Rick, I don't find your comment <<Hey, what's this about "a previously bullish investor (Richard M.), causing him to unload some stock and contributing to a minor decline in price." Are we accusing Richard of manipulating PRLN? Come to think of it, Richard, did you affect HEC by your selling it, causing it to go down? :-)>> the least bit amusing. I have been very open on this thread and have honestly expressed my opinions, most of the time before I acted on them. Even kidding manipulation is very serious. I may just stop posting. Read the following:
Stock Regulators Fret Dangers Lurk for Investors Who 'Chat'
By DEBORAH LOHSE
Staff Reporter of THE WALL STREET JOURNAL
Stock-market regulators are increasingly worried
that dangers are lurking for investors in places like
"misc.invest.stocks"; "techstocks.com"; the Motley
Fool and other Internet and on-line stock-talk
forums.
Such sites are the newest, hottest medium for
discussing, dissecting -- and sometimes hyping --
companies, especially the smallest stocks found
on the Nasdaq Stock Market, Nasdaq's OTC
Bulletin Board or in the Pink Sheets put out by the
National Quotation Bureau. America Online's
Motley Fool, one of the most widely known and
popular forums, has an estimated 250,000
households reading its site each month. Silicon
Investor, a popular Internet site
(http://www.techstocks.com), has 30,000 daily
visitors posting 60,000 messages a month. And
countless messages litter stock-specific web sites
and so-called newsgroups such as
alt.invest.penny-stocks.
Millions of shares are routinely traded after the
markets close, seven days a week. While this
after-hours trading takes place largely beyond the
view of the millions of average investors who have
fueled the market, it can have a huge impact on
the prices they pay when traditional trading
resumes.
While the opportunities for information and
education are boundless on the Internet,
regulators fear the dangers are, too.
"The Internet has lowered the barriers to entry for
everyone, including those who would perpetrate
fraud on the marketplace," says Rob Bertram, a
Pennsylvania regulator and chairman of the Offers
and Sales on the Internet Committee of the North
American Securities Administrators Association.
One of the biggest problems is that what appears
to be enthusiastic chatter may instead be
orchestrated hype or outright fraud. But because
people can use pseudonyms in many areas
on-line, regulators can't immediately tell if the
source of the chatter is an insider, a broker,
promoter or an ordinary investor. That makes it
tough for the National Association of Securities
Dealers to police fraud or false advertising by
brokers or Nasdaq companies under its
jurisdiction, and for the Securities and Exchange
Commission or the states to police fraud or
unregistered securities over the Internet.
Attempt to Talk Up Teltrend
One America Online chatster dubbed
"Wcrea48982" tried to enlist three other people to
talk up Teltrend Inc., a St. Charles, Ill., maker of
transmission products for telephone companies.
He or she sent private electronic mail to three
people who had seemed bullish on the company
in past on-line posts, proposing the foursome buy
Teltrend shares the morning earnings were due
out from the company, then "hit ... every other
board we can think of with note after note in an
attempt to pick up followers" and raise the stock
price. Instead of cashing in, the three people
solicited exposed the botched attempt at boosting
the stock by posting it for other investors to see. In
an e-mail, the author refused to disclose his or her
name.
The boards are also full of reckless predictions or
half-truths. On April 6, someone dubbed
"Tbonecarl" wrote that Fort Lauderdale,
Fla.-based Home Link Corp., a minuscule,
unprofitable telecommunications company, "has
an institutional buyer and will add over 3.8
BILLION $$$ to the bottom line over next few
months." While Home Link's stock didn't
immediately rocket on Tbonecarl's hype, in late
May and June the stock blasted from under $1 a
share to around $20 on trading on the OTC
Bulletin Board, Nasdaq's largely unregulated
trading forum for tiny stocks. Trading was halted
by the SEC June 10 and the SEC sued the
company and its president, Matt Matson, in
federal court in Miami for allegedly defrauding
investors by misrepresenting its assets, revenue
and Nasdaq-listing status in documents sent to
investors. Mr. Matson didn't return calls for
comment. Tbonecarl didn't return e-mail
messages.
Investors are also inundated with seemingly
in-the-know rumors and projections. Someone
signing in as "Techie" on the Silicon Investor
Internet forum noted that he or she had heard that
compact-disk maker Nimbus CD International Inc.
was "about to invest $25 million in Quixote" Corp.,
the parent of a rival CD maker, at the end of May.
Spokeswomen for the two companies say that
isn't true, and neither stock moved appreciably on
the gossip. Techie, via e-mail, wouldn't disclose
his or her name but wrote that the erroneous tip
came from an undisclosed venture capitalist.
Runup in Comparator Stock
In some cases, on-line promotion appears to have
originated with the company. Internet messages
were flying during the rise of Comparator
Systems, the fingerprint-identification company
that had huge price and volume runups in May
before trading was halted and ultimately sued for
fraud by the SEC in federal district court in Los
Angeles. Mitch Aunger, a member of Silicon
Investor, passed on the seemingly inside dope
that Comparator was "working on several deals
with the major credit-cards [companies.]" Mr.
Aunger said in an interview that a Comparator
official told him about the deals, which he merely
repeated.
Comparator's former president, Richard Floegel,
who wasn't named in the SEC's suit, said that the
company had merely made a sales call on
MasterCard, but never had any deals in the works.
The NASD, which regulates the broker-dealer
industry and the Nasdaq Stock Market, has
geared up its monitoring of the Internet after it
found that on-line chatter preceded or coincided
with more than a half-dozen small stocks that had
unusual movements in share price or trading
volume. To root out possible stock manipulations,
Nasdaq's market surveillance department now
routinely searches a dozen or so on-line sites for
mentions of stocks that have unexplained unusual
trading activity.
In addition, NASD is now compiling profiles of
lower-priced stocks that are vulnerable to being
manipulated on-line or elsewhere. "We're trying to
develop a pre-emptive strike ability," says Mary
Schapiro, president of the NASD's regulatory arm,
NASD Regulation.
Tracking Investment Scams
But in many ways regulators are still groping in the
dark to figure out how the Internet could be used
by manipulators and fraudsters, and how to pursue
offenses when found.
"We have got to project into the future to see how
the con artist is going to use this new tool," says
David Weaver, general counsel to the Texas
Securities Board. Tracking investment scams is
easier than figuring out who is trying to manipulate
a stock through on-line hype, regulators say. "An
individual trying to rip off investors is going to
leave a mechanism to get in touch with them,"
says Mr. Bertram.
Services like America Online will generally turn
over the names behind the pseudonyms used on
its service if regulators have a court order or
subpoena, although America Online says it hasn't
been called upon to provide names in any
stock-fraud cases. Tracking the origin of Internet
messages to a physical location has proved most
daunting, regulators say.
The SEC has brought about seven or eight
enforcement cases involving fraud or the sale of
unregistered securities over the Internet. "But
beyond that, we are looking at a lot of situations
which may amount to fraud, where people seem to
be using the Internet to put out false statements
about listed companies," says Gary Sundick,
associate director of the SEC's division of
enforcement.
In the meantime, both NASD and the SEC have
put out caveat emptor pamphlets that are
electronically reproduced and posted in prominent
places on-line. They hope education will deter
investors from acting on "hot tips" from
cyberspace.
Some argue that cyberspace can be a safer place
for naive investors than the real world. Tom
Gardner, co-founder of the Motley Fool forum,
says that fraud is perennial, with tip sheets,
cold-calling brokers, and radio and TV programs
all potential sources of false information. But
on-line, he notes, investors can write back and
question would-be scamsters for others. "The
beauty of the on-line medium is that these things
can be responded to," says Mr. Gardner.
But when there is fraud, Mr. Gardner supports
regulators' rights to subpoena records and clean
out offenders. "Where there is illegality, regulators
should be able to get in and get those names,"
says Mr. Gardner. |
