Did you gusy see this one over the holidays?
SEC charges three with Net stock fraud
By Bloomberg News
Special to CNET News.com
December 15, 1999, 4:05 p.m. PT
LOS ANGELES--Three men, including two recent graduates of the University of California at Los
Angeles, were charged with illegally netting $364,000 by using the university's computers to
manipulate a stock through Internet chat rooms.
The case is the first Internet stock-fraud case filed by the SEC against people unaffiliated with the company whose
stock they allegedly manipulated for profit, SEC spokesman Chris Ullman said.
The U.S. attorney's office in Los Angeles also filed criminal charges against two of the men.
"Though the perpetrators in this case went to great lengths to hide from us, we discovered them within a matter of
days," SEC enforcement director Richard H. Walker said.
The three men used 50 aliases in sending messages to 500 Internet bulletin
boards, the SEC alleged. The stock they allegedly manipulated, NEI Webworld,
soared one morning to $15.50 a share, from a previous closing price of 13
cents, then collapsed to 25 cents a share a half-hour later, the SEC alleged.
Some of the defendants sold their stock after it had risen, the SEC said.
The three people charged by the SEC all live in California. They were identified
as Arash Aziz-Golshani, 23, an Internet leather-jacket retailer who recently
graduated from UCLA; Allen Derzakharian, 26, another recent UCLA graduate
who is a pharmacy student at the Western University of Health Sciences in
Pomona; and Hootan Melamed, 23, a pharmacy student at the same school.
Golshani and Melamed also were charged by federal prosecutors with
conspiracy to commit securities fraud, an offense that carries a maximum penalty of five years in prison. Golshani
was arrested Tuesday, and Melamed agreed to surrender to federal officials today. Their attorneys couldn't be
reached for comment.
The SEC's civil complaint, filed in Los Angeles federal court, alleges that the defendants manipulated the stock of
NEI, a bankrupt commercial printing facility based in Dallas.
The three bought large blocks of NEI stock and used computers at UCLA's biomedical library to send a fraudulent
message to Internet financial message boards, the complaint contends. These message boards were operated by Yahoo
Finance, Raging Bull and FreeRealTime.com.
The messages sent by the defendants, who used many pseudonyms, predicted the acquisition of all outstanding NEI
shares by a closely held San Jose, Calif. firm, the suit alleged. In fact, no such purchase was ever planned, the SEC
contended.
One message said, "People who know of the deal are buying in given the large volume the last few days," according to
SEC court documents. The defendants used pseudonyms such as "Blue Algae," "Green Matter" and "Betty Johnson,"
the commission alleged.
NEI filed for Chapter 7 liquidation before the alleged fraud took place. It had no assets or operations during this
time, though its stock still traded on the Nasdaq Stock Market's over-the-counter bulletin board, the suit alleged.
The company wasn't charged with any wrongdoing.
The SEC previously has alleged that company executives, brokerages and stock promoters connected with a company
have used the Internet to manipulate its stock.
Copyright 1999, Bloomberg L.P. All Rights Reserved.
Related news stories
? SEC gets $7 million to play Net watchdog December 7, 1999
? Man sentenced for eBay fraud November 2, 1999
? SEC finds possible misdoing at day-trading firms September 16, 1999
? Three charged with Net stock fraud found in contempt August 18, 1999 |
