Federal regulators, on the lookout for phrases
such as "get rich quick," are creating an automated surveillance
system to search Web sites and message boards for investment fraud.
But a major accounting firm says it won't participate because
the Securities and Exchange Commission's new system might encroach
on the privacy of innocent people using the Internet.
The technology in the enhanced SEC surveillance program "is
equivalent to, in my opinion, wiretapping ... the equivalent of
planting a bug," said Larry Ponemon, a partner in charge of
privacy issues at PricewaterhouseCoopers, one of the world's
largest accounting and consulting firms.
The firm was among 107 companies invited by the SEC in January
to bid to operate the system. It told the market watchdog agency it
did not wish to participate because of privacy concerns and
possible violations of the Constitution's protections against
unreasonable search and seizure.
"It's a search and seizure issue," Ponemon said Tuesday in a
The SEC says it will not gather e-mail messages or other
communications unless they appear in public online forums and will
throw away any collected information that doesn't indicate
wrongdoing. The agency said Tuesday that Internet chat rooms will
not be covered by the new surveillance system.
"Privacy issues are of long-standing importance to the
commission and we pay close attention to the letter and the spirit
of the law," said SEC spokesman Chris Ullman.
He said the new system, which would copy online material into a
database to be analyzed by SEC investigators, "will mechanize what
the commission now does by hand."
The SEC's project was first reported Tuesday in The Wall Street
Journal. The newspaper noted that Internet titan America Online
Inc., many of whose message boards and chat rooms are home to
discussions of stock investments, prohibits anyone from harvesting
information from them because of privacy concerns.
Consequently, AOL might oppose the federal agency's project, The
Journal suggested. Spokesmen for AOL declined to comment to the
newspaper, and AOL spokesman Rich D'Amato would not comment
"This is government spying on the innocent," said George Getz,
a spokesman for the Libertarian Party. "It's no different than the
police tapping everyone's phones just because someone might have
committed a crime."
Ponemon praised the SEC's goal of beefing up its monitoring of
the Internet for fraudulent investment activity. But he said other
technologies could be used notably electronic "cookies" that
track personal activity online that would respect constitutional
boundaries and still be more effective than the SEC's current
Ponemon suggested that certain types of cookies would be less
intrusive than the Web "crawler" called for in the SEC's project,
which would scan the Internet for as many as 40 telltale words or
phrases. A cookie is a small file that a Web site deposits on an
individual's hard drive, often with a unique number that identifies
the user's computer.
Marc Beauchamp, executive director of the North American
Securities Administrators Association, noted the delicate balance
between the government's need to pursue investment fraud and its
duty to protect privacy.
Still, he said, "The crooks are using the new technology at
hand and the cops need to use the technology to stay ahead of the
Internet fraud is proliferating in online junk mail, chat rooms
and Web sites, with unscrupulous stock promoters anywhere in the
world able to cloak themselves in anonymity and lure investors.
Last month, the SEC asked Congress for $150 million for
enforcement and investor education for fiscal 2001. It has some 240
people prowling the Internet for scams.