Securities regulation is an area of the law in which existing rules are being rendered obsolete by technological developments. Recent Securities and Exchange Commission (SEC) enforcement actions involving Internet fraud can be categorized as “cyberhype” and may involve fraud if the promoter makes material misrepresentations, fails to disclose its intention to dispose of its stock at a profit into the rising trading market that develops after such promoter's recommendation, or fails to disclose that it promoted the stock for compensation. This article focuses on the SEC lawsuit against Yun Soo Oh Park, a/k/a “Tokyo Joe,” a case that was settled after pre-trial litigation and that offers interesting insights into the legal theories used to support the SEC's enforcement proceedings in this area. This article argues that such theory, based upon the existing antifraud provisions of the securities laws, is inadequate to deal with this new type of securities fraud in a coherent manner. Revised measures that take into account the nature of cyberspace transactions are needed to ensure that the securities regulatory scheme provides greater certainty and adequate notice to market participants. Specifically, Part II of this article examines the growing phenomenon of Internet securities fraud and the SEC enforcement program initiated to combat it. Part III critiques the Tokyo Joe enforcement action as an example of the confused jurisprudence that may develop when pre-cyberspace laws are used to prosecute alleged fraud involving Internet investment advisers and points out the need for reform. Part IV argues that securities fraud in cyberspace must be treated differently than securities fraud involving conventional communication media and proposes an alternative regulatory model for the new breed of online advisers that takes such differences into account.
Constance Z. Wagner,
Securities Fraud in Cyberspace: Reaching the Outer Limits of the Federal Securities Laws,
80 Neb. L. Rev.
Available at: http://digitalcommons.unl.edu/nlr/vol80/iss4/7