March 1, 2001 12:30 PM PST
SEC clamps down on Net fraud
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In total, the commission said the companies and individuals in question used the Internet to "pump," or artificially increase, the market capitalization of stocks by more than $300 million--and in the process, raise $2.5 million in proceeds from investors.
In one instance, Jerry L. Chidester, 26, allegedly raised $96,000 by selling credits for an initial public offering of shares in his company Chidwhite Enterprise. The SEC says it never approved such an IPO. Chidester is said to have recruited investors through a Web site and e-mail.
In another instance, Patrick R. Greene, the founder of online publishing company PinkMonkey.com, allegedly issued a fraudulent press release that resulted in the company's stock price jumping 950 percent.
Richard H. Walker, the SEC's director of enforcement, said each case should serve as a lesson that when it comes to the Internet "there is no clearly defined border between reliable and unreliable information."
"Investors must exercise extreme caution when they receive investment pitches online," Walker said in a statement.
In one of the larger civil penalty cases that has been settled, the SEC alleges that Sunset Investment Group--operator of OptionInvestor.com, SplitTrader.com and NetBulls.com--and its owner, James Brown, issued false performance claims and testimonials on its Web sites.
OptionsInvestor.com touted actual returns of 60 percent to 240 percent for investors who followed its trading philosophy and recommendations. Sunset, however, was never engaged in options trading and, therefore, would not be able to make claims of having actual returns upwards of 240 percent, said Katherine Addleman, an SEC assistant regional director.
She also noted that testimonials posted on Colorado-based OptionInvestor were also allegedly used on Sunset's other investment sites, SplitTrader and NetBulls, even though the testimonials that were given were meant for OptionInvestor. Although SplitTrader and NetBulls are free sites, OptionInvestor charges its nearly 15,000 subscribers a monthly fee of roughly $40.
Brown agreed to pay a $70,000 fine and abstain from any fraudulent action without admitting or denying the allegations, according to the SEC. Brown's office said he would not be available for comment until next week.
Net investment fraud attracted national attention last September when a 15-year-old boy agreed to pay $272,826 in a settlement with the SEC in a "pump and dump" stock scheme.
According to the SEC, the teenager purchased large amounts of inexpensive stocks and then used a variety of aliases to promote the stocks' values on message boards before quickly selling for a profit.
Last March, a Texas day trader allegedly posted a fake profit warning for Lucent Technologies on a Yahoo message board. Fred Moldofsky now faces up to 10 years in prison on securities fraud charges. The case began on Thursday.
Several other individuals have been charged by the SEC with similar crimes and have agreed to various settlements.
News.com's Dawn Kawamoto contributed to this report.