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U.S. Cracks Down on Net Stock Scams

U.S. Cracks Down on Net Stock Scams

The SEC is actively targeting "pump-and-dump" fraud.

By Clare Saliba
09/07/00 12:00 AM PT

Launching yet another offensive against Internet fraud, the U.S. Securities and Exchange Commission (SEC) announced on Wednesday that it has filed 15 separate suits against 33 companies and individuals accused of bilking investors of more than $10 million (US$) in "pump-and-dump" schemes.

According to the SEC, the defendants drove up the stock price of around 70 small, lightly traded companies by spreading false positive information through e-mails, electronic newsletters, bulletin boards and Web sites. The SEC said the defendants illegally pumped up the stocks by more than $1.7 billion and then sold -- or dumped -- them, reaping a $10 million profit.

The cases include 11 civil actions filed in federal courts across the United States and four related administrative proceedings. Among the companies that were caught up in the SEC crackdown are Thor Equity Group, Chill Tech Industries, Lantern Investments, Lipton Holdings, Beaufort Holdings, Broadband Wireless International Corporation and BroadCom Wireless Communications Corporation.

Buyer Beware

The SEC charged that some of the individuals accused of market manipulation have no securities industry experience; one is a bus mechanic, another a college student. Others are foreign companies and individuals who used the Internet to snare U.S. investors, said the commission.

"What used to require a network of professional promoters and brokers, banks of telephones and months to accomplish can now be done in minutes by a single person using the Internet and a home computer," said SEC director of enforcement Richard H. Walker.

Walker also advised investors to verify online claims about stocks.

"The best way for investors to protect themselves against all forms of Internet fraud, including pump-and-dump schemes, is to do their homework and to be highly skeptical of information they receive from strangers on Internet Web sites, message boards and chat rooms," Walker said.

Long-Term Strategy

Wednesday's announcement marks the fourth Internet fraud sweep conducted by the U.S. government.

Last month, the SEC filed a complaint against two men who orchestrated a pump-and-dump scheme involving the stocks of Broadband Wireless International Corp. In that case, the SEC and state securities regulators brought an emergency action against the defendants to freeze their assets and bring an end to the scheme.

In October 1998 and February 1999, the government targeted the unlawful touting of publicly traded companies via the Net, while a May 1999 crackdown targeted the online sale of bogus securities.

The agency said it has now brought more than 180 Internet-related legal actions, with more than one-third of the cases filed in the last year.


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