McLean Day Trader To Pay SEC $160,000
By Kathleen Day
Washington Post Staff Writer
Tuesday, June 25, 2002; Page E03
washingtonpost.com
A securities day trader who worked from his home in McLean agreed to pay the federal government more than $160,000 to settle charges that he manipulated stock prices in after-hours trading of six companies, including FTD.com, the Securities and Exchange Commission said yesterday.
The SEC filed a civil complaint against Kin H. Lee in federal court in Alexandria yesterday, one of the first alleging abuses in after-hours trading markets. Lee simultaneously filed an agreement to settle the case.
Without admitting or denying guilt, Lee agreed to pay a $60,000 penalty and more than $100,000 in profits that the SEC says he made illegally, plus interest. The SEC said that because Lee operated after the major markets were closed, when trading was thin, he was able to artificially inflate stock prices by trading among his various accounts and placing orders above the market price.
Lee also agreed to daily and weekly limits on how often he can trade any individual company's stock among his own accounts, said John Reed Stark, chief of the SEC's Office of Internet Enforcement.
Thomas Wilson, Lee's attorney, declined to comment on the charges or the settlement.
The SEC said Lee made the trades on his home computer between January 2000 and April 2001, mostly between 4 p.m. and 8 p.m. He engaged in the scheme without the knowledge of the companies involved -- FTD.com Inc., Consulier Engineering Inc., BioSpecifics Technologies Corp., Hawk Industries Inc., Pharmaprint Inc. and Eprise Corp. -- according to the SEC.
By making many trades at a time when few others were buying and selling the stock, Lee was able to make it appear that demand for the stock was greater than it was and that investors were willing to pay increasingly higher prices, Stark said. But focusing on stocks that typically don't trade in large volumes made it easier for federal market regulators to track what Lee did, Stark said.
"His footprints were everywhere," said Stark.
In one after-hours trading session on Feb. 25, 2000, Lee accounted for 97 percent of the 126,000 shares of Consulier Engineering traded, the SEC said in court papers. Earlier in the month, he was responsible for more than 88 percent of the 425,690 shares of Biospecifics traded during one after-hours session, the SEC said.
Stark cautioned investors to be especially careful when trading after hours because those markets are new and don't have the volumes or transparency of markets operating during regular business hours.
Day traders attempt to profit from short-term movements in stock prices by frequently buying and selling securities on the same day. The practice became popular during the technology-stock boom of the late 1990s but has lost much of its allure with the general decline of U.S. securities markets.
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