BIG SEC SWEEP HITS NEWSLETTERS, MESSAGE BOARDS, WEBSITES
sec.gov
sec.gov
Following an unprecedented nationwide sweep, the Securities and Exchange
Commission announced the filing of 23 enforcement actions against 44
individuals and companies across the country Wednesday for committing fraud over the Internet and deceiving investors around the world.
The sweep, the first orchestrated coast-to-coast operation by the SEC to
combat Internet fraud, involved actions filed by SEC offices in Atlanta (1),
Boston (1), Chicago (3), Denver (3), Fort Worth (2), Los Angeles (2), Miami
(2), New York (2), Philadelphia (1), Salt Lake City (1) and Washington, D.C.
(5).
The 23 cases involve a range of Internet conduct including fraudulent spams
(Internet junk mail), online newsletters, message board postings and Web
sites. The allegations include violations of the anti-fraud provisions and
the anti- touting provisions of the federal securities laws. The authors of
the spams, online newsletters, message board postings and Web sites
unlawfully touted more than 235 Microcap companies, by either: (1) lying
about the companies; (2) lying about their own "independence" from the
companies; and/or (3) failing to disclose adequately the nature, source and
amount of compensation paid by the companies.
The creators of the Internet touts purported to provide unbiased opinions in
their recommendations, but failed to disclose that they had received in
total more than $6.3 million and nearly two million shares of cheap insider
stock and options in exchange for touting services. In some instances, the
fraudsters sold their stock or exercised their options immediately following
their recommendations, a deceptive practice commonly referred to as
"scalping."
SEC Director of Enforcement Richard H. Walker said, "In all of these cases,
the Internet promoters gave ostensibly independent opinions about Microcap
companies that in reality were bought and paid for. Not only did they lie
about their own independence, some of them lied about the companies they
featured, then took advantage of any quick spike in price to sell their
shares for a fast and easy profit. Today's sweep demonstrates the SEC's
commitment to cleaning up the Internet, by aggressively prosecuting
securities violations occurring in Cyberspace."
Among the schemes in today's sweep, the SEC alleges a wide range of
Internet-related securities fraud. Below are a few highlights.
· An Internet newsletter called The Future Superstock ("FSS"), written by
Jeffrey C. Bruss of West Chicago, Illinois, recommended to FSS's more than
100,000 subscribers and to visitors to the newsletter's Web site the
purchase of approximately 25 Microcap stocks predicted to double or triple
in the months following dissemination of the recommendations. In making
these recommendations, FSS: (1) failed to adequately disclose more than
$1.6 million of compensation, in cash and stock, from profiled issuers; (2)
failed to disclose that it had sold stock in many of the issuers shortly
after dissemination of recommendations caused the prices of those stocks to
rise; (3) said that it had performed independent research and analysis in
evaluating the issuers profiled by the newsletter when it had conducted
little, if any, research; and (4) lied about the success of certain prior
stock picks. (· SEC v. The Future Superstock, et al.)
· An Internet touting service called Stockstowatch ("STW"), and its
president, Steven A. King ("King") ran an Internet stock touting service
operated from King's home in Sarasota, Florida, which claimed at one time
to have more than 200,000 subscribers. STW and King conducted the scheme
from October 1997 until at least July 1998, fraudulently touting the stocks
of at least five publicly-traded Microcap companies in e-mails sent to STW
subscribers and in profiles posted on STW's Internet Web site. With respect
to almost every stock touted by STW, the price and/or volume of the
profiled company's stock sharply increased shortly following the STW buy
recommendation, and STW and King took advantage by selling shares to reap
more than a $1 million profit. (· SEC v. Steven A. King, et al.)
· John Wesley Savage and Princeton Research, Inc. touted the stocks of
seven different companies through the use of spam while receiving 276,500
shares and 75,000 options from those companies. Savage and Princeton also
lied about the financial condition of two of the issuers in order to pump
up their stock price and make a quick profit by scalping. Simultaneous with
the filing of the complaint, Savage and Princeton consented, without
admitting or denying the SEC's allegations, to the entry of a permanent
injunction and payment of a civil penalty of $40,000. (· SEC v. John Wesley
Savage, et al.)
· Francis A. Tribble and his promoting company, Sloan Fitzgerald,
disseminated more than six million spams touting two Microcap companies and were the subject of the largest number of complaints received in the
history of the Enforcement Complaint Center (SEC Enforcement's Online
Complaint Center at www.sec.gov). They also republished their touts in
several other forms including an online newsletter and a Web site.
Simultaneous with the filing of the complaint, Tribble and Sloan Fitzgerald
consented, without admitting or denying the SEC's allegations, to the entry
of a permanent injunction and payment of a civil penalty of $15,000. (· SEC
v. Tribble)
· Illustrating the migration of stock touters from traditional media to the
Internet, a southern California promoter moved his Microcap touts from
newspaper ads to the "Investors Edge" Web site he created this year,
without disclosing that Microcap issuers had paid for his touts. At the
same time the promoter and one of his companies were recommending that
investors buy an issuer's stock, they were engaged in scalping the shares
they had received from the issuer, profiting in excess of $64,000. Those
defendants also were charged with making false statements in newspaper ads.
(· SEC v. Volmer, et al.)
"Never, ever, make an investment based solely on what you read in an online
newsletter or Internet bulletin board, especially if the investment
involves a small, thinly-traded company that isn't well known," said Nancy
M. Smith, Director of the SEC's Office of Investor Education and
Assistance. "Assume that the information about these companies is not
trustworthy unless you can prove otherwise through your own independent
research." "Internet Fraud" is available on the SEC's Web site, at
sec.gov. []
Below is a complete list of all sweep SEC actions:
· SEC v. Attalienti, et al. · (File name: lr15957.txt)
· SEC v. Carlisle, et al. · (File name: lr15949.txt)
· SEC v. The Future Superstock, et al. · (File name: lr15958.txt)
· SEC v. Liberty Capital Group, et al. · (File name: lr15953.txt)
· SEC v. Ruebel · (File name: lr15948.txt)
· SEC v. Savage, et al. · (File name: lr15954.txt)
· SEC v. Schlieben · (File name: lr15951.txt)
· SEC v. Starwood, et al. · (File name: lr15950.txt)
· SEC v. Stockstowatch.com, et al. · (File name: lr15956.txt)
· SEC v. Taxin, et al. · (File name: lr15955.txt)
· SEC v. Tribble, et al. · (File name: lr15959.txt)
· SEC v. Volmer, et al. · (File name: lr15952.txt)
· In the Matter of Baillargeon, et al.; · (File name: 3-9764.txt)
· In the Matter of Core Communications, et al. · (File name: 3-9765.txt)
· In the Matter of High Growth Publishing Group, et al. · (File name:
3-9762.txt)
· In the Matter of IBJ Publications, et al. · (File name: 3-9771.txt)
· In the Matter of ICS Communications, et al. · (File name: 3-9768.txt)
· In the Matter of Investment Hotlines, et al. · (File name: 3-9772.txt)
· In the Matter of Klein · (File name: 3-9763.txt)
· In the Matter of National Investors Council, et al. · (File name:
3-9766.txt)
· In the Matter of Smith · (File name: 3-9770.txt)
· In the Matter of TKO International, et al. · (File name: 3-9769.txt)
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