SEC Says Teen Trader Crossed to 'Dark Side'
By Robert O'Harrow Jr.
Washington Post Staff Writer
Thursday, September 21, 2000; Page A01
NEW YORK, Sept. 20 – He is a teenage computer whiz obsessed by Wall Street, a stock maven so precocious that as an eighth-grader he nearly won a national trading tournament for students.
But today federal regulators said 15-year-old Jonathan Lebed had become too crafty for his own good, and they accused him of using the Internet to manipulate stocks and earn nearly $273,000 in illegal profits. It was the first time the Securities and Exchange Commission has charged a minor.
In a settlement announced today, Lebed agreed to pay the government $285,000, which includes interest on his profits. He neither denied nor admitted wrongdoing but agreed to refrain from such behavior.
Working up to six hours a day on a computer in his suburban New Jersey bedroom, Lebed sent out hundreds of phony postings on the Internet, extolling stocks he bought through brokerage accounts his parents began setting up for him when he was 12, according to the SEC.
Because he used aliases, the SEC said, there was no way that other Internet surfers in search of a promising tip could know they were being manipulated by his exciting pronouncements. And because he used "sell limit orders," which automatically sold the stock when it reached a certain level, he often was in school when he made his biggest profits, the SEC said.
"At about 14, he crossed into the dark side," said Ronald C. Long, the SEC's district administrator in Philadelphia. "While he was sitting in math or science, he knew he was making his profits."
Lebed, a high school junior, and his mother declined to discuss details of the case. But after agreeing to be interviewed, he professed to be unconcerned about the federal action. He continues to attend school and develop on his own online promotions company, Eprolutions.com. Tonight, he said, he was going to the horse races with friends.
"I'm feeling great today," Lebed said in the telephone interview. "I have nothing to worry about."
The SEC case is a big bump in an extraordinary early career for Lebed, a brash but well-spoken teenager who at 13 immersed himself in the business of trading by arising before dawn to check daily market forecasts.
As an eighth-grader, he was one of three students at Memorial Middle School in Cedar Grove, N.J., to excel in a stock tournament then sponsored by CNBC and MCI. His group earned a fourth-place national finish.
Since then, with the help of a friend, Lebed started his own Internet marketing company, specializing in targeted e-mail.
"He's a cool guy. He's making money," said Jared Glugeth, 16, Lebed's friend and business partner.
Federal securities investigators alleged that Lebed's entrepreneurial zeal changed into fraudulent scheming in the summer of 1999. That, they say, is when Lebed began heavily buying inexpensive stocks that normally received little attention from traders.
Most of the stocks in his scheme were traded on the NASD Over the Counter Electronic Bulletin Board, according to the SEC papers.
As market watchers tried to understand why so many shares of an unheralded stock had moved on the days of his big trades, Lebed quickly followed up with volleys of electronic messages on sites that specialize in market gossip, according to SEC papers.
He claimed the stock was about to "take off," or would be the "next stock to gain 1,000 percent," the papers said.
"Lebed then sold all of these shares, usually within 24 hours, profiting from the increased price his messages had caused," the SEC said. "During the course of the scheme Lebed realized a total net profit of $272,826."
After buying 18,000 shares of Man Sang Holdings Inc. for $2 or less on Jan. 5, for example, he claimed in a posting on a Yahoo message board that it was "the most undervalued stock in history" and would probably soon be trading at $20. That touched off a frenzy on Jan. 6, when the volume of trading shot up from just under 61,000 shares to over a million shares. The price rose to more than $4.
Lebed's take: $34,959.
The SEC's Long said the agency acted properly when it negotiated the settlement with the teenager. He noted the SEC could have asked the federal court to impose much harsher penalties.
Lebed's attorney, Kevin Marino, said the SEC originally sought to bring charges against Lebed involving 27 trades. In settling the case, the agency focused on only 11, he said.
That means Lebed can keep the profits from all the other trades the SEC was investigating, Marino said, and that "was substantially more" than the amount Lebed has agreed to pay back.
Staff researcher Margot Williams contributed to this report.
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