2 Accused of Using E-Mail to Commit Stock Fraud
By ALEX BERENSON
Federal authorities accused two men yesterday of manipulating penny stocks by using e-mail to promote the stocks and illegally profiting from the ensuing rally. The two men, James Sheret Jr. of Bayside, Queens, and Glenn Conley of Gaston, Ore., were indicted in United States District Court in Manhattan on 14 counts of securities fraud and one count of conspiracy to commit securities fraud. Each of the securities fraud charges carries a maximum penalty of up to 10 years in prison and a $1 million fine, while the conspiracy charge has a maximum penalty of five years in prison and a $500,000 fine.
At the same time, the Securities and Exchange Commission filed civil fraud charges against the two men, and obtained a temporary restraining order prohibiting them from buying or selling any stock or violating any securities laws. The men were also barred from disposing of any of their assets.
Mr. Sheret and Mr. Conley, both 31, were in custody and unavailable for comment. They were charged with promoting dozens of penny stocks from November 1999 until this month. In all, they defrauded investors of more than $1 million, a federal prosecutor, Brian Coad, said.
They were accused of sending hundreds of thousands of e-mail messages about the prospects of dozens of penny stocks to America Online users. In many cases, the stocks, which included everything from a Canadian uranium mining and exploration company to a New Jersey-based maker of "environmental protection products" called Safe Waste Systems, had no earnings, revenue or continuing operations, according to the indictment.
The e-mail messages were often addressed as if they were being sent between friends, in an effort to give the recipients the feeling that they had accidentally received a hot tip, said Donald M. Hoerl, district administrator of the S.E.C.
The message usually included the current price of the stock, a target price much higher than the current price, and a notation like, "Take a close look at this stock, it's on the rise." The indictment charges that that was true only because Mr. Sheret and Mr. Conley were buying the stocks to drive up their prices before sending the e-mail messages.
The messages usually caused a short-term increase in the price of the stocks, and the two men generally sold their shares after the increase, the indictment charges.
For example, Mr. Sheret bought 200,000 shares of Sports Heroes Inc., an Oklahoma-based marketer of sports trading cards, for 2.44 cents a share on Jan. 13, according to the indictment. Then Mr. Sheret promoted the company six times over the next five days, causing its price and volume to surge, the indictment charges. On Jan. 18, he sold his shares for 27.87 cents each, making a profit of more than $50,000. Sports Heroes stock peaked the next day at 43.75 cents. It now trades for 10 cents a share.
"In terms of the fraud itself, it's not that complicated," Mr. Hoerl of the S.E.C. said.
"The Internet is rapidly becoming the boiler room of the new century."
Rich D'Amato, a spokesman for America Online, reminded investors "to use both common sense and research" before buying stocks based on supposedly hot tips. "Obviously, in terms of an unsolicited e-mail, be very wary," Mr. D'Amato said.
AOL cooperated with the S.E.C. and provided information under a subpoena, Mr. D'Amato said.
Investors should remember the "three R's," Mr. Hoerl said. "Resist the impulse to buy, research your investment, and report fraud when it happens."
Mr. Sheret and Mr. Conley were arrested yesterday without incident, said Mr. Coad, the prosecutor. Bail had not been set as of yesterday.
nytimes.com |
