Washington, D.C., February 25, 1999 – Continuing its nationwide sweep targeting
Internet fraud, the Securities and Exchange Commission today announced four
enforcement actions against 13 individuals and companies across the country,
including one current and two former stock brokers, for committing fraud over the
Internet and deceiving investors around the world. The filing of these cases follows
the SEC's October 28, 1998 Internet Sweep, the first orchestrated nationwide
operation by the SEC to combat Internet fraud.
These new sweep cases involve a range of illicit Internet conduct including
fraudulent spams (Internet junk mail), online newsletters, message board postings
and websites. 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 56 public companies, by either making misrepresentations about the
companies or failing to disclose adequately the nature, source and amount of
compensation paid by the touted company. The alleged creators of the fraudulent
Internet touts purportedly provided unbiased opinions in their recommendations,
while at the same time receiving more than $450,000 in cash and approximately 2.7
million stock shares and options for their services. In one instance, the fraudsters
sold their stock or exercised their options immediately following their
recommendations, a deceptive practice commonly referred to as "scalping."
Richard H. Walker, Director of the SEC's Enforcement Division, said, "Today we have
good and bad news to report and a reminder to impart. The good news for investors is
that the disclosure of information they need has improved dramatically since our
first Internet fraud sweep in October. The bad news for cyber-scammers is that the
SEC continues to be vigilant in its efforts to stamp out fraud on the Internet. If
you're trying to cheat investors on the Internet, we are watching and we will catch
you. Finally, a blunt reminder to people who are paid to tout stocks on the
Internet: You must disclose the nature and amount of your compensation and it must
be easily accessible, not buried somewhere on the website."
Details of Today's Four Cases
Pump and Dump – In a classic microcap scam involving the securities of
Interactive MultiMedia Publishers, Inc. (IMP) of Akron, Ohio, the SEC alleges
that a corporate insider, P. Joseph Vertucci, and a stockbroker, Bruce
Straughn, conducted a "pump and dump" market manipulation scheme. The SEC
alleges that: Straughn and Vertucci sold to the public essentially worthless
securities of IMP, a software development company, which were not registered
with the Commission as required by federal securities laws. They also arranged
for publications to tout IMP on the Internet and elsewhere, for which they paid
the touters undisclosed compensation in the form of cheap or free stock. When
the stock's price rose in the wake of these touts, Vertucci, Straughn and the
touters all sold their shares at a profit, a deceptive practice known as
"scalping." Subsequently, the stock collapsed and the company ceased
operations. The SEC has sued the various participants involved for violations
ranging from the fraudulent sale of securities to the fraudulent touting of
securities and seeks remedies that include federal injunctions, civil penalties
and disgorgement. (SEC v. Vertucci, et al.; Contact: Richard Sauer (202)
942-4777);
Illegal Touting – In a typical touting fraud, the SEC alleges that Scott Flynn,
a former stockbroker recently convicted of securities fraud in another matter,
used "spam" (Internet junk mail) and a website to spread information about
certain companies, without properly disclosing the receipt of compensation from
those companies. The SEC alleges that unbeknownst to investors, Mr. Flynn
spread information through his company, Strategic Network Development, Inc.,
without disclosing cumulative compensation of at least $183,200 in cash and
322,500 shares of stock from at least ten of the companies. The SEC has
instituted cease and desist proceedings against Mr. Flynn and Strategic Network
Development, Inc. for related violations of the anti-touting provisions of the
federal securities laws. In addition, based on Mr. Flynn's criminal conviction
for violations of the federal securities laws, the SEC has instituted
administrative proceedings against him to determine if any remedial action
should be taken. (In the Matter of Scott P. Flynn and Strategic Network;
Contact: Elizabeth Gray (202) 942-4631);
Illegal Touting – The Commission simultaneously instituted and settled
administrative proceedings against Hastings Communications (Hastings), the
owner and publisher of the Stockprofiles.com website. The Commission's order
alleges that Hastings violated the anti-touting provisions of the securities
laws by publicizing the securities of publicly-traded companies on the Internet
without disclosing fully that it was compensated in cash and stock by these
companies. Without admitting or denying the allegations in the Commission's
order, Hastings consented to the entry of the Commission's order which requires
the company to cease and desist from committing or causing any violation or any
future violation of Section 17(b) of the Securities Act of 1933. (In the Matter
of Hastings Communications, Inc.; Contact: Elizabeth Gray (202) 942-4631);
Illegal Touting – The SEC alleges that RCG Capital Markets Group, Inc. (RCG)
and Max Ramras touted the stocks of nine issuers on RCG's Internet website from
November 1998 through January 1999. RCG and Mr. Ramras failed to disclose,
however, that RCG received cash and performance- based stock options from the
touted issuers. The SEC alleges that RCG had agreements with the issuers to
receive monthly fees ranging between $3,350 and $5,850 for financial relations
services, which included the website touts. Since November 1998, RCG has earned
in excess of $100,000 pursuant to the agreements. Mr. Ramras is the president,
chief executive officer and sole shareholder of RCG, and is also associated as
a registered representative with a registered broker-dealer. The SEC instituted
proceedings against Mr. Ramras and RCG seeking a cease and desist order.
Additionally, because Mr. Ramras was associated with a registered broker-dealer
at the time of his alleged fraudulent conduct, the SEC instituted
administrative proceedings against him to determine if any remedial action
should be taken. (In the Matter of RCG Capital Markets Group, et al.; Contact:
Kelly Bowers (323) 965-3924). |
