TA2K; Just an advice - Watch Out, they(SEC)might think this is a Pump& Dump situation.
September 21, 2000
Teenage Trader Runs Afoul
Of SEC in Stock-Fraud Case
By MICHAEL SCHROEDER, RUTH SIMON
and AARON ELSTEIN
Staff Reporters of THE WALL STREET JOURNAL
Many parents worry about their adolescent boys using the Internet
to play violent interactive games or to download pornography.
Now it looks as if securities fraud can be added to the list of
worries.
The Securities and Exchange
Commission said Wednesday that it
nabbed its youngest securities-law
violator ever, a 15-year-old New Jersey
boy. The SEC alleged that Jonathan G. Lebed, beginning at the
age of 14, used the Internet to manipulate small-company stocks,
reaping gains of $272,826.
Without admitting or denying the findings, the young Mr. Lebed
agreed to abide by securities laws and turn over profits and interest
totaling $285,000. This is the first time the SEC has alleged that a
minor committed stock fraud.
The simplicity and success of the teenager's alleged trading
methods, known in popular parlance as a "pump and dump
scheme," underscore the Internet's power as a tool for committing
fraud. The SEC charged that on 11 separate occasions Jonathan
Lebed purchased a block of a thinly traded microcap stock, and
then within hours sent "numerous false and/or misleading
unsolicited e-mail messages touting the stock he just purchased."
He then sold his shares at a profit, the SEC said.
His attorney, Kevin Marino, said that the boy is a normal teenager
who likes sports, music and hanging out with his friends, but that
he also developed a knack for trading stocks. When he was in
eighth grade, he and two friends were among the top finalists in a
student stock-picking contest sponsored by CNBC.
The young Mr. Lebed, a junior
at Cedar Grove High School,
said in an interview Wednesday
afternoon that he has been
investing in the stock market
since he was 12. He said he
learned about the market by
reading books, watching
CNBC and CNN, and visiting
investing Web sites.
Both he and his parents, Constance and Gregory Lebed, declined
to comment on the SEC charges. But his mother, a secretary, said
her husband has always been interested in the stock market. "We
have CNBC on a lot," she added.
The youth started trading "well-known" stocks with his savings of
several thousand dollars through a custodial account opened by
his parents, his attorney said. But he soon graduated to stocks with
low capitalizations of $3 million to $20 million and low trading
volume and became a regular on Internet investment message
boards on such sites as Yahoo!, the SEC said.
Beginning in early 1998, he was
regularly writing on Silicon Investor,
another financial Web site. While many
people choose to talk about stocks on
these sites using a pseudonym, the young
Mr. Lebed registered on Silicon Investor
under his real name as a resident of
Greenwich, Conn., and, asked for
occupation or title, he called himself "The
Great One."
As for favorite stocks, he wrote on Silicon Investor, "You have to
pay for this information."
"We all thought he was 40 years old," says Kerry Carmichael, a
frequent Silicon Investor participant. "He talked a good game."
The SEC zeroed in on the youth's transactions between Aug. 23,
1999 and Feb. 4, when he was trading in OTC bulletin board
stocks. He would buy a large share -- 17% to 46% -- of a day's
volume of a thinly traded stock, the agency said.
From his bedroom computer, he would then start posting
hundreds of false messages on message boards touting the stock
using fictitious names, the SEC said.
In order to be certain he wouldn't miss the price increase while he
was in school the next day, he put in a "limit order" setting a
minimum price to sell the stock, said Ronald Long, administrator
of the SEC's Philadelphia office.
On Jan. 5, for example, he bought 18,000 shares of Man Sang
Holdings Inc., a Chinese jewelry company, at prices between
$1.37 and $2, according to the SEC. He began posting one of his
typical one-page messages recounting the company's financials and
calling the stock "the most undervalued stock in history," the SEC
said. The next day, the SEC said, trading volume soared to more
than a million shares at a peak price of $4.68; the teenager sold
that day for a $34,959 profit. The SEC said Man Sang had no
knowledge of the manipulation. A spokesman couldn't be reached
for comment.
Other stocks included Manchester Equipment Co., Just Toys Inc.,
Yes Entertainment Inc., Fotoball USA Inc., West Coast
Entertainment Inc., Havana Republic Inc., Classica Group Inc.
and Firetector Inc., according to SEC documents. His profits on
each trade ranged from $11,000 to $74,000, the SEC said. None
of the companies was charged with any wrongdoing.
Mr. Long said that when SEC officials first approached the young
trader last spring he claimed he had done nothing illegal.
"Everybody does this," he said the boy told investigators.
Mr. Long said the teenager's parents were aware of their son's
growing trading account, but there was no indication that they
knew anything about his alleged illegal activities. Nor is there any
evidence that the young Mr. Lebed engaged in the activity with
other students, he said.
Recent SEC cases show that violators are getting increasingly
younger. In March, a group of Georgetown University law
students and the mother of one of the students settled allegations
that they manipulated small-company stocks on the Internet.
The students operated an online subscription stock-tip service
called FastTrades.com. They allegedly ran afoul of the law when
they didn't always disclose that they invested in the hot stocks they
recommended. In addition, the SEC alleged many of the students'
online message postings were false and misleading.
Last month, a 23-year-old former community college student
from El Segundo, Calif., was arrested on securities-fraud charges
for allegedly posting a bogus news release on the Internet, causing
shares in fiber-optics company Emulex Corp. to plunge
dramatically in a matter of minutes.
The young Mr. Lebed, the SEC said, broke securities laws because,
using fictitious names, he posted baseless predictions about
stock-price increases and other false information about company
prospects. The SEC said that personally benefiting from such a
scheme is illegal.
In the CNBC contest, the young Mr. Lebed and his two friends
placed seventh, posting a 139% gain in just three months.
Students were given $10,000 in fake money to trade with; at the
end of the contest, CNBC reported, Jonathan Lebed's team had
nearly $24,000. They called their team The Triple Threat, after a
popular professional wrestling team.
The young Mr. Lebed said he has been interested "in business and
finance and investing" since he was 11. "It intrigued me watching
all the numbers go by on television," he said, adding, "I like
mathematics."
When he began investing about a year later, he said, one of his
earliest picks was America Online. "I heard about how America
Online was going to unlimited access," he said. "I bought shares of
AOL at $25. The next day it was up a few points." The youth
added that he sold the stock when it hit $30.
Another early purchase was THQ Inc., a developer of interactive
entertainment software. "I liked professional wrestling and THQ
had a wrestling video game," he said. "I spotted that at about $9 or
so. That did extremely well."
Mr. Lebed added that people have asked him to start investment
clubs, but "I just haven't had time to do anything like that." He said
he has started two Internet businesses in recent months. One,
pr.host.com, runs a Web site that stores files for people who want
to create Web sites. The second, eprolutions.com, helps people
market and advertise their Web sites. He said both ventures are
profitable.
"He's a phenomenally successful investor," said Mr. Marino, the
attorney. "He and his family feel it's a satisfactory settlement and
are happy to have it behind him."
Write to Michael Schroeder at mike.schroeder@wsj.com, Ruth
Simon at ruth.simon@wsj.com, and Aaron Elstein at
aaron.elstein@wsj.com |
