February 26, 1997
Internet Newsletter Writer Settles SEC Charges
By LESLIE EATON
The author of several popular Internet newsletters on investing settled federal charges on Tuesday that he had misled investors by making false claims about several companies and failing to disclose that he was getting paid to promote more than 150 stocks.
George Chelekis, who publishes the Hot Stocks newsletters in Tampa, Fla., agreed to pay $163,000 to settle a civil case brought by the Securities and Exchange Commission in U.S. District Court in Washington. Without admitting or denying the commission's charges, Chelekis agreed to a permanent injunction barring him from violating securities laws.
The case is the first in which a stock promoter has disgorged not only payments he received for promoting stocks, but also money he got from newsletter subscribers under false pretenses, said Paul Gerlach, associate director for enforcement of the SEC.
"He generated substantial fees from subscribers thinking they were getting independent analysis, when what they were really getting was undisclosed, paid-for advertising," Gerlach said of Chelekis.
The action against Chelekis comes two months after the SEC sued the proprietors of another electronic newsletter, SGA Goldstar, for taking secret payments to promote stocks. In that case, the newsletter writers received stock in the companies they promoted, stock which they sold when the shares started to rise, the SEC contended. A lawyer for SGA Goldstar has said that the writers' investments were adequately disclosed to readers.
Some of the Chelekis newsletters, which include Hot Stocks Review and Hot Stocks Whispers, did contain boilerplate disclosure about his activities, Gerlach said. But such a disclaimer is inadequate, he said, adding that investors should know "the amount and source of money, exactly how much was paid and who paid it."
It is unclear whether Chelekis will continue to publish Hot Stocks; his lawyer, Michael E. Schoeman of Schoeman Marsh & Updike, declined to comment on that question or on the settlement. Chelekis's Hot Stocks site appeared to still be operating.
According to the SEC's complaint, in 1995 Chelekis made at least $1.1 million from more than 150 companies and got 275,000 shares of stock from 10 issues in return for recommending their stocks. In six cases, he made false statements about small, thinly traded companies, suggesting that they were about to get big contracts, had hot new products, or were about to be taken over.
In four of the six incidents, the SEC said that Chelekis' statements were so wild that the companies themselves -- which had paid him to promote their shares -- still issued press releases denying his claims. These disavowals appear to have made it easy for the regulators to bring their case against Chelekis.
"We aren't saying that for the other 144 companies he was accurate," Gerlach said. "These are six demonstrable instances of making false statements."
These are the six companies described in the complaint:
Luminart Inc., a Canadian companies that markets signs; its shares trade on the Nasdaq bulletin board.
Nona Morelli's II Inc., a gambling and food company based in Irvine, Calif; its shares trade on the bulletin board.
Urban Resource Technologies Inc., a Toronto company that recycles garbage and whose shares trade on the Alberta Stock Exchange.
Advanced Viral Research Corp., of Hallandale, Fla., which is trying to develop a drug to kill viruses and whose shares trade on the Nasdaq bulletin board.
Canmine Resources Corp., a Canadian mining company whose shares trade on the Alberta exchange.
Quest International Resources Corp., formerly Consolidated Ramrod Gold Corp., of Reno, a mining company whose shares trade on the Nasdaq small-capitalization market.
Related Sites
The Hot Stocks site
hot-stocks.com
SGA Goldstar
sgagoldstar.com
Copyright 1997 The New York Times
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