Re: 10/6/00 - Bloomberg: Teen sued over stock fraud may face criminal charges
Teen sued over stock fraud may face criminal charges
Friday, October 6, 2000
By NEIL ROLAND
Bloomberg News
The Essex County teenager who settled a fraud lawsuit accusing him of using the Internet to manipulate stocks is under criminal investigation by federal prosecutors on similar allegations, people familiar with the inquiry said.
The U.S. Attorney's Office in Newark is investigating whether Jonathan G. Lebed, 16, violated federal securities-fraud laws and should be charged with juvenile delinquency, said four people familiar with the probe.
Lebed's father said Thursday that he became aware of the criminal investigation when his son found a news story on the Internet.
"I don't know what they're trying to do. It's all getting out of hand," Gregory Lebed said in an interview outside the family's Cedar Grove home. "It's getting to be a big stress on the family."
He said his son "is doing all right" and has been back in school since stories about the youth's stock fraud scheme catapulted him to notoriety as the youngest person ever to be charged by the federal Securities and Exchange Commission.
Lebed was 15 on Sept. 20 when he was accused in a federal civil action of hyping stocks on the Internet before selling them for a profit of $272,826. If convicted on criminal charges Lebed would face the possibility of detention in a juvenile facility.
"Jonathan vehemently denies any criminal activity of any kind," said Lebed's attorney, Kevin Marino of Newark. "If criminal charges are brought against him, we'll vigorously defend against them with all appropriate force."
The Justice Department has never brought a stock-fraud case against a minor, spokesman John Russell said.Robert Cleary, U.S. attorney for New Jersey, declined comment about any investigation, and Lebed could not be reached for comment.
New Jersey authorities also are considering a criminal investigation of Lebed's activities, said Paul Loriquet, a spokesman for the New Jersey Attorney General's Office.
"We are monitoring the situation to see if there's any possible state violations that may have occurred," he said.
Meanwhile, the SEC "is finished with Lebed," said Ronald Long, the agency's district administrator in Philadelphia. "We have had a civil case against him and we have settled with him. Our case is over."
Lebed, a junior at Cedar Grove High School, attained a measure of celebrity after the SEC announced his case last month.
The youth was quoted in the Washington Post as saying: "I have nothing to worry about." The Record quoted his father, Gregory Lebed, as saying, "I'm proud of my son."
The SEC's complaint against Lebed was its first case against a minor. He agreed to settle the charges by paying the government $285,000, which included his alleged illegal profits plus interest. He neither admitted nor denied wrongdoing.
The SEC accused Lebed of using the Internet, beginning when he was 14, to tout nine small stocks he owned, driving up their prices. He sold the shares, usually within 24 hours of the promotional e-mail, making as much as $74,000 on a single stock sale, the agency's suit alleged.
The teenager sent hundreds of e-mail messages from his home computer each time he promoted a stock, the SEC contended. Among the messages were ones saying a security was the "next stock to gain 1,000%," was "the most undervalued stock ever," or was about to "take off," the complaint alleged.
Michael Chertoff, a former U.S. attorney for New Jersey, said it would be a mistake to prosecute Lebed.
"It would be a grotesque overreaction," said Chertoff, who headed the federal prosecutors' office in Newark from 1990 to 1994. "It's one thing to pile on to [jailed organized crime boss] John Gotti. It's another thing to pile on to a kid carried away by his ability to use the Internet."
Lebed started investing in the stock market when he was 12, trading stocks with savings of several thousand dollars, said Marino, his lawyer. He traded in custodial accounts in his father's name.
In eighth grade, Lebed was part of a three-student group that finished fourth in a national stock-trading tournament in which there were 3,500 entrants, Marino said.
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Staff Writer Matthew Brown contributed to this article.
Copyright © 2000 Bergen Record Corp.
bergen.com
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Re: 10/5/00 - Bloomberg: Teen stock manipulator not out of woods
10/05/00- Updated 12:36 PM ET
Teen stock manipulator not out of woods
WASHINGTON (Bloomberg) — A New Jersey teenager who settled a civil fraud lawsuit that he used the Internet to manipulate stocks is under criminal investigation by federal prosecutors on similar allegations, people familiar with the inquiry said.
The U.S. attorney's office in Newark, New Jersey, is investigating whether 16-year-old Jonathan G. Lebed of Cedar Grove violated federal securities-fraud laws and should be charged with juvenile delinquency, said four people familiar with the probe.
If prosecuted and found guilty, Lebed would face the possibility of detention in a juvenile facility. Lebed was 15 years old on Sept. 20 when the Securities and Exchange Commission filed civil charges against him, alleging he hyped stocks on the Internet before selling them for a total profit of $272,826.
''Jonathan vehemently denies any criminal activity of any kind,'' said Lebed's attorney, Kevin Marino of Newark. ''If criminal charges are brought against him, we'll vigorously defend against them with all appropriate force.''
The Justice Department has never brought a stock-fraud case against a minor, spokesman John Russell said. U.S. Attorney Robert Cleary in Newark declined comment about the investigation, and Lebed couldn't be reached for comment.
New Jersey state authorities also said they are considering whether to open a criminal investigation of Lebed's activities.
''We're in the preliminary stages of exploring the situation to see if there are any potential violations of New Jersey law,'' said Paul Loriquet, a spokesman for the New Jersey Attorney General's office.
Celebrity spotlight
Lebed, a junior at Cedar Grove High School, attained a measure of celebrity after the SEC announced his case last month. A bevy of national broadcast and print reporters gathered at his house to interview the student and his parents.
The youth was quoted in the Washington Post as saying, ''I have nothing to worry about.'' The New York Times quoted his father, Gregory Lebed, as saying, ''I'm proud of my son.''
The SEC's complaint against Lebed was its first case against a minor. He agreed to settle the charges by paying the government $285,000, which included his alleged illegal profits plus interest. He neither admitted nor denied wrongdoing.
The SEC accused Lebed of using the Internet, beginning when he was 14 years old, to tout nine small stocks he owned, driving up their prices. He sold the shares, usually within 24 hours of the promotional e-mail, making as much as $74,000 on a single stock sale, the agency's suit alleged.
The teenager sent hundreds of e-mail messages from his home computer each time he promoted a stock, the SEC contended. Among the messages were ones saying a security was the ''next stock to gain 1,000%,'' was ''the most undervalued stock ever,'' or was about to ''take off,'' the complaint alleged.
Disclaimer
Lebed's lawyer, Marino, said in an interview that the youth's e-mails usually ''bore a disclaimer urging readers to do their own research before investing.''
Two criminal-law experts said it would be a mistake for the U.S. attorney's office to prosecute Lebed.
''It would be a grotesque overreaction,'' said Michael Chertoff, who was the U.S. attorney in Newark from 1990 to 1994. ''It's one thing to pile on to (convicted organized crime boss) John Gotti. It's another thing to pile on to a kid carried away by his ability to use the Internet.''
Criminal charges against Lebed '' would be a misallocation of federal resources'' said Reid Figel, a Washington lawyer who was securities-fraud chief in the U.S. Attorney's office in Manhattan.
Investors allegedly lost a relatively small amount of money from Lebed's actions, said Figel, who also questioned the deterrent value of bringing a case in which the proceedings wouldn't be public.
Juveniles who are charged with federal crimes typically get protections that aren't normally afforded to an adult, said Knut S. Johnson, a criminal defense lawyer in San Diego who has a specialty in federal juvenile cases.
Juvenile protections
The charges are sealed, Johnson said, and the proceedings, usually before a judge, aren't public. The outcome of the case also is normally sealed.
The outcome is entered in the defendant's juvenile record, which is available to law-enforcement agencies and the court, Johnson said. A minor can be tried as an adult for particularly heinous crimes if a prosecutor makes such a request and it is approved by the judge.
The SEC originally tried to allege Lebed made 27 illegal trades, but narrowed its focus to 11 trades in the case the agency filed, said Marino, Lebed's lawyer.
The U.S. Attorney's office is looking at some of the same trades investigated by the SEC, people familiar with the inquiry said.
While Lebed could face a maximum sentence of five years in a juvenile detention facility, it is rare for judges to mete out sentences of that duration to minors.
The threshold of proof is higher in a criminal case than in a civil one. The government has to show ''beyond a reasonable doubt'' that a defendant committed a crime. In a civil case, the government has to establish liability with ''a preponderance of the evidence.''
The government, in criminal cases alleging securities fraud, generally has to show defendants did something knowing their actions were illegal, said Figel, the former federal prosecutor.
Trading contest
Lebed started investing in the stock market when he was 12, trading stocks with savings of several thousand dollars, said Marino, his lawyer. He traded in custodial accounts in his father's name.
In eighth grade, Lebed was part of a three-student group that finished fourth in a national stock-trading tournament in which there were 3,500 entrants, Marino said.
He and his classmate, Jared Glugeth, recently started a business called Promotion Solutions LLC, which owns two Web sites designed to help others develop and advertise their own businesses, Glugeth said. The Web sites, PRHost.com and eprolutions.com, charge monthly membership fees, he said.
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