Wall Street Journal Heard on the Net on Internet Stock Gurus (subscription site):
interactive.wsj.com
January 12, 2000
SEC to Internet Stock-Pickers:
'Tokyo Joe' Was Just the Start
By JASON ANDERS
THE WALL STREET JOURNAL INTERACTIVE EDITION
On stock-chat message boards, a lot of people have long wanted to be the next "Tokyo Joe." They've wanted to break from the rank-and-file and become a stock-picking guru, with legions of loyal followers and the power -- whether real or perceived -- to move stock prices.
But following the fraud case that was filed by the Securities and Exchange Commission last week against Tokyo Joe -- whose real name is Yun Soo Oh Park -- a different question is being asked on the boards: Who'll be next in the SEC's crosshairs?
Message-board users are right to be worried, regulators say. "We are looking at a number of other individuals and I think you will see other actions. But that's all I can say about that," says Tim Warren, associate regional director of the SEC in Chicago, where the case against Mr. Park was filed in federal court. He won't identify other potential targets.
Many message-board users have become self-styled Internet stock gurus in recent years. Most have egos as large as their purported bankrolls, welcoming new followers while widely ignoring critics. Their stock picks are publicized on the Net and closely followed by many message-board participants.
Some of the best-known stock-pickers have Web sites that, like one run by Mr. Park, charge a fee for access to stock tips and other information for active traders.
Not surprisingly, these other Internet stock pickers say their operations are drastically different than Mr. Park's. The SEC alleges, among other things, that Mr. Park engaged in "scalping," or buying stocks before urging his subscribers to buy, and then selling his shares into the rallies created by his recommendations -- a charge Mr. Park vehemently denies.
A central part of the SEC's case, says Mr. Warren, is that Mr. Park charged between $100 and $200 a month for access to his stock picks -- effectively making him an investment advisor, the agency believes. "As an investment advisor, he has a fiduciary duty to make full and fair disclosure to his clients -- in particular, to disclose conflicts of interest. His pattern of buying and selling was a clear conflict of interest," says Mr. Warren.
The SEC has strict rules for investment advisors, and generally only requires individuals to formally register as such advisors if they have more than 15 paying clients or manage significant assets for others. Mr. Warren says this is the first case where the SEC has sought to apply such regulation to online stock pickers.
For his part, Mr. Park says it's "crazy" to call him an investment advisor. "I never say, 'Buy this.' I say, 'I'm buying.' There are lots and lots of people doing what I'm doing, and people who are really scamming people. Why don't they go after them?" says Mr. Park. He says he is still operating his Web site, Tokyo Joe's Societe Anonyme (www.tokyojoe.com), and still trading stocks.
"It seems that the SEC's view is that the proposing of stock picks is itself investment advice, and can be governed by investment-advisor rules," says Blake Bell, an attorney with Simpson Thacher & Bartlett in New York, who specializes in Internet securities cases. "That in and of itself no doubt brought shudders to all the people online who are doing this."
Indeed, judging from the comments being passed around on message boards, several of the Net's best-known stock pickers are watching the case closely.
"People are definitely worried about this case. If you're not worried, you're an idiot," says Anthony Elgindy, a well-known stock picker whose bitter rivalry with Mr. Park is no secret on Silicon Investor.
Mr. Elgindy, who posts under the alias "Anthony@Pacific," says about 300 subscribers pay $600 a month for access to his picks, almost all of which are "shorts" -- a risky form of trading where investors bet a stock's price will fall. But Mr. Elgindy says he offers full disclosure about exactly when he is buying and selling stocks.
Still, he says he will register with the SEC as an investment advisor -- a plan he says was in the works before the Tokyo Joe case. "I don't believe I've acted in any capacity whatsoever as a financial advisor, but just to be sure I'm going to let the SEC know who I am," he says, before chuckling and adding, "as if they don't know me already." (An SEC spokesman declines to comment on Mr. Elgindy.)
Mr. Bell, the securities attorney, says investors need to be particularly careful when taking investment advice from others -- especially on the Internet. "As a consumer, how do you really know someone is buying and selling when they say they are?" he asks.
Some of the site operators point to disclaimers on their site that explain that they don't offer investment advice. But Mr. Bell says regulators evaluate sites based on what they do, not on what they say they do. "The SEC is not always as impressed with disclaimers as those who author them are," he says. "The SEC has made it clear in other contexts that blanket disclosures may not be enough. If I were operating one of these sites, I'd be very, very concerned about disclosure issues."
Barbara Simon, another well-known member of Silicon Investor and operator of a Web site that caters to active traders, says she's upset by the negative attention brought by the Tokyo Joe case. "I'm a bit embittered because this case sheds a bad light on day and swing traders," says Ms. Simon, who posts under the alias "Jenna" on Silicon Investor.
On her site, called Market Gems, Ms. Simon maintains a daily "watch list" of stocks that she believes are poised to move. Unlike Mr. Elgindy's site, where tips are exchanged by members in a real-time chat room, Ms. Simon sends out her picks in bursts of electronic mail to subscribers who pay about $89 a month for the service.
"I call fundamentally sound stocks. They go up because of their fundamentals, not because we're pumping them," says Ms. Simon. She says she invests in between one-third and one-half of the stocks she profiles to subscribers, and says she "sometimes" tells subscribers exactly when she is buying and selling.
"People know that I am buying some of these. If there were anything negative going on with us, you'd read about it" on Silicon Investor, she says, where she is one of the most "bookmarked," or followed, users. "I don't know of many people out there who do what I do, in terms of the depth of the research."
John Coffee, a law professor at Columbia University, says there is some concern that the Investment Advisors Act is "overbroad," and notes that operators of stock-picking sites have long assumed that investment-advisor rules don't apply to them. "There are clear freedom of speech issues," he says. "But still, scalping is scalping. If you're touting stocks and looking to profit, freedom of speech isn't going to protect you." |
