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To: puddinhead who wrote (4987)	11/19/1999 4:45:00 PM
From: Phil(bullrider)	Respond to of 7209

To all: Penny-Stock Fraud Is Billion-Dollar Game The plot of the play always begins with the company. The ideal stock-fraud company has some whiz-bang new product that will excite investors, like a self-chilling beer can, springy shoes for race horses, or a cure for baldness or for tooth decay. Also popular are gold mines in obscure locations, theme restaurants in Las Vegas and anything in cyberspace with a .com after it. Sometimes the purported business will change in the course of the scheme; according to a ruling in a federal lawsuit, one outfit called Sky Scientific claimed at various times to be running gold mines, a financial services company and the first riverboat casino in Moscow. Occasionally the company is a small operation that has a real product, but it is just not as thrilling as the company's public relations makes out. (The vitamins do not really cure cancer; the Internet service has not really signed up every household in Peru.) One company Lehmann was involved with, Electro-Optical Systems, claimed to be developing a computer gizmo that would read fingerprints, so that users could sign in without having to remember pesky passwords. His original role was to hook up the would-be inventor of the product with the "investment bankers" who were supposedly raising money for the company, according to a decision in a lawsuit filed last year by the S.E.C. in Federal District Court in Manhattan. The inventor was not named as a defendant in the case, which is now dormant while a criminal investigation continues. Lehmann settled the regulators' charges and paid $630,000 in fines and restitution. The key, from the con artists' point of view, is to get control of the shares of stock, which might be called Act 1. Sometimes shady brokerage firms stage "initial public offerings," but a faster and cheaper method -- the one Lehmann's group used -- is to merge the company with a shell corporation, which has stock outstanding but no business. Almost everyone involved in the scheme is paid with stock; the promoters usually control huge blocks in accounts with false names, often overseas. They all make money by making the shares rise in price. They often do this in part by making fake trades at arbitrary prices. In the case of Electro-Optical, regulators contend that the promoters put in an order to buy shares at $7 each, far above the 20 cents for which shares had last changed hands before the promotion began. Once the stock price has been pumped up, it is time to lure outsiders into buying the shares. Lehmann helped out with the public relations. He got an an Internet newsletter to choose Electro-Optical as its "pick of the year"; the newsletter's owner was later sued by the S.E.C., which accused him of secretly taking stock and cash from companies in exchange for recommending their stocks; he is contesting the charges. Lehmann also approved a press release that claimed, falsely, that Electro-Optical had just received a big order for its products. (Neither order nor products existed.) Investors, entranced with the concept and the rising stock price, began to buy the inflated stock. After the pump comes the dump. Those in the know sell their shares to unsuspecting investors. Lehmann had received 100,000 shares, for which he paid nothing and which he put in an account in his wife's name; when he sold, he made about half a million dollars. All told, regulators say, those involved in the Electro-Optical rigging made $12 million by dumping their shares. Once the promoters stop pumping the stock, its price usually plunges. Anyone who wants to buy Electro-Optical today can get 10 shares for a penny. #reply-12008610 Have fun, Phil