Of scams, spams and the stock market

D. Sampathkumar

IMMEDIATELY after the Kannada matinee idol Rajkumar's abduction by Veerappan and his gang, a chain e-mail did the rounds among Internet users in this part of the world.

It spoke of some politics among officers of the special task force constituted for nabbing Veerappan, that elusive fugitive from law. According to this e-mail, members belonging to the Indian Police Service (IPS) manoeuvered to ease out an officer not belonging to that cadre from a key position within the special task force.

The e-mail insinuated that since the officer had specialised knowledge of the terrain and the brigand's hideouts, his departure had something to do with Veerappan's latest adventure. So credible did the mail appear to its readers that the substance of this communication was soon picked up by others in the mass media.

After all, the fight between IPS and non-IPS officers must be as old as the hills, and in no time at all the item was the subject of heated debate among pensioners sitting down on the beach sands for a chat after their daily constitutional.

The point is not whether the substance of the communication is true. It might well have been. On the other hand, someone might quite as easily have floated it with the aim of settling a private score.

The issue here is about the power of the Internet as a medium of mass communication. It is about the power to reach out to a large number of people within the shortest possible time and at practically zero cost. This, the Internet achieves with great felicity. But of course there is a downside as well.

It is precisely because the Internet offers a fast and cost-effective means of reaching out to a vast audience that it has been hijacked by con artists to float any number of get-rich schemes that are calculated to make their sponsors richer rather than the gullible participants.

This newspaper is inundated everyday with a number of such schemes. Considering that the paper's mail-servers have their own filter to block out such unsolicited e-mails, the ones that break through can only be a fraction of the number that bombards the system everyday. Yes, there is no question that there is a bull market in schemes that offer the e-mail subscribers the opportunity to earn five figure incomes (in dollars, mind you) at the mere click of a mouse.

There are any number of schemes that are doing the rounds in cyberspace. There is, for instance, a scheme that offers the subscriber a credit card facility where outstandings would attract an interest rate no more than 7 per cent. But by far the most popular one is a plain vanilla scheme which requires the e-mail subscriber to send a mere $5 for a copy of some report, payable to the person whose name appears against it.

The scheme talks of four reports and the person from whom the first report has been ordered moves down the list to be eligible to receive the order for the second report, this time from the first new customer that the present target customer is able to rope in. The person whose name appears against the fourth and the last report goes out of the loop. It is all very complicated and it is yet unclear how the sponsor of this scheme gains from all this.

Are these schemes popular? It appears so, considering that the Federal Trade Commission in the US has sounded a note of caution to prospective victims of such schemes. It has even moved in against some of these schemes and obtained favourable judicial rulings in a few. But its success thus far has been against those that are outright fraudulent.

In one case of a credit card scheme with a low interest rate, it turned out that the advertiser has no such scheme in force but simply cashed in on the initial payment from victims ordering this wonder credit card. But where a scheme targets victims with a promise of supplying an educational tract -- here is a sample: Insider's guide to sending bulk e-mail on the Internet -- it skirts the thin line between outright fraud and multi-level marketing, which is legal.

After all, all that the scheme offers is a report, in electronic form no doubt, but a piece of merchandise nevertheless. If the scheme's success rests on creating of network of distributors in a chain-link fashion, the arrangement is not dissimilar to any network marketing made popular by Amway or Tupperware.

The spread of Internet use has helped confidence tricksters target gullible investors right across the globe in a cost-effective way. If a fraudulent message can reach out to a 150-million audience (the estimate of e-mail subscribers around the world), then the pay-off in the response from even one in thousand, can be astronomical.

But Indians need have no fear. Of course they will still have to contend with the Indian laws on foreign exchange transactions by resident Indians. But this should not worry them too much. The Western world offers a vast pool of potential victims to choose from. So these scam artistes are not going to be out of business for quite a while.

The success of such ventures depends crucially on investor perceptions about these schemes. Investors are willing to have a go at the most improbable of schemes that promises quick riches, provided the outlay on such ventures is modest. He is fair game for any scheme that demands of the investor a small stake -- no more than a few hundred rupees at a time.

But the claims of payoffs must be credible in some measure, however far-fetched it may seem otherwise. Such a process of reasoning operates in the real world of the stock market as well. There may be no evidence as yet to support the valuation of Internet start-up ventures. Yet the prospect of consumers ordering their requirements over the Net in the not-too-distant future seems so credible that investors are willing to back these ventures with fancy premiums.

That even the more sophisticated among investors fall for such schemes is entirely understandable. The belief in the existence of a `greater fool' is well-known in the stock market. So, even if they themselves do not believe in the viability of such schemes, they certainly believe in the notion that there are countless other gullible investors who could be persuaded to believe in them -- a case of hubris triumphing over rationality.

A combination of the gullible and the sophisticated who believe in the gullibility of others pretty much covers the whole market of consumers for such schemes.