SEC/FRAUD CASES: 'FREE STOCK" OFFERS MAY BE NEXT
5/12/99 14:29
SEC/Fraud Cases: 'Free Stock" Offers May Be Next
The balance of the cases involve allegedly fraudulent, on-line
offerings for bonds or company stock.
Brightstar, for instance, purportedly offered a more efficient
process to extract gold from ore. By selling phony shares in the
company, David Abramson, of New York City, raised $50,000 over
the Internet, the SEC said. He also is alleged to have promised
investors returns of 2600% a year for ten years, "an outright
lie," according to the SEC.
Internet technology itself was the lure of VentureLink Capital
Corp. According to the SEC, Jason Rosenthal, formerly of Gloucester,
Mass., now a Florida resident, made online offerings for stock
in franchises that would sell Internet software.
The SEC claims Rosenthal falsely projected the franchises would
return 500% to 2000% within two years, and billed it as way to
invest with the same venture capitalists who provided start-up
capital for Microsoft (MSFT) and Intel (INTC). He also misled
investors by telling them VentureLink would conduct an initial
public offering shortly, generating substantial profits, the SEC
alleged.
Three investors sunk at least $50,000 into VentureLink, providing
Rosenthal with $5,000 in commission, even though he isn't a registered
broker, according to the SEC.
A $15 million sham offering to finance hospital construction
in Turkey was shut down before anyone invested, the SEC said.
Lawrence Artz, of Roslyn, N.Y., Bruce Lynch, of Brookline, Mass.,
and their companies, Neurotech Corp. and Enhance Resources, allegedly
claimed three prominent Turkish banks would guarantee the notes,
making them risk-free. In fact, no banks ever made such guarantees,
the SEC said.
A $500 million on-line bond offering for the government of
Free Vietnam also was shut down before anyone invested, the SEC
said. Gary Pierce, of Studio City, Calif., and an offshore Turks
and Caicos company, allegedly solicited investors by promising
an average annual return of 19.6%, and declaring the bond was
fully collateralized by the company's Chilean gold reserves. The
SEC questioned the claims and said Pierce failed to disclose that
most of the money would be used for non-revenue generating activities.
The SEC's actions are the latest in its push to clamp down
on on-line stock fraud. Last October, the agency announced its
first Internet "sweep," bringing dozens of cases against promoters
who used websites and mass e-mails, or "spam" to tout stocks without
fully disclosing they were paid to promote them. In February,
the agency followed with a second Internet "sweep."
"This is not a one-shot deal," warned Walker, the agency's
enforcement chief. He suggested the SEC may turn its sites next
to so-called "free stock" offerings on the Internet. SEC officials
contend the stock isn't really free, and constitute an unregistered
securities offering.
And, while the SEC has seen improved disclosure by on-line
stock promoters since last fall's sweep, Walker said it still
finds "potential violations," from promoters who don't provide
details on compensation they receive in exchange for pushing a
stock. More enforcement cases against touters and fraudulent on-line
offerings could be in the works, he indicated.
"Obviously, we are never going to stop hard-core people that
want to defraud others," Walker acknowledged. But, he said he
hopes that by bringing attention to the problem, the SEC will
put potential investors and would-be swindlers, on guard.
-By Judith Burns (202) 862-6692;
e-mail: judith.burns@ cor.dowjones.com. |
