U.S. Charges Three Men With Web Stock Manipulation (Update1)
(Adds details of charges)
Los Angeles, Dec. 15 (Bloomberg) -- Three men, including two
recent graduates of the University of California at Los Angeles,
were charged with illegally netting $364,000 by using the
university's computers to manipulate a stock through Internet
chat rooms.
The case is the first Internet stock-fraud case filed by the
SEC against people unaffiliated with the company whose stock they
allegedly manipulated for profit, SEC spokesman Chris Ullman
said.
The U.S. attorney's office in Los Angeles also filed
criminal charges against two of the men.
''Though the perpetrators in this case went to great lengths
to hide from us, we discovered them within a matter of days,''
SEC enforcement director Richard H. Walker said.
The three men used 50 aliases in sending messages to 500
Internet bulletin boards, the SEC alleged. The stock they
allegedly manipulated, NEI Webworld Inc., soared one morning to
$15.50 a share, from a previous closing price of 13 cents, then
collapsed to 25 cents a share a half-hour later, the SEC alleged.
The three people charged by the SEC all live in California.
They were identified as Arash Aziz-Golshani, 23, an Internet
leather-jacket retailer who recently graduated from UCLA; Allen
Derzakharian, 26, another recent UCLA graduate who is a pharmacy
student at the Western University of Health Sciences in Pomona,
and Hootan Melamed, 23, also a pharmacy student at the same
school.
Golshani and Melamed also were charged by federal
prosecutors with conspiracy to commit securities fraud, an
offense that carries a maximum penalty of 5 years in prison.
Golshani was arrested Tuesday, and Melamed has agreed to
surrender to federal officials today. Their attorneys couldn't be
reached for comment.
The SEC's civil complaint, filed in Los Angeles federal
court, alleges that the defendants manipulated the stock of NEI,
a bankrupt commercial printing facility owner based in Dallas.
The three bought large blocks of NEI stock and used
computers at UCLA's biomedical library to send a fraudulent
message to Internet financial message boards, the complaint
contended. These message boards were operated by Yahoo! Finance,
Raging Bull and FreeRealTime.com.
The messages sent by the defendants, who used many
pseudonyms, predicted the acquisition of all outstanding NEI
shares by a closely held San Jose, California firm, the suit
alleged. In fact, no such purchase was ever planned, the SEC
contended.
One messages said, ''People who know of the deal are buying
in given the large volume the last few days,'' according to SEC
court documents. The defendants used pseudonyms such as ''Blue
Algae,'' ''Green Matter,'' and ''Betty Johnson,'' the commission
alleged.
As a result of the alleged manipulation, the company's
stock, which closed at 13 cents a share on Friday, Nov. 12,
opened at $8 on Monday, Nov. 15, the suit alleged. It then
soared to $15.50 that morning, and collapsed to 25 cents a half-
hour later, the SEC contended.
Some of the defendants sold their stock after it had risen,
the SEC alleged.
NEI filed for Chapter 7 liquidation before the alleged fraud
took place. It had no assets or operations during this time,
though its stock still traded on the Nasdaq Stock Market's over-
the-counter bulletin board, the suit alleged. The company wasn't
charged with any wrongdoing.
The SEC previously has alleged that company executives,
brokerages, and stock promoters connected with a company have
used the Internet to manipulate its stock. This case is the first
to charge that someone who has no connection to a company
profited from manipulation of its stock, Ullman said.
NYSE/AMEX delayed 20 min. NASDAQ delayed 15 min. |
