Mr. Stark---you are my hero.
You did such a great job with GIFS and SEXI (you needed a concrete salesman to tell you how a goldmine was really a garbage dump...) I know that all the careful thought and effort that went into sinking GRNO has enhanced your reputation and aided in your search for a real job. I think Ron Reece should get the chair for taking that $600 scanner and those dinners. Sure seems like a good reason to wipe out $40 Million in market cap overnight. Nice work, Johnny...
+++++++
The Wall Street Journal's Heard on the Net Column for Tuesday, Aug. 4, 1998:
Dogged On-Line Investors
Are a Top SEC Source in Probes
By REBECCA BUCKMAN
Staff Reporter of THE WALL STREET JOURNAL
When D. Tod Pauly sensed something fishy about his investment in Genesis
International Financial Services Inc. two years ago, he didn't just give up
and cash out of the tiny, speculative stock.
Instead Mr. Pauly, a small-business owner from Wisconsin who's one of a
growing number of "cyber-sleuthing" investors helping stock regulators
fight fraud on the Internet, launched an investigation worthy of a private
detective.
Posting his findings on Web "message boards" as he worked, Mr. Pauly, 44
years old, pestered enough lawyers and state insurance regulators to find
out that Genesis's president was a thrice-convicted felon -- something the
company didn't disclose to the Securities and Exchange Commission. Later,
Mr. Pauly went so far as to track down a park ranger in Idaho to verify
that a gold mine supposedly being developed by the Chattanooga, Tenn.,
concern was actually dormant.
Mr. Pauly is not alone. The SEC reports that it now gets 120 e-mail
messages a day from aggressive on-line investors complaining about
potential stock fraud, including promotions in Internet investment
newsletters and bulk e-mail called "spam." Although some of the investors
may be short-sellers who aim to profit from driving down a stock's price by
stirring up bad news, regulators seem to be welcoming all the help they can
get.
John Reed Stark, head of the SEC's new Office of Internet Enforcement,
reports that such e-mail messages have quickly become the SEC's largest
source of leads for Internet-related investigations. About 30% of the
messages relate to continuing SEC probes of all types, indicating many
investors are on-target in their cyber-sleuthing.
Mr. Stark regularly receives long, complex missives in which investors try
to trace the origins of "spam" stock solicitations. Others pen treatises
explaining why certain transactions may have violated state or federal
securities laws. "People aren't just saying, "Hey, I got ripped off," " Mr.
Stark says. "There's usually a lot of detail to [the messages]."
State and federal regulators also watch Internet message boards, such as
those on the Yahoo! Finance and Silicon Investor Web sites. The
free-wheeling Silicon Investor, which focuses on technology issues, even
boasts a dedicated discussion group called "Stocks That Should Be
Investigated By SEC." It currently has 98 postings.
Of course, many of the investors' allegations are off target, and others
degenerate into name-calling and posturing. Mr. Pauly, for instance, is
currently embroiled in a nasty on-line battle over the merits of Rocky
Mountain International Ltd., a tiny garment manufacturer. Trading in the
company's stock was halted by the SEC in December. Nonetheless, edgy
investors have deposited more than 50,000 messages about the company on one
site's thread, or list of messages. Company President Roland Breton says
Rocky Mountain is out of money and "at a standstill." He had no comment
about the on-line postings.
So who are these amateur investigators? Some, like Mr. Pauly, who owns a
concrete company and another concern that makes sand and gravel products,
have few day-to-day business responsibilities. Mr. Pauly admits that his
wife complains about the long hours he spends scouring stock sites on the
Web. "I tell her, look, it's my job," he says. "If I see something wrong,
am I supposed to close my eyes and walk away and let you lose money?"
Mr. Pauly says he was unrelenting in his pursuit of now-defunct Genesis,
which was taken over last year by Tennessee insurance regulators. He says
he spends about 10 hours a day at his keyboard looking for other potential
frauds, as well as for promising investment opportunities.
A smattering of active Web detectives are stockbrokers; others are
nonfinancial types who are between jobs or retired. One 58-year-old woman
from the Atlanta area says she got hooked on Web investing, and then
detective work, a few years after inheriting a $350,000 stock portfolio
from her late father.
Within about a year, she and a friend she met through an America Online
chat room were spending less time investing and more time using the
Internet to track down information on people tied to one of their
less-than-stellar stock picks: Systems of Excellence Inc., a McLean, Va.,
videoconferencing company now being liquidated under Chapter 7 of the U.S.
Bankruptcy Code.
Federal prosecutors now allege that people affiliated with the firm,
best-known by its stock symbol, SEXI, were involved in a stock-manipulation
and money-laundering scheme.
Of course, not all companies targeted by on-line investors are worth
investigating. Elisse Walter, chief operating officer of the regulatory arm
of the National Association of Securities Dealers, says some tipsters offer
information that's "very valuable, especially [as] confirmation for what
we've already found." But other tips never amount to anything. "It's a
mixed bag," she concludes.
But regulators sometimes find on-line messages helpful in their fraud
investigations. In California, officials of the Department of Corporations
were already looking into a Scottsdale, Ariz., company called Eventemp
Corp. earlier this year when they noticed heavy message traffic about the
company on Silicon Investor. They also came across a series of identical
Web pages titled "Avoid Eventemp Corporation," which urged investors to
"speak out!" and "help stop this stock scam!" The company, which trades on
Nasdaq's OTC Bulletin Board, markets a pager-type system it says can
remotely turn on the heat or air-conditioning in a car before the driver
gets behind the wheel.
Investors' postings, particularly those raising questions about whether
Eventemp had a product deal with a nationwide Cadillac dealership, "helped
raise the red flag ... and helped us nail them for [spreading] false and
misleading information in connection with the offer or sale of securities,"
said Marc Crandall, who heads the California corporations department's
Internet surveillance and enforcement team. In June, California ordered
Eventemp to "desist and refrain" from disseminating such information, as
well as offering or selling unlicensed securities.
Eventemp spokesman Ken Simonis says his company "categorically denies any
wrongdoing" and will fight the orders. He says the charges sprang from
"extortionists on the Internet," including Rich Hilgersom, the Santa Clara,
Calif., man who put up the first anti-Eventemp Web site.
Mr. Hilgersom at one time wanted Eventemp to cough up $12,000 to compensate
him for harassment he says he endured in his battle with the company,
including an alleged death-threat e-mail. Now, he's mulling a lawsuit.
Eventemp's lawyer, Dwane Cates, calls the death threat "bogus" and says his
client is considering a libel suit against Mr. Hilgersom.
Still, Mr. Hilgersom says his stint as an on-line detective is "definitely
something I'd do again." But "next time, I think I'm going to do it
anonymously," he reflects. "This is not worth the grief."
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