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SEC Charges 15-Year-Old Boy With Internet Stock Fraud
Washington, Sept. 20 (Bloomberg) -- A 15-year-old New Jersey boy agreed to pay $285,000 to settle regulators' charges that he manipulated stocks on the Internet.
The Securities and Exchange Commission said it is the first case it has brought against a minor.
Jonathan G. Lebed of Cedar Grove, New Jersey, used e-mail messages when he was 14 years old to tout nine small stocks he bought, the SEC alleged. He then sold all these shares, usually within 24 hours of the e-mail, on 11 occasions between August 1999 and February 2000, the SEC said.
Lebed sometimes placed a so-called ``limit order'' late in the day to sell the stock at a specified price so that he wouldn't miss an anticipated increase in the stock price while he was in school the next day, the SEC said.
The boy used many fictitious names for the 500 or so messages he posted on Yahoo! Finance message boards each time he touted a stock, the federal agency alleged.
Lebed neither admitted nor denied wrongdoing under the settlement.
``Mr. Lebed feels it's a fair settlement, and he and his family are happy to put the matter behind them,'' said the boy's attorney, Kevin Marino of Newark, New Jersey.
Public School
Lebed, a sophomore at a New Jersey public high school, placed the trades from a home computer, Marino said. He's ``an accomplished trader, very talented and very knowledgeable,'' who won an award in a national investing contest, the lawyer said.
Lebed's parents ``are fully informed of what's transpiring,'' Marino said, though he declined to say whether they are disciplining him.
The SEC alleged Lebed traded in custodial accounts that were in his father's name. He bought large blocks of thinly traded stocks, purchasing as much as 46 percent of the volume in a stock that day.
After making a purchase, Lebed sent e-mails after the markets closed and again the next day before they opened, the SEC alleged. Some of the e-mail messages said that the stock was about to ``take off,'' would be the ``next stock to gain 1,000%,'' or was ``the most undervalued stock ever,'' the agency contended.
Lebed then sold his entire position in a stock, making as much as $74,000 in profit per stock. Lebed made a total of $272,826 in profits after selling the stocks he touted, the SEC alleged.
``We were surprised and dismayed to find out it was a minor, though we've been increasingly finding violations by younger people without business backgrounds,'' SEC enforcement director Richard H. Walker said. ``The Internet has become a staple of young people from grade school on, and this case shows that you can hide your identity on message boards whether you're 50 or 20 or 10.''
Named Defendant
The SEC routinely names defendants in civil actions and didn't grant special consideration to Lebed because he was a minor, Walker said.
On the days that Lebed sold his stock, the volume of each stock almost always reached record or near-record highs, the SEC alleged.
In one example cited by the SEC, Lebed bought 18,000 shares of Man Sang Holdings Inc. for between $1.375 and $2.00 a share on Jan. 5. That day, the volume for the stock was 60,700 shares at a closing price of $1.81.
Lebed posted messages at 11:46 that night claiming Man Sang was ``the most undervalued stock in history'' and would be trading at more than $20 a share ``very soon,'' the SEC said. The next day, volume soared to 1.1 million shares, reaching a high of $4.69 a share.
Lebed sold all his shares in the company at between $3.81 and $4.00 a share, the SEC alleged. Man Sang was unchanged today at $1.41. Man Sang wasn't accused of any wrongdoing.
The other stocks Lebed was accused of manipulating were Manchester Equipment Co., Just Toys Inc., Yes Entertainment Inc., Fotoball USA Inc., West Coast Entertainment Inc., Havana Republic Inc., Classica Group Inc. and Firetector Inc.
These companies trade on the Nasdaq Stock Market and Nasdaq's over-the-counter bulletin board. None was accused of any wrongdoing.
Sep/20/2000 16:53 ET
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