The SEC Can't Regulate Rubes Dave Marino-Nachison (TMF Braden)
December 28, 1999
In a way, it was a classic story of G-man ingenuity: Federal agents, using a suburban Atlanta rental office and fake SEC licenses, pose as under-the-level traders funneling money through a bogus brokerage in order to break up a Colombian drug and money-laundering ring, according to a story from earlier this month.
"A-ha," you might say, "those fools!" Indeed. But those fools could be forgiven for choosing American investment professionals -- often rightly held up as the embodiment of high greed and low virtue -- as the vessels for their dirty dealings.
Those notions cropped up again this afternoon as I read over an item from the Bloomberg wires profiling SEC enforcement chief Richard Walker, who last year assumed the nation's top post in the battle against investment fraud. Author Neil Roland frames the man as a key driver in the agency's ramping up of the speed and frequency of investigations and prosecutions of such common Internet stock scams as chat-room pump-and-dumping.
Any and every step the government takes to stop this sort of thing from happening is good, but it will always be incomplete. Why? Because no amount of SEC regulation and enforcement will protect individual investors from perhaps the most dangerous threat to their net worths: themselves.
Think about it. While it's easy enough to simply say people who fall for this scam or that are simply suckers, consider for a moment the motivations that might cause someone to believe they were on to a can't-miss opportunity.
Simple greed, perhaps? The lure of fast and easy money? A lack of knowledge about or interest in investing that might lead one to accept a "tip" or to pass on responsibility for one's finances to another? Fear of missing out or messing up? A sense of entitlement to big investment returns fueled by a long-running bull market? Pride caused by a string of stock market successes? Need? A disengage with reality caused by too many hours online? Any, all, or none of the above?
Only you know for yourself. The point here, though, is that nowhere in that previous list are found malice, evil, or any kind of criminal intent; those are the province of the perpetrators. The perpetrated-upon, for the most part, are you and me -- regular people with car payments to make, backs to clothe, and Pok�mon to feed -- and the aforementioned list features regular human states of mind and being.
That's why a little Foolish perspective is often worth its weight in jester caps. Fools know that if an investment opportunity seems too good to be true, it probably is. We know a long-term time horizon is, for most people, probably the best way to maximize returns, safety, and peace of mind. We know investing is a learning process and not a lottery -- we even know where to sign up for public schooling on the subject. We know money isn't everything.
In other words, fraud in most cases only happens if you let it. While criminals are criminals and deserve to be busted, a much simpler plan -- which works as well in chat rooms as in dark alleys -- might be not to make yourself a target.
Special Feature, 12/16/99: "Same Scam, New Medium"
Fool on the Hill, 11/19/99: "Do You Invest to Live or Live to Invest?" Buy Zeigletics!