Another investigation: I am SHOCKED by the 4th paragraph: "real time chat rooms?" Impossible.
SEC probes day traders site
for payoffs in backing stocks
By Susan Pulliam
and Rebecca Buckman
THE WALL STREET JOURNAL
The Securities and Exchange Commission has
launched an inquiry into activities at Day
Traders On-line, a Web site that offers
fast-action trading tips and stock
recommendations to day traders.
In addition to the
inquiry into Day
Traders On-line, the
SEC has also
contacted
well-known Internet
stock guru Joe Park,
a.k.a. TokyoMex,
who runs his own
Web site and is
active on many Web
message boards
THE INQUIRY, which began March 23, is focused on
whether Day Traders On-line, or its founder, Ray Johns, 33
years old, received compensation from certain companies in
connection with stock recommendations made by the
Internet service, people close to the inquiry say. The SEC
also is looking more generally into other practices at the
online service, these same people say.
Mr. Johns said his firm, as a matter of policy, doesn't
comment on SEC investigations or inquiries. “However, if
we are contacted by them, we provide whatever
information they request,” he said. He strongly denied that
Day Traders On-line had ever received payments from
companies whose shares it recommended to subscribers,
who pay more than $100 a month for the service.
“We don't get any compensation directly or indirectly
from any company, any stock, or any promoter whatsoever
in relation to the recommendations we make on our site,”
Mr. Johns said, adding that company policy also forbids
employees of the site from trading recommended stocks.
An SEC official declined to “confirm or deny” that the
agency began an inquiry.
The inquiry is one of the latest in a series by the SEC in
recent weeks of practices among a new breed of sites on
the Internet that aggressively promote their stock
recommendations in “real time” chat rooms, occasionally
contributing to substantial movements in their targeted
stocks.
The probes show that regulators are trying to step up
oversight of stock discussion in cyberspace, where the
actions of stock promoters can have a greater effect than
the old-style “tip sheets” for instance, since
recommendations can be disseminated on the Internet to
millions of investors instantaneously. But these sites are
proliferating, making it ever more difficult for the SEC to
police them.
In addition to the inquiry into Day Traders On-line, the
SEC has also contacted well-known Internet stock guru Joe
Park, a.k.a. TokyoMex, who runs his own Web site and is
active on many Web message boards, Mr. Park said. He
has denied wrongdoing. The SEC has also requested five
years of trading records from Chris Rea, the founder of a
chat room run by Trading Places Inc. in Niles, Ill., people
familiar with the matter say. Mr. Rea has said that he has
nothing to hide. The agency was also said to be looking into
Trading Places' financial relationships with brokerage firms,
including MB Trading Inc., which until recently was
recommended to subscribers on the Trading Places' Web
site.
These sites are
proliferating, making
it ever more difficult
for the SEC to police
them.
Many day traders migrate from Day Traders On-line to
Trading Places and back again, traders say. Trading Places,
however, focuses on relatively large Internet stocks, hoping
to gain from big run-ups in price. Mr. Johns's service has
recommended shares of smaller companies, often sending
out news releases highlighting his successes.
For example, a release last fall carried the headline:
“Day Traders On-line subscribers bring in big profits on
broadcast.com Inc. with gains of as much as 45%.” A June
release said that subscribers “Hit Big on Rambus, Pairgain,
Cisco and Other Tech Stocks This Week.”
Also last year, the Web site issued a few “research
alerts” with “buy,” “speculative buy” and “speculative
trading buy” ratings on some stocks, although the site isn't a
registered broker-dealer or investment adviser. In May,
Day Traders On-Line upgraded shares of medical-supply
distributor PSS World Medical Inc. to “buy” and added it
to a “recommended list,” setting a three- to six-month price
target of $16 to $18 a share. Shares of the Jacksonville,
Fla. company, which has suffered lower-than-expected
earnings recently and said last month that the SEC is
reviewing some of its previous financial reports, rose
15.625 cents to $8.96875 in Nasdaq Stock Market trading
Thursday. Mr. Johns notes, however, that the stock rose to
the low 20s late last year, allowing his short-term traders to
post gains.
Among others, Mr. Johns's Web site also assigned
“buy” ratings last year to Paymentech Inc., a Dallas
provider of electronic payment systems that has now passed
Day Traders' price target; and Electronic Communications
Corp., a Melville, N.Y., cellular-phone company that has
since changed its name to Northeast Digital Networks Inc.
The company was delisted from the Nasdaq SmallCap
Market in January and now trades for pennies on the
over-the-counter bulletin board. Day Traders' near-term
price target for that stock was only $1, Mr. Johns notes,
and it was recommended only for investors “who maintain
an aggressive, high-risk portfolio.”
Mr. Johns said he started his Web site about three
years ago after deciding he and his friends could chat about
stocks more easily through a common Web site. “For a
while, we just had three or four guys who were talking over
e-mail,” he said. “These were just friends of mine. I'd see
them at lunch.”
Since graduating from high school, Mr. Johns says he
has owned several businesses, including a computer
consulting company, and worked as a computer
programmer. “But I've been playing the market... .since
1983,” he says, adding that he first got interested in stocks
from a high-school economics class.
The “main trader” on the Day Traders Web site — the
figure who actually monitors incoming news stories and
picks interesting stocks throughout the day — is a
mysterious, 44-year-old sage known only as “DT.” Explains
Mr. Johns: “We don't disclose last names for security
reasons.” |
