A web site last year offered investors a cash flow of $600 a month, from leases extended to automatic teller machines.

The appeal seemed realistic: In return for investing $23,950, investors would buy an ATM, then lease it to a company based in Reno.

Investors were guaranteed lease payments, which over a five-year period would return all principal, as well as a yield of 17.4 percent.

It's a solid return, but not crazy sounding convincing enough to cause investors to plunk down cash.

The problem with the offering is that it was a Ponzi scheme, in which early investors were paid from money raised from later investors, according to a restraining order granted to the Securities and Exchange Commission.

The Reno company sold 195 ATMs to investors through the online offer, but bought only 42 out in the real world, according to the SEC. Only two of the 42 ATMs made enough money to make the $600 monthly lease payment, said the SEC.

The SEC won a federal court order against the web site and its operators, and have shut the operation down but not before at least 132 investors lost a combined total of at least $3.5 million.

"The web has become a powerful tool for con artists," said Sandra Harris, director of enforcement in the SEC's Los Angeles office.

There is nothing new about the types of fraud on the web; it is more a matter that the web can quickly amplify the siren calls of investment fraudsters, said John Stark, the SEC's top enforcement officer for Internet-related scams.

"You generally see the same problems. But instead of telephone boiler rooms making thousands of calls to investors, or mass mailings, now you can put up a web site," said Stark.

Online stock market newsletters are another hot spot for fraud, he said. "We have a rule that newsletters have to disclose if they are getting money from companies that they tout. The same rule applies to online newsletters."

Recently, Stark moved to shut down an online newsletter that had received money from more than 125 different public companies it had touted, but the newsletter had never disclosed the source of its funding to web-browsers.

Sophisticated graphics and slick text on web sites can lend credibility to pitches that were formerly made over the telephone or in mailed, paper newsletters, he said.

Stock market-oriented "chat rooms" offer the potential for abuse as well, said Stark. "There's really nothing preventing people from going on the web and touting stocks it's no different from talking on the telephone."

Investors, of course, have First Amendment rights to voice their opinions over the web, and tell anybody who will listen about which stocks are hot, or not, said Stark. Even groups of investors, such as investment clubs, have this right.

That makes it very difficult to separate bona fide investors from those trying deceive investors to boost a stock for personal gain, conceded Stark.

But certain laws do apply, he said. "You can go on the web and say you think a stock is great. But you can't put up a blatant falsehood. You can't take a position in a stock, and then say the company definitely has landed a major contract," he said.

For reprint and licensing requests for this article, CLICK HERE.