Stockster.com web site owner charged with fraud
PrintE-mailDisable live quotesRSSDigg itDel.icio.usBy Greg Robb, MarketWatch
Last Update: 5:53 PM ET Aug 1, 2006
WASHINGTON (MarketWatch) -- The Securities and Exchange Commission has charged a 34-year old owner of the Stockster.com stock-tip website with defrauding investors by selling shares of penny stocks after posting buy recommendations on his website.
The SEC said that Nicholas Czuczko of Beverly Hills, Calif. made more than $2.7 million in profits from the stock sales in a four-month period ending in March.
Czuczko has not settled the charges. His attorney was not available for immediate comment on the S.E.C. civil lawsuit.
According to federal regulators, Czuczko had a relatively simple plan to defraud investors.
He paid approximately $1.15 million to drive traffic to his website through popular financial websites like MarketWatch.com and others. Czuczko's website offered free stock "buy" recommendations in thinly-traded and little-known stocks.
Soon, Czuczko stock picks were fueling trading and price increases in the recommended stocks, the agency said.
In one case, MediaBay Inc, the recommendation led to 3.8 million shares trading hands on the first day a recommendation was posted on Stockster, compared with average trading volume of 193,000 shares in a 20-day period prior to the recommendation.
The S.E.C. said that Czuczko and his father began routinely buying the touted shares prior to posting recommendations on the Stockster site and quickly selling them into the rising market.
In violation of federal securities law, Czuczko didn't disclose his intention to sell the shares, or report the actual transactions, on the site, the SEC alleged.
"Investors need to be wary of unsolicited stock recommendations they find on the Internet. As in this case, the website operator may have hidden motives in recommending stocks to the detriment of unsuspecting investors," said Linda Chatman Thomsen, director of the SEC's enforcement division.
The SEC is seeking a temporary and permanent injunction against Czuczko, the return of his profits, in addition to a civil penalty.
Greg Robb is a senior reporter for MarketWatch in Washington. |
