Gersh & Thread
WSJ Interactive had a write-up and it references SI near the end of the report.
link for subscribers is:
interactive.wsj.com
October 28, 1998
SEC Targets Stock Promoters
In a Sweep of Internet Fraud
By JASON ANDERS and CARRIE LEE
THE WALL STREET JOURNAL INTERACTIVE EDITION
In its first broad sweep of Internet securities fraud, the U.S. Securities
and Exchange Commission said Wednesday it brought enforcement
actions against 44 individuals and companies who used the Net to
promote stocks.
The SEC's investigation targeted online
investment newsletters and Web sites
that touted stocks in exchange for cash
or stock from the companies they were
promoting. The SEC requires stock
promoters to disclose whether or not
they were paid, how much they were
paid and the source of the
compensation.
In many cases, the promoters failed to
adequately disclose that they were
being paid, the SEC said. In others, the
SEC alleged, they provided false
information about the companies they
promoted. An SEC spokeswoman said
the companies that were promoted
weren't charged in any of the cases.
Richard Walker, the SEC's director of enforcement, said the 23 cases
-- some in the form of civil charges filed in federal courts and others in
the form of administrative proceedings within the agency -- involved
total cash payments of more than $6.2 million, and payments of more
than $1.8 million in shares of stock and options. He said a total of 235
so-called microcap cases were promoted in cases.
Mr. Walker said that many of the promoters targeted by the SEC used
spam, or mass electronic mailings, to promote companies. He said of
the 23 cases brought, five involved posts on Internet message boards
and 20 involved the use of Web sites to tout securities. He said that 19
cases involved the use of online investment newsletters, which
sometimes included dubious research reports.
The SEC said one online investment
newsletter called the Future Superstock
(www.futuresuperstock.com), written by
Jeffrey Bruss of West Chicago, Ill.,
recommended the purchase of about 25 microcap stocks predicted to
double or triple in value. The SEC said Mr. Bruss failed to adequately
disclose more than $1.6 million in compensation from the featured
companies, and lied about the success of certain prior stock picks.
Arthur M. Schwartzstein, an attorney for Mr. Bruss, said, "The SEC's
complaint is not a balanced document, but only the commission's
versions of events. Jeffrey Bruss is confident that when all the facts are
out, both he and the Future Superstock will be found innocent." He
declined to comment further.
The sweep also yielded charges against three individuals who handled
investor relations for Great White Marine & Recreation, a Waco, Texas,
distributor of marine watercraft and recreational vehicles. They are: J.
Scott Sitra, founder of Sitra Enterprises, a financial and public relations
firm in Texas.; Anita Carlisle, of Carlisle Communications, and Jeffrey
Brommer, of Investments 101 Ltd.
According to the SEC, the three "prepared
reports and news releases that spoke
glowingly about Great White and
encouraged investors to purchase the
company's stock, without disclosing their compensation arrangement
with Great White." The agency said the three promoted the company
on the Internet, in newsletters and in information packets that were
sent to investors.
In an interview, Mr. Sitra said the SEC contacted him a month ago
about Great White, but said he wasn't aware that he had been charged
with anything. "I still feel that I have not done anything inappropriate. I
follow the same rules as everyone else," he said. "I think [the SEC]
wants me to put my disclosure on every press release that comes out.
But [those releases] are not my releases, they are company
information."
Mr. Sitra said he discloses his compensation to "anyone who calls and
asks me." He said the SEC's estimate that he received stock proceeds
totaling $66,416 was "in the ball park."
Mr. Brommer didn't immediately return a telephone call seeking
comment. Ms. Carlisle couldn't be reached.
In another case, the SEC alleges that George Schlieben, the editor
and publisher of an online newsletter called Global Penny Stocks
(www.pennystock.com), failed to disclose that he received about
$105,500 in exchange for promoting several companies on his Web
site. (Global Penny Stocks was featured in a recent article in the
Interactive Journal.)
Mr. Schlieben said he has always disclosed that he is paid a fee to
profile the companies, but admits he didn't reveal the exact dollar
amounts. "I question the constitutionality of this whole thing. Disclosure
is needed, but do we really need to tell the exact fee?" he said.
He said he believes the law is a double standard, because large
brokerage firms don't disclose their specific stakes in companies when
issuing reports. "If it applies to me, it should apply to the whole group,"
he said.
The SEC also alleges that Jason A. Greig and his company, Liberty
Capital Group Inc., distributed information about companies over the
Internet and through other means without disclosing compensation
received from those companies. The SEC alleges that Liberty and Mr.
Greig received cash and stock from at least seven companies totaling
nearly $1.2 million. Mr. Greig declined to comment Thursday. (Liberty
Capital was featured in a recent Heard on the Net column.)
A spokeswoman for Silicon Investor (www.techstocks.com), a popular
Internet discussion forum, said the service has received about 10
subpoenas in the last few months from the SEC. "That's certainly a lot
higher than we used to get, which was about one every six to 12
months, and even then they weren't always from the SEC," said
company spokeswoman Jill McKinney. She said the subpoenas usually
seek users' registration information. Silicon Investor allows users to
post messages under aliases, but users must register using their real
name and a credit card.
Harvey Pitt, a securities and corporate lawyer with Fried, Frank, Harris,
Shriver & Jacobson in New York, and a former general counsel of the
SEC, says that stock promotion is nothing new. "It's deja vu all over
again. These actions start to look and sound like the SEC used to do in
the early days," he said. "These are garden-variety frauds in an
unusual garden. Cyberspace is the only thing about this that is new."
He said, however, that the Internet has made some of the
old-fashioned scams more effective.
"There is a tendency to assume that if it appears on the Internet it must
be true, of course that isn't the case," he said. "As more and more
people turn to the Internet for information, the risk for fraud becomes
even greater."
"The commission really deserves to be commended for doing
something this dramatic," he said. But he added that Wednesday's
crackdown isn't likely to curb stock promoters from devising schemes to
defraud investors.
"There are a lot of people who think they are smarter than the system,
until the commission shows an even more pervasive presence, people
will continue to cheat and scam others," he said. "If anyone believes
this is the end of the problem, that's unusually optimistic."
The SEC has brought a total of 61 fraud cases since it started to police
the Internet in 1995. In July, the agency created a new Office of
Internet Enforcement to combat securities fraud in cyberspace.
Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.
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