There’s a sucker logging on every minute

When one of the hottest technology startups in recent memory unveiled its product line on Wednesday, thousands of unsuspecting investors simultaneously had the wool lifted from their eyes.

The scene: Washington, D.C. The place: the William O Douglas conference room in the United States’ Securities

and Exchange Commission (SEC) headquarters. The event: a press conference for the highly-touted (and highly secretive) McWhortle Enterprises. Developers of a ground-breaking handheld Bio-Hazard Alert Detector, the company looked like a good bet because the SEC had taken the unusual step of “”pre-approving”” its initial public offer (IPO) because it said the nation needed this kind of device after the terrorist attacks of Sept. 11.

As a result, cash-hungry investors responded in droves. In the last week, more than 150,000 people visited the firm’s Web site, which promised a 300 per cent return on investment within three months.

“”I’m extremely excited about our prospects,’ said CEO and president Thomas J. McWhortle in a public statement. “”We’ve got an established company with a solid track record, and now we’ve got a can’t-miss product that customers are fighting to buy. In each of our test markets the product instantly sold out, with no advertising whatsoever.’

At the crucial moment when McWhortle was to officially file its registration, however, the SEC admitted the truth: it had made up McWhortle Enterprises and its Web site as a way of demonstrating how the Internet can be used to scam the investment community.

This practical joke gets even better when you visit the McWhortle site. In hindsight, it’s easy to behave as though you wouldn’t have been fooled, but don’t kid yourself. The product looks real (although it suspiciously resembles a Star Trek tricorder, and the requirement of two double-A batteries seems too good to be true). It also has some testimonials so perfect I couldn’t have written them better myself. “”I didn’t have to think twice when Tom McWhortle called to line up financing,”” says “”A.F.,”” an analyst with a “”major investment banking firm.”” “” They don’t need this product line. They are only doing it because they’ve always been patriotic Americans.”” An anonymous CFO from a “”major Fortune 100 company”” says, “”We’ve used products from Tom McWhortle’s company for years now, and we’ve come to depend upon the high quality that he insists upon.””

When news of the prank broke, critics were quick to pounce on the SEC for sinking to such “”unseemly”” tactics. “”Is this going to confuse investors? Doesn’t the SEC have anything better to do?”” one expert asked Bloomberg News.

On the contrary, this is one of the most innovative and effective techniques I’ve ever seen from a regulatory body. It is important to note that no one really got hurt from the phony IPO: interested investors were given a phone number to call, where they were informed of the ruse and offered advice on how to properly research potential investments like McWhortle. By getting the public’s attention, by making them feel so foolish that they finally appreciate how easy it is to be duped, the SEC hoax did everything an awareness campaign should do. We are not used to this kind of technique from a public sector organization like the SEC. Normally their official warnings come off like the admonitions of a disapproving parent, and many people dismiss them as being out of touch with what is really going on in the market.

By tackling Internet fraud in such an unorthodox way, the SEC is demonstrating a savvy brand of leadership. More than that, it has proven that there are still easy pickings among the greedy sheep that turn to the Internet to make a fast buck. If they’ve learned their lesson, those sheep may face the next over-hyped IPO with the same healthy skepticism that greeted the boy who cried wolf. For that they will have the SEC — and Thomas McWhortle III — to thank.

sschick@plesman.com

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