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Strategies & Market Trends : Bill Wexler's Profits of DOOM -- Ignore unavailable to you. Want to Upgrade?

To: Yamakita who wrote (2146)	8/26/1998 10:30:00 PM
From: Yamakita	Respond to of 4634

Manipulation Cases Are Tough To Bring Against Stock Touts By CARRIE LEE THE WALL STREET JOURNAL INTERACTIVE EDITION With the growing use of electronic mail "spam," Web sites and Internet message boards as a means to tout stocks, regulators would seem to have their hands full with cases of market manipulation. After all, the motivation of promoters is to boost the prices of stocks they own -- or are paid to hype -- and under U.S. securities laws an act that "artificially" affects stock prices can be considered manipulation. But don't look for a flood of cases anytime soon. Despite the proliferation of Internet stock promoters, manipulation cases are tough to prove, and fraught with free-speech implications, securities attorneys say. Promoters may contend that they are simply using their right to free expression when they take to the Net to talk up their favorite stock. "People still have First Amendment rights in this country," says Steven Wallman, a senior fellow at Brookings Institution in Washington, and a former member of the Securities and Exchange Commission. "You may want to tout it so other people see how good the company is and get the stock price up," he says. But that alone isn't enough to bring a solid case. "Market manipulation has traditionally been one of the hardest things to prove," says Harvey Pitt, a lawyer at Fried, Frank, Harris Shriver & Jacobson in New York, and a former SEC general counsel. The SEC has brought a handful of market manipulation cases tied to the Net. The most notable was its first, in 1996, when the agency accused a former executive of Systems of Excellence, a maker of video teleconferencing equipment, of a scheme to manipulate the company's stock price by using a Web site to promote the corporation. The company is being liquidated under Chapter 7 of the U.S. bankruptcy code. "Were trying to meet the challenge that the Internet is providing. We're aware of the problem and were addressing it," says Thomas Newkirk, the SEC's associate director of enforcement. John Reed Stark, who heads Internet-related enforcement at the SEC, says the agency is investigating other potential manipulation cases now. He wouldn't provide details. One tack that regulators could take in a market manipulation case would be to prove that a stock promoter distributed false information to deceive investors, says John Coffee, a law professor at Columbia University. "Saying things are 'looking up' [for a company] can't be deemed a material misstatement," he says, but making more specific false statements -- such as saying that the company is going to get a big contract -- can be. Another avenue regulators could take would be to show that a promoter had repeatedly used hype to boost a stock and then sold his holdings at a profit, says Richard Phillips, of Kirkpatrick & Lockhart in Washington. "In order to prove a pattern of manipulation, you have to show a series of activity that culminates in a sale of one's [stock] position," he says. But all of this can be difficult because there are few regulations that govern the activity of stock touts -- at least those unaffiliated with stock issuers or Wall Street. "There is little law for people who are giving their own honest opinions, even though it may have the effect of having someone taking a look at it and maybe convincing them to buy the stock," says Mr. Wallman, the former SEC commissioner. U.S. securities rules require promoters representing stock issuers or brokerage firms to disclose any payments they receive or stock positions that they hold in the companies they are touting. But no such sunlight is required on the activity of individuals promoting stocks on their own. Meanwhile, the global nature of the Internet is yet another pitfall for investors looking for action against manipulation via the Net. Because spams, Web sites and postings may originate outside of the U.S., people looking to manipulate the market may be outside the reach of regulators.