Re: 3/8/01 - SEC Settles Securities Fraud Action Against "Tokyo Joe"; NY Times: 'Tokyo Joe' Settles S.E.C. Suit
SEC SETTLES SECURITIES FRAUD ACTION AGAINST "TOKYO JOE"; INTERNET STOCK PICKER REQUIRED TO GIVE UP ALL ILLEGAL PROFITS, PAY A PENALTY OF MORE THAN $400,000 AND CONSENT TO THE ENTRY OF AN ANTIFRAUD INJUNCTION
The Commission has settled the enforcement action it brought last year against Yun Soo Oh Park, the Internet stock picker known as "Tokyo Joe," and the company Park controls, Tokyo Joe's Societe Anonyme Corp. Under the terms of the settlement, which was as approved today by the District Court for the Northern District of Illinois, Park and Societe Anonyme, without admitting or denying the allegations made in the Commission's complaint, consented to entry of a federal District Court order that permanently enjoins them from violating the antifraud and other provisions of the federal securities laws, and orders Park and Societe Anonyme to pay $324,934 in ill-gotten gains and $429,696 in civil penalties, for a total monetary payment of $754,630. Park and Societe Anonyme also agreed to post a hyperlink to the court order on the home page of the Tokyo Joe web site for a period of thirty days.
SEC Enforcement Director Richard H. Walker said, "This case has established groundbreaking precedent: Those who are in the business of offering investment advice on the Internet may take on the same duties and responsibilities as other investment advisers." Mr. Walker added, "Today's settlement demonstrates that we will not countenance undisclosed conflicts of interest or other fraudulent conduct from those recommending purchases or sales of securities - whether on the web or elsewhere."
SEC Midwest Regional Director Mary E. Keefe said, "In requiring Park and Societe Anonyme to pay a significant penalty and to give back all of the profits they made from their illegal trading and touting, we are sending a clear message to those in the stock-picking business: We will pursue you vigorously if you mislead your customers."
In its complaint, filed in January 2000, the Commission alleged that Park, a self-proclaimed Internet stock-picking guru, operated an Internet web site through which investors who paid a monthly membership fee received stock recommendations and other investment advice from Park. The Commission charged that Park defrauded members of his Societe Anonyme by failing to disclose that, in several instances, he had already purchased shares of the stock that he was recommending and that he planned to sell his shares into the buying flurry and subsequent price rise that followed his recommendations, an illegal practice known as "scalping." The Commission also charged that Park touted one company to members of Societe Anonyme and to the public without disclosing that he had received shares of stock in the company in exchange for his recommendation. Finally, the Commission charged that the past performance results posted on Park's web site were materially false and misleading.
Before submitting his settlement offer, Park moved to dismiss the Commission's complaint, arguing primarily that, since he dispensed his stock picks and investment advice over the Internet, he was not an "investment adviser" within the meaning of the Investment Advisers Act and that the antifraud provisions of that Act could not be constitutionally applied to him. The District Court denied Park's motion to dismiss in its entirety and held that the Commission's complaint sufficiently alleged that Park was an "investment adviser" under the Advisers Act and that Park was subject to that Act's antifraud provisions (SEC v. Park a/k/a Tokyo Joe, and Tokyo Joe's Societe Anonyme Corp., 99 F. Supp. 2d 889 (N.D. Ill. 2000).
Under the terms of the settlement, Park and Societe Anonyme consent to a permanent injunction prohibiting them from violating the antifraud provisions of the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934, as well as the anti-touting provision of the Securities Act of 1933. Park and Societe Anonyme also are required to pay all of the $279,696 in profits they made from the thirteen instances of scalping and the one instance of illegal touting alleged by the Commission, plus $45,238 in prejudgment interest on that amount, for a total disgorgement payment of $324,934. Park and Societe Anonyme also are required to pay a civil penalty equal to the amount of their scalping and illegal touting profits ($279,696) plus an additional penalty of $150,000 based on Park's posting of false and misleading past performance results on the Tokyo Joe web site, for a total penalty payment of $429,696. Finally, within two days of the entry of the District Court order, Park and Societe Anonyme must post a hyperlink to a copy of the Commission's order on the home page of the Tokyo Joe web site for a period of thirty days. [SEC v. Yun Soo Oh Park and Tokyo Joe's Societe Anonyme Corp., N.D. Ill., Civil No. 00-C-0049] (LR-16925; Press Rel. 2001-26)
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Similarly worded press release, with contact information:
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March 9, 2001
'Tokyo Joe' Settles S.E.C. Suit
By GRETCHEN MORGENSON
Yun Soo Oh Park, owner of an Internet investing site that was one of the hottest sources of stock picks on the Web, has settled a civil complaint brought last year by the Securities and Exchange Commission.
Mr. Park, known to his subscribers as Tokyo Joe, neither admitted nor denied the S.E.C. charges, but agreed to pay $754,630 to settle the case.
In the case, filed in January 2000, regulators said Mr. Park defrauded his customers by buying ahead of his recommendations and selling as subscribers were getting in. The S.E.C. said that on 13 occasions, Mr. Park failed to tell subscribers that he was trading ahead of them, an illegal practice known as scalping. Regulators also charged that Mr. Park promoted one company to his subscribers — who they said paid monthly fees of up to $600 for his stock picks and market commentary — without disclosing that he had received shares of stock in the company in exchange for his recommendation.
"Those who are in the business of offering investment advice on the Internet may take on the same duties and responsibilities as other investment advisers," Richard H. Walker, director of enforcement at the S.E.C., said. "We will not countenance undisclosed conflicts of interest or other fraudulent conduct from those recommending purchases or sales of securities — whether on the Web or elsewhere."
Ira Lee Sorkin, the lawyer representing Mr. Park, said the government's allegations were still just that. "The court order states there was no hearing and no findings of fact made," Mr. Sorkin said, referring to the approval of the settlement issued by a United States district court judge in Illinois. "For the S.E.C. to claim that this is evidence of wrongful and fraudulent conduct is not consistent with the order entered by the judge."
Even so, Mr. Park chose to settle the case, paying about $325,000 in what the S.E.C. said were ill-gotten gains and another $430,000 in penalties. "It was a settlement that allowed him to move on with his life and continue his business," Mr. Sorkin said. Mr. Park, 51, also agreed to post a link to the court order on his Web site for 30 days.
Before becoming a stock guru on the Internet, Mr. Park owned a string of burrito restaurants. He started his Web site in 1997 and became a force in the markets, propelling the shares of companies large and small on the strength of his recommendations. At one point, he had 4,000 subscribers.
Because Mr. Park never registered with the S.E.C. as an investment adviser, he argued when he was charged last year that he was simply exercising his right to free speech by recommending stocks on his Web site. And to specialists in First Amendment law, the case was intriguing because it promised to explore the problems posed by the kind of freewheeling chat that occurs all over the Internet.
Thomas W. Szromba, senior trial counsel at the S.E.C.'s Chicago office, said the First Amendment did not apply in this case. "Fraudulent speech, which is what he was doing, is not protected and never has been," he said. He said the case was a big advance for regulators: "It adds a significant weapon in the enforcement arsenal that we can use the antifraud provisions of the Investment Advisers Act against people operating on the Internet and doing the sorts of things Tokyo Joe was doing. He moved to dismiss the complaint saying he was not an investment adviser, but the district court completely rejected that argument."
In an interview yesterday, Mr. Park said that when he began making stock picks on the Internet he was naïve and knew little about regulatory requirements. "I thought it was all in good jest and good fun; I never thought people would follow what I said," Mr. Park said. "When the S.E.C. challenged my issues I realized they had a legitimate case. So I went straight a long time ago."
In the year since he was charged with fraud, Mr. Park has made changes to his Web site. For instance, he now discloses to subscribers that he may buy stocks ahead of his recommendations.
Copyright 2001 The New York Times Company
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