SEC Continues Internet Fraud Crackdown
SEC Files Four More Cases Against Purveyors of Fraudulent
Spam, Online Newsletters, Message Board Postings and
Websites in its Ongoing Effort to Clean Up the Internet
Washington, DC, February 25, 1999 - Continuing its
nationwide sweep targeting Internet fraud, the Securities
and Exchange Commission today announced four enforcement
actions against 13 individuals and companies across the
country, including one current and two former stock brokers,
for committing fraud over the Internet and deceiving investors
around the world. The filing of these cases follows the SEC's
October 28, 1998 Internet Sweep, the first orchestrated
nationwide operation by the SEC to combat Internet fraud.
These new sweep cases involve a range of illicit
Internet conduct including fraudulent spams (Internet junk
mail), online newsletters, message board postings and
websites. The allegations include violations of the anti-
fraud provisions and the anti-touting provisions of the
federal securities laws. The authors of the spams, online
newsletters, message board postings and Web sites unlawfully
touted more than 56 public companies, by either making
misrepresentations about the companies or failing to
disclose adequately the nature, source and amount of
compensation paid by the touted company. The alleged
creators of the fraudulent Internet touts purportedly
provided unbiased opinions in their recommendations, while
at the same time receiving more than $450,000 in cash and
approximately 2.7 million stock shares and options for their
services. In one instance, the fraudsters sold their stock
or exercised their options immediately following their
recommendations, a deceptive practice commonly referred toas "scalping."
Richard H. Walker, Director of the SEC's Enforcement
Division, said, "Today we have good and bad news to report
and a reminder to impart. The good news for investors is
that the disclosure of information they need has improved
dramatically since our first Internet fraud sweep in
October. The bad news for cyber-scammers is that the SEC
continues to be vigilant in its efforts to stamp out fraud
on the Internet. If you're trying to cheat investors on the
Internet, we are watching and we will catch you. Finally, a
blunt reminder to people who are paid to tout stocks on the
Internet: You must disclose the nature and amount of your
compensation and it must be easily accessible, not buried
somewhere on the website." Details of today's four cases:
* Pump and Dump -- In a classic microcap scam involving
the securities of Interactive MultiMedia Publishers, Inc.
(IMP) of Akron, Ohio, the SEC alleges that a corporate
insider, P. Joseph Vertucci, and a stockbroker, Bruce
Straughn, conducted a "pump and dump" market manipulation
scheme. The SEC alleges that: Straughn and Vertucci sold to
the public essentially worthless securities of IMP, a
software development company, which were not registered with
the Commission as required by federal securities laws. They
also arranged for publications to tout IMP on the Internet
and elsewhere, for which they paid the touters undisclosed
compensation in the form of cheap or free stock. When the
stock's price rose in the wake of these touts, Vertucci,
Straughn and the touters all sold their shares at a profit,
a deceptive practice known as "scalping." Subsequently, the
stock collapsed and the company ceased operations. The SEC
has sued the various participants involved for violations
ranging from the fraudulent sale of securities to the
fraudulent touting of securities and seeks remedies that
include federal injunctions, civil penalties and
disgorgement. (SEC v. Vertucci, et al; Contact: Richard
Sauer (202) 942-4777);
* Illegal Touting -- In a typical touting fraud, the SEC
alleges that Scott Flynn, a former stockbroker recently
convicted of securities fraud in another matter, used "spam"
(Internet junk mail) and a website to spread information
about certain companies, without properly disclosing the
receipt of compensation from those companies. The SEC
alleges that unbeknownst to investors, Mr. Flynn spread
information through his company, Strategic Network
Development, Inc., without disclosing cumulative
compensation of at least $183,200 in cash and 322,500 shares
of stock from at least ten of the companies. The SEC has
instituted cease and desist proceedings against Mr. Flynn
and Strategic Network Development, Inc. for related
violations of the anti-touting provisions of the federal
securities laws. In addition, based on Mr. Flynn's criminal
conviction for violations of the federal securities laws,
the SEC has instituted administrative proceedings against
him to determine if any remedial action should be taken.
(In the Matter of Scott P. Flynn and Strategic Network;
Contact: Elizabeth Gray (202) 942-4631);
* Illegal Touting -- The Commission simultaneously
instituted and settled administrative proceedings against
Hastings Communications (Hastings), the owner and publisher
of the Stockprofiles.com website. The Commission's order
alleges that Hastings violated the anti-touting provisions
of the securities laws by publicizing the securities of
publicly-traded companies on the Internet without disclosing
fully that it was compensated in cash and stock by these
companies. Without admitting or denying the allegations in
the Commission's order, Hastings consented to the entry of
the Commission's order which requires the company to cease
and desist from committing or causing any violation or any
future violation of Section 17(b) of the Securities Act of
1933. (In the Matter of Hastings Communications, Inc.;
Contact: Elizabeth Gray (202) 942-4631);
* Illegal Touting -- The SEC alleges that RCG Capital
Markets Group, Inc. (RCG) and Max Ramras touted the stocks
of nine issuers on RCG's Internet website from November 1998
through January 1999. RCG and Mr. Ramras failed to
disclose, however, that RCG received cash and performance-
based stock options from the touted issuers. The SEC
alleges that RCG had agreements with the issuers to receive
monthly fees ranging between $3,350 and $5,850 for financial
relations services, which included the website touts. Since
November 1998, RCG has earned in excess of $100,000 pursuant
to the agreements. Mr. Ramras is the president, chief
executive officer and sole shareholder of RCG, and is also
associated as a registered representative with a registered
broker-dealer. The SEC instituted proceedings against Mr.
Ramras and RCG seeking a cease and desist order.
Additionally, because Mr. Ramras was associated with a
registered broker-dealer at the time of his alleged
fraudulent conduct, the SEC instituted administrative
proceedings against him to determine if any remedial action
should be taken. (In the Matter of RCG Capital Markets
Group, et al; Contact: Kelly Bowers (323) 965-3924).
****
Investors are advised to read the SEC's "Cyberspace"
Alert before purchasing any investment promoted on the
Internet. The free publication, which alerts investors to
the telltale signs of online investment fraud, is available
on the Investor Assistance and Complaints link of the SEC's
home page on the World Wide Web <www.sec.gov>. It can also
be obtained by calling (800) SEC-0330.
Investors are encouraged to report suspicious Internet
offerings (or other suspicious offerings) via e-mail to
<enforcement@sec.gov>. A user-friendly form to assist in
making a report is available at the Enforcement Complaint
Center on the Enforcement Division link of the SEC's home
page <www.sec.gov>. Investors can also mail a report to the
Enforcement Complaint Center, Mail Stop 8-4, 450 Fifth
Street, Washington, DC 20549. |
