The Securities and Exchange Commission receives about 300 complaints a day about fraudulent on-line stock-trading schemes. Most schemes, identified by the phrase "pump and dump," attempt to persuade investors--by E-mail messages from various sources, on-line newsletters, or false information on Web sites--that people across the country are enthusiastic about a certain stock, which naturally pumps up the price. The schemesters then dump their shares at a considerable profit.

You might think that nothing like a pump-and-dump scheme could have happened, say, 162 years ago, when Samuel Morse was still only thinking about building his first electric telegraph. But it did.

In 1837 two bankers, the twins Joseph and FranÇois Blanc, were put on trial in France for having conspired to commit the equivalent of a modern-day Internet stock fraud. How could this be?

In the 1800s there certainly was no information technology of the type that we're familiar with today. But there was a network: a chain of hundreds of optical semaphore telegraph stations that stretched all across Europe. By 1812 it was already possible to send messages over the network from Amsterdam to Venice and between virtually all the major cities in France.

The working of the telegraphs was charmingly simple. The operators used telescopes to peer at the neighboring stations, which were in their line of sight. To transmit messages, the operators had to duplicate with their own semaphore (a large contraption of wooden beams controlled by ropes and pulleys) the position of the semaphore they saw atop the neighboring station. Messages could thus be relayed quickly from station to station.

Enter the brothers Blanc. The stock market in Paris was the largest in France, and it set the pace for trading at the stock markets in other cities, such as Bordeaux. One critical indicator on the market was the rate at which government obligations traded. If the rate went up dramatically in Paris, it would be a fair bet that it would go up in Bordeaux as well--albeit five days later, when investors read about the surge in the daily papers. (It took about five days for news from Paris to reach Bordeaux by regular mail, which was delivered by stagecoach.) Now, if one could only learn the rate a day or so in advance....

The Blancs, who traded on the stock market in Bordeaux, figured out a way to do just that. First they found an accomplice in Paris to watch the stock market there and to deliver news of significant changes to a telegraph operator in Tours for transmission to Bordeaux. Then, because the French network was for government use only, they targeted a suitable operator in Tours to bribe.

Of course, the bribed operator could not simply be asked to transmit a few extra messages, since that would be immediately detected. Instead, the brothers instructed him to make a specific and highly unlikely series of errors in the transmissions to signal dramatic rises or falls in the Paris market. Normally, operators who had innocently made an error would encode a correction in a subsequent transmission. Both the error and its correction would then be duplicated from station to station. It was not until the message-plus-correction reached the end of the line that a telegraph official would step in to translate the transmission and remove the error. The Blancs were prepared: an accomplice who lived close to the last station on the line to Bordeaux took note of the "errors" before they were deleted and then relayed the news to the Blancs.

The plot ran for two years. As there was yet no law in France forbidding use of the telegraph for private messages, the Blancs got off scot-free. Such a law went into effect soon after their trial was over.

Gerard J. Holzmann is a member of the technical staff at Bell Laboratories, in Murray Hill, N.J.