From the Dow Jones Newswires via WSJ Interactive:
September 20, 2000
SEC Settles With 15-Year-Old Over Net
Stock-Fraud Scheme
Dow Jones Newswires
By Michael Rapoport
Of DOW JONES NEWSWIRES
NEW YORK -- Out of the keyboards of babes.
In what was described as a first, the Securities and Exchange Commission said Wednesday that it has brought and settled civil fraud charges against a 15-year-old boy who the SEC said manipulated microcap stocks through hundreds of postings on Internet message boards.
Jonathan G. Lebed of Cedar Grove, N.J., made $272,826 in illegal profits by buying shares of nine thinly traded stocks, posting messages on Yahoo! message boards touting them, and selling it after the postings drove the stocks' price higher, the SEC said.
Lebed agreed to forfeit his profits and pay interest of $12,174, the SEC said. He didn't admit or deny the SEC's allegations in agreeing to the settlement, which also includes an administrative cease-and-desist order.
An attorney for Lebed couldn't immediately be reached for comment. The only family with his last name which directory information has on record in Cedar Grove has an unlisted home telephone number.
The SEC said this is the first time the commission has brought charges against a minor, and that it spotlighted the need for investors to be cautious before acting on information they see on the Internet. Lebed's case is the latest of a number of cases in which charges have been brought against people who allegedly used online message boards or other mechanisms on the Internet to manipulate stocks.
Lebed's postings "sounded good, they looked like they were written by an adult," said David Horowitz, assistant district administrator in the SEC's Philadelphia office, which brought the case. "You have to do your research before making investment decisions."
According to the SEC, the scheme began in August 1999, when Lebed was just 14. On 11 different occasions between then and February, according to the commission, he bought large blocks of a stock and "spammed" hundreds of identical false and misleading messages to various Yahoo! boards to tout the stock, using multiple screen names. He would claim big price runups were coming, or that the stock in question would be the "next stock to gain 1,000%," according to the SEC.
Lebed would typically sell his shares within 24 hours to benefit from the price runup that his messages caused, making profits of between $11,000 and $74,000 each time, the SEC said. In some cases, he would place a sell limit order to ensure that he wouldn't miss the stock's increase when he was in school the next day, according to the commission.
One instance cited by the SEC involved Man Sang Holdings Inc. (MSHI), an OTC Bulletin Board stock. According to the SEC, Lebed bought 18,000 shares of the stock on Jan. 5 - nearly a third of the stock's total volume that day - at prices ranging from $1.37 to $2 a share. In messages he posted to Yahoo! message boards that night, the SEC said, Lebed claimed the stock was "the most undervalued stock in history" and would soon hit $20 a share.
The following day, in response to Lebed's postings, more than 1 million Man Sang shares traded, and the stock's price more than doubled, according to the commission. Lebed sold his shares that day at prices ranging from $3.81 to $4, pocketing a profit of $34,959, the SEC said.
Three weeks later, on Jan. 27, Lebed again manipulated Man Sang in a similar fashion, the SEC said, this time netting a profit of $37,901.
Lebed traded through custodial accounts at two brokerage firms set up for him by his parents, the SEC's Horowitz said. "He'd been interested in the stock market from a very early age."
The parents haven't been charged with any wrongdoing. The accounts were in Lebed's father's name, according to the SEC, but Lebed made all of the trading decisions.
In addition to Man Sang, the stocks the SEC says Lebed manipulated are Manchester Equipment Inc. (MANC), Just Toys Inc. (JUST), Yes! Entertainment Corp. (YESS), Fotoball USA Inc. (FUSA), West Coast Entertainment Corp. (WCEC), Havana Republic Inc. (HVAR), Classica Group Inc. (TCGI) and Firetector Inc. (FTEC).
-Michael Rapoport, Dow Jones Newswires; 201-938-5976;
michael.rapoport@dowjones.com |
