SEC Official Lashes Out at Defenders of Teen Stock Manipulator
New York, Oct. 25 (Bloomberg) -- The Securities and Exchange Commission's enforcement chief defended the agency's action last month against teen stock manipulator Jonathan Lebed and said a ``60 Minutes'' segment unfortunately has given the teen ``cult status.''
Richard Walker, the SEC's enforcement director, said the 16- year old's actions involved market manipulation ``plain and simple.
``In an internet world, the time it takes to manipulate a security has shrunk from days to minutes,'' Walker said in a luncheon address at The Bond Market Association's Legal and Compliance Conference. ``A single mass e-mail, or 'spam,' sent by the click of a mouse can more easily and cheaply reach investors than hundreds of cold calls from an old-fashioned boiler room.''
Yet, the effect in both cases is the same, and the prohibitions against manipulation apply equally, Walker said.
``This is a message that Lebed, who appeared on `60 Minutes' last Sunday, his parents, his lawyer, and various members of the media appear not to understand,'' Walker said.
It's a message worth repeating to people who are asking whether the fundamental curb against market manipulation applies to the Internet, he said. ``Trust me, it does,'' Walker said.
Posted Messages
Lebed purchased large blocks of thinly traded microcap stocks, often accompanying these trades with limit orders to sell, the SEC said. He then posted hundreds of identical messages, commonly known as spam, to Yahoo! Inc. finance message boards using multiple screen names, the SEC said.
``Lebed conceded on national television that he was manipulating stocks,'' Walker said, referring to the CBS ``60 Minutes'' segment. ``It's not very often that we find stronger proof of manipulative purpose. Nothing beats admission,'' he said, drawing laughter from the crowd.
Yet, for some reason, perhaps because his conduct took place over the Internet, even ``prominent financial newspapers'' have had difficulty understanding that this case involves market manipulation, Walker said.
Walker said some in the press and others have gotten ``side- tracked'' and tried to defend Lebed's conduct. They did so by ``demonizing'' Wall Street, suggesting that what Lebed did is no different than what Wall Street analysts do daily.
Any analyst who ``manipulates a security, misleads investors through a widespread Internet posting under multiple names, makes unsubstantiated price predictions, or scalps a recommendation by selling when the analyst is telling others to buy, has a serious problem,'' Walker said.
Family Reaction
To suggest that these are standard brokerage house procedures is ``sophomoric,'' Walker said.
Most disturbing is the reaction from the Lebed family and others who treat Jonathan as a ``cult hero,'' Walker said. ``Both Lebed Jr. and Sr. have said: `What's the problem? There were no victims,' '' Walker said.
Perhaps the Lebed's should have used some of Jonathan's profits to buy a dictionary rather than a Mercedes, Walker said. The car, which Jonathan bought his parents with Internet trading profits not targeted by the SEC, appeared in the ``60 Minutes'' piece. ``Just because you can't always see them doesn't mean victims don't exist,'' Walker said. ``Those who unwittingly bought at an inflated price, only to be burned when the stock collapsed, meet any dictionary definition of victim.''
Lebed's father, during the CBS broadcast, distinguished his son's securities violations from smoking pot in the garage or stealing hubcaps, Walker said. ``A hubcap is probably worth about 20 bucks, and smoking doesn't hurt innocent bystanders,'' Walker said. ``Securities manipulation, by contrast deprives people of hard-earned dollars needed for retirement, education, and the like.''
Jonathan told ``60 minutes'' that although he manipulated stocks, ``I wasn't doing anything wrong ... I wasn't posting any kind of false information.''
In September, Lebed, then 15, agreed to pay the federal government $285,000, which included his alleged illegal profits from 11 trades plus interest, to settle the SEC suit. He neither admitted nor denied wrongdoing.
The SEC originally tried to allege that Lebed made 27 illegal trades but narrowed its focus to 11 trades in the case the agency filed, according to his lawyer, Kevin Marino of Newark, New Jersey.
Oct/25/2000 19:49 ET
For more stories from Bloomberg News, click here.
(C) Copyright 2000 Bloomberg L.P. |
