'We saved them a lot of embarrassment,' was the taciturn verdict of Tommy Helsby, senior executive with corporate security firm Kroll Associates. Embarrassment and probably a lot of money. Helsby was referring to one of his clients, a US internet giant, which was recently poised to launch in the UK. What the US dotcom didn't realise was that the head of the company it had chosen as its UK partner had been convicted of peddling indecent material.

Maybe this was something that would not have worried the US firm's investors had they known. But the fact that the company had been kept in the dark by a potential business partner set the alarm bells ringing; the deal was pulled.

With internet companies rushing to enter new markets as part of a frantic land grab, online firms are ignoring lengthy auditing procedures - designed to check the quality of their investors, business partners or staff - in a bid to beat the pack. This highlights the extremely fragile, get-rich-quick nature of the dotcom sector.

Typically, Kroll would expect to find problems in 10 per cent of the people it ran background checks on - but last week the company sent shockwaves through the dotcom sector when it published a survey showing that senior executives at internet companies are four times more likely to have what Kroll diplomatically describes as 'unsavoury backgrounds'. To put it another way, of the 70 'due diligence' background investigations performed on key internet personnel by Kroll between April and September this year, 39 per cent of the subjects had been involved in illegal activities such as stock market violations, undisclosed bankruptcy and insurance fraud. These are all issues that would have raised huge corporate governance concerns and sent investors fleeing.

Often those checked by Kroll were the senior personnel drafted in by the young, relatively naive, founders of dotcom firms looking to add experience to the board in a bid to attract further funding. Venture capital firms are usually wary of injecting cash until the management board has been beefed up with executives who have experience of running companies, not just starting them.

But with background checks taking an average of six weeks to complete, some dotcom firms find they haven't the time to examine their new executives' credentials.

Many in the dotcom sector expressed little surprise. 'We've looked at loads of dotcom companies, and in many cases it's always been quite clear that the management was never up to scratch,' said a spokesman for one US bank that invests in internet firms.

An analyst with an internet research firm agreed: 'Given the huge amount of hype, it's not surprising that the sector would end up attracting some of the less credible types.'

But it is not just the managements of some start-ups who represent the Wild West spirit of the darkest corners of the world wide web. Some of those seeking to back the firms have dubious backgrounds as well. 'We've had cases where people have come to us because they've been approached by mysterious people, usually based in an offshore tax shelter, who wish to invest big amounts of money,' Helsby said. 'These people would say "we don't want to invest the $2 million you're asking for. We want to invest $5 million".'

He offers three possible responses for any dotcom company that finds itself in this situation. One: The people involved are unbelievably stupid, so don't deal with them. Two: They are money launderers, so don't deal with them. Three: They are scam artists looking to control the business in order to take it public and pump it out to gullible investors.

This so-called 'pump and dump' habit is now increasingly common on the web. Investors pile into a company (usually penny stocks so that there is little liquidity, allowing for much greater price volatility), hype it in internet chat rooms, wait for the stock to soar and then sell at the peak.

These types of schemes have been around for years but the emergence of the internet means they are now much easier to pull off. As Arthur Levitt, chairman of the Securities and Exchange Commission, said recently: 'The internet, with its low-cost anonymity and large number of innocent investors, makes it ripe for out-and-out fraud.'

First, the hype around the actual internet stocks themselves has made investors more gullible and thus more hungry to take part in such schemes. Second, the internet as a medium has made it easier for more investors to get sucked into the mania, no matter where they are based.

The most famous example so far came earlier this year when Eulex Corp, the giant US networking equipment maker, saw more than $2.5 billion wiped off its market capitalisation in only a few hours after a fake press release, sent to various newswires, claimed it was having to adjust its earnings and was consequently being investigated by the SEC. Investors dumped the stock, allowing those who had posted the warning to sell short and make a killing.

As if to illustrate just how easy such schemes are to perpetrate (if not to get away with) last month 15-year-old Jonathan Lebed was forced to pay $285,000 to avoid prosecution by the SEC, which alleged he bought large numbers of shares and then proceeded to flood internet chat rooms, suggesting the stock was 'the most undervalued ever'.

The number of such schemes is growing fast. Since 1995 the SEC has been involved in nearly 200 actions similar to the one it took against Lebed. More than a third of these have taken place over the past year.

Worryingly, organised crime is now showing an interest. In June 104 people with suspected Mob links were arrested in the US following the largest securities fraud crackdown in the country's history. Those arrested dealt largely in small cap firms - the sorts of businesses that are usually ignored by Wall Street. It is alleged that those involved in the scam, including representatives of the notorious Bonanno crime family, the Mafia's largest drug dealers, developed a network of internet newsletters and chat rooms to promote the stocks they held.

Helsby said: 'People think that these internet stock scams are done by 'boiler room' operators, the sharp city slickers, but very often they are linked to organised crime.

'Typically a company set up in one country will sell securities issued in a second country to investors in a third. So the problem is who regulates? US and Canadian criminals are experts at this, but the Russian mafia is catching on fast.'

Faster than the regulatory authorities anyway. Despite the growing concerns about the financing, management and fiduciary responsibilities of dotcom firms, policing the sector is still in its infancy.

Not until next year will it become a civil offence for UK investors to initiate pump and dump schemes. Currently the authorities only have the power to initiate criminal proceedings, something they are reluctant to do because of time and cost constraints. It is symptomatic of the fact that, as more and more companies move at internet speed, the sheriffs of the wild, wild web find themselves outgunned.