Have you been taking tips from message boards ?

With stock markets booming, all kinds of investors have been flocking to the dalal street these days (not in the real sense though). One of the things that have mushroomed over the past few years are the "message boards" on various personal finance cum market news sites.

A "message board" is an internet forum for holding discussions, allowing people to post messages and comment on other messages. Not just this, websites these days offer forums dedicated to topics. Famous among these topics is -- stocks and stock markets. Hundreds and thousands of some smart and some not so smart investors/speculators/traders are actively participating in these.

While participating and holding discussions is ok. What one needs to worry about is whether the common man is taking investing decisions based on the stock ideas/tips/hot stocks posted on these forums. Most of the discussions taking place on these internet forums can be used to cheat investors since there is a big question mark over the identity of the person on the other side of the forum.

A 15 year old kid was caught doing a similar act in the US in 2000. He was later on fined by the SEC for over USD 200,000. Here is an excerpt of a news article on the same -

On Sept. 20, 2000, the SEC settled its case against a 15-year-old high-school student named Jonathan Lebed. The S.E.C.'s news release explained that Jonathan -- the first minor ever to face proceedings for stock-market fraud -- had used the Internet to promote stocks from his bedroom in the northern New Jersey suburb of Cedar Grove. Armed only with accounts at A.O.L. and E*Trade, the kid had bought stock and then, "using multiple fictitious names," posted hundreds of messages on Yahoo Finance message boards recommending that stock to others.

He had done this 11 times between September 1999 and February 2000, the S.E.C. said, each time triggering chaos in the stock market. The average daily trading volume of the small companies he dealt in was about 60,000 shares; on the days he posted his messages, volume soared to more than a million shares. More to the point, he had made money. Between September 1999 and February 2000, his smallest one-day gain was $12,000. His biggest was $74,000. Now the kid had agreed to hand over his illicit gains, plus interest, which came to $285,000.

Ranjit thanks for pointing me to this article.