healthy dose of skepticism."
NASD investigators said they have noticed a correlation between the rapid stock-price rise in several small companies and numerous messages posted on the Internet that tout the companies, Miss Shapiro said.
One such company was Comparator Systems Corp., a Newport Beach, Calif., maker of fingerprint identification equipment. The company's stock rose from 6 cents a share to $1.88 in the three days before the NASD suspended trading in the stock in May.
The NASD, which monitors Internet activity, noticed a high volume of Internet traffic about Comparator in the weeks leading up to the company's rapid stock rise, Miss Shapiro said. Investors lost millions of dollars when the stock dropped down to its current trading price of 3 cents a share.
"Investors need to understand that while they might be reading honest conversations, they could just as easily be looking at the work of a corporate insider, stock promoter or other …