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SEC's bogus IPO release used to `teach investors'

"Doesn't the SEC have anything better to do?"

Patrick McGurn, vice president of Institutional Shareholder Services

The US Securities and Exchange Commission, the main regulator of the securities markets, published a bogus press release touting a fictitious company's initial public offering to show the investing public how easy it is to get scammed.

In a statement distributed by PR Newswire Association Inc, McWhortle Enterprises, which the press release describes as a maker of anti-terrorism devices, announced its offering was "pre-approved" by the SEC for sale Jan. 30. PR Newswire agreed to disseminate the statement if it could alert Bloomberg News, Dow Jones News Service and Reuters that the release was a fake.

Anyone who calls the telephone number given for McWhortle Enterprises will get the following message from the SEC's Office of Investor Education: "See, you could have been fooled."

An attempt to look at McWhortle's financial statements on its Web site reveals a link that says: "If you responded to an investment idea like this ... You could get scammed!"

The SEC then directs investors to a site that illustrates telltale signs of online investment fraud.

SEC Chairman Harvey Pitt is pushing the agency to broaden public awareness of Internet scams, said a person familiar with the SEC proposal.

An SEC spokesman declined to comment.

"This is just a dopey idea," said Patrick McGurn, vice president of Institutional Shareholder Services, an investor advisory firm. "Is this going to confuse investors? Doesn't the SEC have anything better to do?"

In the past three years, PairGain Technologies Inc, Lucent Technologies Inc, Emulex Corp and other companies have been victimized by phony press releases published on the Internet and electronic news and information services. Law enforcement agencies arrested the people responsible for most of the hoaxes.

Asked about the ethics of agreeing to issue such a release, PR Newswire President David Armon said, "The credibility of our service is very important to us and transmitting a bogus press release is not something that PR Newswire takes lightly."

Armon's group distributes press releases over 3,500 Web sites and reaches an estimated 1 million computer screens worldwide.

"We have a tremendous number of systems in place to guard against any real-life situations where false content moves on our circuit," Armon said.

"We're doing this because the SEC is the partner and its goal is investor education."

Barbara Roper, director of investor protection at the Consumer Federation of America, described the SEC release as "very creative."

The agency, she said, "is clearly not in any way trying to take advantage of people. They're trying to teach them a lesson that will help them protect themselves in the future.

"I don't see any ethical problems with this."
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