Has this already happened to you TRAV?:"Dogged On-Line Investors Are A Top SEC Source in Probes By REBECCA BUCKMAN Staff Reporter of THE WALL STREET JOURNAL
When D. Tod Pauly sensed something fishy about his investment in
Genesis International Financial Services Inc. two years ago, he didn't just give up and cash out of the tiny, speculative stock.
Instead Mr. Pauly, a small-business owner from Wisconsin who's one of a growing number of "cyber-sleuthing" investors
helping stock regulators fight fraud on the
Internet, launched an investigation worthy of a private detective.
Posting his findings on Web "message boards" as he worked, Mr. Pauly,44 years old, pestered enough lawyers and state insurance regulators to find out that Genesis's president was a thrice-convicted felon -- something the company didn't disclose to the Securities and Exchange Commission.
Later, Mr. Pauly went so far as to track down a park ranger in Idaho to verify that a gold mine supposedly being developed by the Chattanooga,Tenn., concern was actually dormant.
Mr. Pauly is not alone. The SEC reports that
it now gets 120 e-mail messages a day from
aggressive on-line investors complaining about
potential stock fraud, including promotions in
Internet investment newsletters and bulk
Dogged On-Line Investors Are A Top SEC Source in Probes.
Posting his findings on Web "message boards" as he worked, Mr. Pauly,
44 years old, pestered enough lawyers and state insurance regulators to find out that Genesis's president was a thrice-convicted felon -- something
the company didn't disclose to the Securities and Exchange Commission.
Later, Mr. Pauly went so far as to track down a park ranger in Idaho to
verify that a gold mine supposedly being developed by the Chattanooga,
Tenn., concern was actually dormant.
Mr. Pauly is not alone. The SEC reports that
it now gets 120 e-mail messages a day from
aggressive on-line investors complaining about
potential stock fraud, including promotions in
Internet investment newsletters and bulk
e-mail called "spam." Although some of the
investors may be short-sellers who aim to
profit from driving down a stock's price by
stirring up bad news, regulators seem to be
welcoming all the help they can get.
John Reed Stark, head of the SEC's new
Office of Internet Enforcement, reports that
such e-mail messages have quickly become
the SEC's largest source of leads for
Internet-related investigations. About 30% of
the messages relate to continuing SEC probes
of all types, indicating many investors are
on-target in their cyber-sleuthing.
Mr. Stark regularly receives long, complex
missives in which investors try to trace the origins of "spam" stock
solicitations. Others pen treatises explaining why certain transactions may
have violated state or federal securities laws. "People aren't just saying,
"Hey, I got ripped off," " Mr. Stark says. "There's usually a lot of detail to
[the messages]."
State and federal regulators also watch Internet message boards, such as
those on the Yahoo! Finance and Silicon Investor Web sites. The
free-wheeling Silicon Investor, which focuses on technology issues, even
boasts a dedicated discussion group called "Stocks That Should Be
Investigated By SEC." It currently has 98 postings.
Of course, many of the investors' allegations
are off target, and others degenerate into
name-calling and posturing. Mr. Pauly, for
instance, is currently embroiled in a nasty
on-line battle over the merits of Rocky
Mountain International Ltd., a tiny garment
manufacturer. Trading in the company's stock was halted by the SEC in
December. Nonetheless, edgy investors have deposited more than 50,000
messages about the company on one site's thread, or list of messages.
Company President Roland Breton says Rocky Mountain is out of money
and "at a standstill." He had no comment about the on-line postings.
So who are these amateur investigators? Some, like Mr. Pauly, who owns
a concrete company and another concern that makes sand and gravel
products, have few day-to-day business responsibilities. Mr. Pauly admits
that his wife complains about the long hours he spends scouring stock sites
on the Web. "I tell her, look, it's my job," he says. "If I see something
wrong, am I supposed to close my eyes and walk away and let you lose
money?"
Mr. Pauly says he was unrelenting in his pursuit of now-defunct Genesis,
which was taken over last year by Tennessee insurance regulators. He
says he spends about 10 hours a day at his keyboard looking for other
potential frauds, as well as for promising investment opportunities.
A smattering of active Web detectives are stockbrokers; others are
nonfinancial types who are between jobs or retired. One 58-year-old
woman from the Atlanta area says she got hooked on Web investing, and
then detective work, a few years after inheriting a $350,000 stock
portfolio from her late father.
Within about a year, she and a friend she met
through an America Online chat room were
spending less time investing and more time
using the Internet to track down information
on people tied to one of their less-than-stellar
stock picks: Systems of Excellence Inc., a McLean, Va.,
videoconferencing company now being liquidated under Chapter 7 of the
U.S. Bankruptcy Code.
Federal prosecutors now allege that people affiliated with the firm,
best-known by its stock symbol, SEXI, were involved in a
stock-manipulation and money-laundering scheme.
Of course, not all companies targeted by on-line investors are worth
investigating. Elisse Walter, chief operating officer of the regulatory arm of
the National Association of Securities Dealers, says some tipsters offer
information that's "very valuable, especially [as] confirmation for what
we've already found." But other tips never amount to anything. "It's a
mixed bag," she concludes.
But regulators sometimes find on-line messages helpful in their fraud
investigations. In California, officials of the Department of Corporations
were already looking into a Scottsdale, Ariz., company called Eventemp
Corp. earlier this year when they noticed heavy message traffic about the
company on Silicon Investor. They also came across a series of identical
Web pages titled "Avoid Eventemp Corporation," which urged investors
to "speak out!" and "help stop this stock scam!" The company, which
trades on Nasdaq's OTC Bulletin Board, markets a pager-type system it
says can remotely turn on the heat or air-conditioning in a car before the
driver gets behind the wheel.
Investors' postings, particularly those raising questions about whether
Eventemp had a product deal with a nationwide Cadillac dealership,
"helped raise the red flag ... and helped us nail them for [spreading] false
and misleading information in connection with the offer or sale of
securities," said Marc Crandall, who heads the California corporations
department's Internet surveillance and enforcement team. In June,
California ordered Eventemp to "desist and refrain" from disseminating
such information, as well as offering or selling unlicensed securities.
Eventemp spokesman Ken Simonis says his company "categorically denies
any wrongdoing" and will fight the orders. He says the charges sprang
from "extortionists on the Internet," including Rich Hilgersom, the Santa
Clara, Calif., man who put up the first anti-Eventemp Web site.
Mr. Hilgersom at one time wanted Eventemp to cough up $12,000 to
compensate him for harassment he says he endured in his battle with the
company, including an alleged death-threat e-mail. Now, he's mulling a
lawsuit. Eventemp's lawyer, Dwane Cates, calls the death threat "bogus"
and says his client is considering a libel suit against Mr. Hilgersom.
Still, Mr. Hilgersom says his stint as an on-line detective is "definitely
something I'd do again." But "next time, I think I'm going to do it
anonymously," he reflects. "This is not worth the grief."investors may be short-sellers who aim to
profit from driving down a stock's price by
stirring up bad news, regulators seem to be
welcoming all the help they can get.
John Reed Stark, head of the SEC's new
Office of Internet Enforcement, reports that
such e-mail messages have quickly become
the SEC's largest source of leads for
Internet-related investigations. About 30% of
the messages relate to continuing SEC probes
of all types, indicating many investors are
on-target in their cyber-sleuthing.
Mr. Stark regularly receives long, complex
missives in which investors try to trace the origins of "spam" stock
solicitations. Others pen treatises explaining why certain transactions may
have violated state or federal securities laws. "People aren't just saying,
"Hey, I got ripped off," " Mr. Stark says. "There's usually a lot of detail to
[the messages]."
State and federal regulators also watch Internet message boards, such as
those on the Yahoo! Finance and Silicon Investor Web sites. The
free-wheeling Silicon Investor, which focuses on technology issues, even
boasts a dedicated discussion group called "Stocks That Should Be
Investigated By SEC." It currently has 98 postings.
Of course, many of the investors' allegations
are off target, and others degenerate into
name-calling and posturing. Mr. Pauly, for
instance, is currently embroiled in a nasty
on-line battle over the merits of Rocky
Mountain International Ltd., a tiny garment
manufacturer. Trading in the company's stock was halted by the SEC in
December. Nonetheless, edgy investors have deposited more than 50,000
messages about the company on one site's thread, or list of messages.
Company President Roland Breton says Rocky Mountain is out of money
and "at a standstill." He had no comment about the on-line postings.
So who are these amateur investigators? Some, like Mr. Pauly, who owns
a concrete company and another concern that makes sand and gravel
products, have few day-to-day business responsibilities. Mr. Pauly admits
that his wife complains about the long hours he spends scouring stock sites
on the Web. "I tell her, look, it's my job," he says. "If I see something
wrong, am I supposed to close my eyes and walk away and let you lose
money?"
Mr. Pauly says he was unrelenting in his pursuit of now-defunct Genesis,
which was taken over last year by Tennessee insurance regulators. He
says he spends about 10 hours a day at his keyboard looking for other
potential frauds, as well as for promising investment opportunities.
A smattering of active Web detectives are stockbrokers; others are
nonfinancial types who are between jobs or retired. One 58-year-old
woman from the Atlanta area says she got hooked on Web investing, and
then detective work, a few years after inheriting a $350,000 stock
portfolio from her late father.
Within about a year, she and a friend she met
through an America Online chat room were
spending less time investing and more time
using the Internet to track down information
on people tied to one of their less-than-stellar
stock picks: Systems of Excellence Inc., a McLean, Va.,
videoconferencing company now being liquidated under Chapter 7 of the
U.S. Bankruptcy Code.
Federal prosecutors now allege that people affiliated with the firm,
best-known by its stock symbol, SEXI, were involved in a
stock-manipulation and money-laundering scheme.
Of course, not all companies targeted by on-line investors are worth
investigating. Elisse Walter, chief operating officer of the regulatory arm of
the National Association of Securities Dealers, says some tipsters offer
information that's "very valuable, especially [as] confirmation for what
we've already found." But other tips never amount to anything. "It's a
mixed bag," she concludes.
But regulators sometimes find on-line messages helpful in their fraud
investigations. In California, officials of the Department of Corporations
were already looking into a Scottsdale, Ariz., company called Eventemp
Corp. earlier this year when they noticed heavy message traffic about the
company on Silicon Investor. They also came across a series of identical
Web pages titled "Avoid Eventemp Corporation," which urged investors
to "speak out!" and "help stop this stock scam!" The company, which
trades on Nasdaq's OTC Bulletin Board, markets a pager-type system it
says can remotely turn on the heat or air-conditioning in a car before the
driver gets behind the wheel.
Investors' postings, particularly those raising questions about whether
Eventemp had a product deal with a nationwide Cadillac dealership,
"helped raise the red flag ... and helped us nail them for [spreading] false
and misleading information in connection with the offer or sale of
securities," said Marc Crandall, who heads the California corporations
department's Internet surveillance and enforcement team. In June,
California ordered Eventemp to "desist and refrain" from disseminating
such information, as well as offering or selling unlicensed securities.
Eventemp spokesman Ken Simonis says his company "categorically denies
any wrongdoing" and will fight the orders. He says the charges sprang
from "extortionists on the Internet," including Rich Hilgersom, the Santa
Clara, Calif., man who put up the first anti-Eventemp Web site.
Mr. Hilgersom at one time wanted Eventemp to cough up $12,000 to
compensate him for harassment he says he endured in his battle with the
company, including an alleged death-threat e-mail. Now, he's mulling a
lawsuit. Eventemp's lawyer, Dwane Cates, calls the death threat "bogus"
and says his client is considering a libel suit against Mr. Hilgersom.
Still, Mr. Hilgersom says his stint as an on-line detective is "definitely
something I'd do again." But "next time, I think I'm going to do it
anonymously," he reflects. "This is not worth the grief." |
