SEC releases related to the alleged NEIP stock manipulation:
SEC, U.S. Attorney File Fraud Charges in Internet Stock Manipulation Case Involving UCLA Computers
FOR IMMEDIATE RELEASE 99-172
Defendents Made $364,000 by Spreading False Information on
Internet Message Boards
Washington, D.C., December 15, 1999 - The Securities and Exchange Commission today filed civil fraud charges against three Southern California residents, two of whom are recent UCLA graduates, for manipulating the price of a thinly-traded stock by spreading false information on Internet message boards, allowing them to reap $364,000 in trading profits. The individuals are: Arash Aziz-Golshani of Beverly Hills, Allen Derzakharian of La Crescenta, and Hootan Melamed of Pomona; the first two are recent UCLA graduates. The Commission was granted a temporary restraining order against the three defendants' future violations of the antifraud provisions of the federal securities laws, as well as a freeze on their assets. Defendants Aziz-Golshani and Melamed also have been arrested and charged by the U.S. Attorney for the Central District of California with one count each of conspiracy to commit securities fraud.
The Commission's civil complaint alleges that, as a result of the defendants' manipulation, the price of NEI Webworld, Inc. (NEIP) common stock rose from $.13 (thirteen cents) per share at the close of trading on Friday, November 12, 1999 to a peak of more than $15 per share soon after the opening of the market on Monday, November 15, before declining precipitously.
SEC Enforcement Director Richard H. Walker said, "Let this serve as a warning to con men: if you use the Internet to manipulate our securities markets, we can and will find you. Though the perpetrators in this case went to great lengths to hide from us, we discovered them within a matter of days. And investors who frequent message boards should be warned as well: Internet postings may be informative but many are no more valuable than graffiti."
The Commission's civil complaint alleges that the three defendants bought large blocks of NEIP, a microcap stock traded through the NASD's over-the-counter bulletin board system, between November 9 and 12, 1999. They then drove up the price of the stock over the weekend of November 13-14 by sending to Internet financial message boards, from computer accounts created at a UCLA library, numerous copies of a fraudulent message predicting the acquisition of all outstanding NEIP common shares by a privately-held San Jose, CA firm. They used multiple pseudonyms to send the fraudulent messages. In fact, no such acquisition was ever planned.
The Commission is also seeking preliminary and permanent injunctions barring the defendants from future violations of the antifraud provisions of the federal securities laws, disgorgement of the defendants' ill-gotten gains, and civil money penalties.
We are grateful to the NASD for its able assistance in this matter.
For further information contact Erich Schwartz at (202) 942-4540.
sec.gov
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Litigation Release No. 16391 / December 15, 1999
SEC AND U.S. ATTORNEY MOVE AGAINST ACCUSED MICROCAP STOCK MANIPULATORS;
THREE SPREAD FALSE INFORMATION THROUGH INTERNET MESSAGE BOARDS
SECURITIES AND EXCHANGE COMMISSION v. ARASH AZIZ-GOLSHANI, HOOTAN MELAMED & ALLEN DERZAKHARIAN, U.S. District Court for the Central District of California, Civ. Action No. 99-13139 (CBM) (AJWX) (C.D.Cal. December 15, 1999)
The Securities and Exchange Commission today announced that it filed a civil action against three Southern California defendants -- Arash Aziz-Golshani, 23, of Beverly Hills, Hootan Melamed, 23, of Pomona and Allen Derzakharian, 26, of La Crescenta -- alleging that they participated last month in a scheme to manipulate the price of a stock by spreading false information on Internet message boards. The Commission was granted a temporary restraining order against the defendants' future violations of the antifraud provisions of the federal securities laws and a freeze on their assets. The defendants' dissemination of misinformation on the Internet drove the stock of Dallas, Texas-based NEI Webworld, Inc. (NEIP) from a closing price of $.13 per share on Friday, November 12 to a peak price of over $15 per share on Monday, November 15.
In related actions, defendants Aziz-Golshani and Melamed were arrested by agents from the Federal Bureau of Investigation's Los Angeles field office and charged with one count each of conspiracy to commit securities fraud.
The Commission's civil complaint and documents filed in support of emergency relief allege the following:
From November 9 through 12, 1999, the defendants accumulated large blocks of stock in NEI Webworld, Inc. (NEIP), for pennies per share. NEIP, formerly a Dallas, Texas-based commercial printer, was in bankruptcy liquidation and had no assets or business operations. During the weeks before the defendants began accumulating NEIP there was virtually no market activity in the company's common stock.
Beginning on the afternoon of Friday, November 12, and continuing through the weekend, the defendants used public access computers at a University of California at Los Angeles library to create numerous accounts with Internet message board services.
Commencing on Friday evening, shortly following the final purchases of NEIP stock by each of the defendants, and continuing throughout the weekend, the defendants used certain of those accounts to post messages on the Internet message boards falsely stating that the outstanding shares of NEIP would be acquired by LGC Wireless, Inc., a privately-held telecommunications company. One widely circulated message described the acquisition and predicted that NEIP would be "a fast mover" with a target price of "$5-10" per share. Other of the accounts were used to post what appear to be comments by third parties discussing the acquisition.
In fact, there were never any discussions between NEIP and LGC Wireless.
The defendants' Internet postings caused investors to order NEIP stock over the weekend of November 13-14. As a result, NEIP stock, which closed at a price of $.13 on Friday, November 12, opened at a price of $8 per share on Monday, November 15, and rose to a high of over $15 per share that morning during the first hour of trading, before the price declined precipitously.
The defendants sold their positions in NEIP on Monday the 15th, realizing approximately $364,000 in profits.
The Commission's action also seeks preliminary and permanent injunctive relief, disgorgement of illegal proceeds with prejudgment interest, and civil money penalties based upon the defendants' alleged violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Commission is grateful for the able assistance of NASD Regulation, Inc. in this matter.
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