Smith, who last year was ordered to pay US$25 million to EarthLink for sending more than 1 billion unsolicited commercial e-mails over the Internet service provider's network, agreed to pay US$100,000 to settle the case with the U.S. Securities and Exchange Commission. The case is among the latest of the more than 400 Internet securities enforcement actions taken by the SEC during the past eight years.
"These cases are increasing and becoming more complicated," said John Reed Stark, chief of the SEC's Office of Internet Enforcement. "(Smith) had a fairly elaborate scheme to avoid detection, and we're seeing more and more cases like that."
Smith did not return calls seeking comment.
Bulk e-mail allegedly was used to direct potential investors to Smith's Web sites Kryer Investment Financial and Maryland Investments Club. In order to avoid detection, Stark said, Smith used disposable cellular telephones, registered Web sites via aliases, accessed the Web with stolen Internet accounts and required investors to use online payment services that maintain payee confidentiality.
The investment sites allegedly solicited initial payments of US$500 and guaranteed a 10 percent monthly return, with the possibility that return proceeds could climb as high as 20 percent. The Web sites also claimed the principle from the initial investments were backed by the United States Deposit Insurance Corp., a bogus federal agency that had no relation to the Federal Deposit Insurance Corp., Stark said.
"He collected money from people and was supposed to invest it for them, but instead he used it for his own personal means," Stark said.
Like the SEC, other federal agencies that track Internet fraud also are reporting increases in caseloads. The Federal Bureau of Investigation's Internet fraud unit said it referred 48,252 complaints to law enforcement agencies last year, three times the volume of 2001.
FBI officials estimated that the loss from the cases in 2002 reached as high as US$54 million.
