Securities Fraud in Cyberspace: Reaching the Outer Limits of the Federal Securities Laws

This article discusses the increasing use of the Internet for securities transactions, the growth of securitiesfraud perpetrated through that medium and the Securities and Exchange Commission (“SEC”) enforcement program initiated to combat it. The author critiques the position taken by the SEC that the existing anti-fraudprovisions of the federal securities laws can be stretched to cover Internet fraud. Using an enforcement action brought by the SEC against an online stock trading guru named Tokyo Joe as an example of the confused jurisprudence that results when pre-cyberspace law is applied to securities fraud in cyberspace, the author proposes a different regulatory model for online investment advisers like Tokyo Joe that takes the differences between the online world and the world of conventional communications media into account. The author proposes a new source of fiduciary duty in the online context, namely the formation of virtual stock trading communities, which duty would include good faith and fair dealing with investors over the Internet