SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16629 / July 17, 2000
INTERNET STOCK PROMOTER FINED $20,000 FOR ISSUING FALSE STOCK RECOMMENDATION FROM CHASE MANHATTAN BANK
Securities and Exchange Commission v. Jason M. Chester and JMAX Online Communications, Inc., No. 8:00-CV1443-T-24F (filed July 17, 2000)
The Securities and Exchange Commission (SEC) announced that on July 17, 2000, it filed a civil complaint against Jason M. Chester and JMAX Online Communications, Inc. of Tampa, Florida, alleging that they published on the Internet a stock recommendation on Winchester Mining Corporation (Winchester), an OTC Bulletin Board stock, that they falsely said had been issued by Chase Manhattan Bank. The SEC also announced that Chester and JMAX, without admitting or denying any of the allegations in the SEC's complaint, simultaneously agreed to settle the charges that they violated the anti-fraud and anti-touting provisions of the federal securities laws. Under the terms of the settlement, Chester and JMAX consented to the entry of permanent injunctive relief, payment of a $20,000 civil penalty, and disgorgement in the amount of $1,425 plus prejudgment interest.
In its complaint, the SEC alleges that Chester and JMAX fraudulently misrepresented that Chase Manhattan Bank had placed a "strong buy recommendation" on Winchester's stock in an investment review and related press release that Chester and JMAX published on the Internet on December 9, 1999. The complaint alleges that, in addition to rating Winchester a "strong buy," the investment review projected that Winchester's stock, which was then trading at $0.17 per share, could reach $5 per share in 2000. The SEC further alleges that on the day that Chester and JMAX issued the fraudulent investment review and press release, Winchester became the fifth most actively traded stock on the OTC Bulletin Board.
The SEC's complaint alleges that, in fact, the investment review attributed to Chase Manhattan Bank had been prepared by Fredrick Thompson, an employee in Chase's debt collections department, who Chester had recently met in a bar in Tampa and who had no securities industry experience or connection to Chase Manhattan Bank's securities operations. The SEC alleges that Chester and JMAX failed to disclose these facts to investors. In addition, Chester and JMAX failed to disclose that Chase had not authorized Thompson or any of its employees to publish an investment analysis of Winchester, and that Thompson never sought Chase's authorization to publish the review.
The SEC alleges that Chester and JMAX also violated the antifraud provisions of the federal securities laws by engaging in a practice known as "scalping." The complaint alleges that, at the same time Chester and JMAX were encouraging investors to buy Winchester stock, Chester sold all of the 250,000 shares he and JMAX had received for promoting Winchester without fully disclosing this sale to investors.
Finally, the SEC alleges in the complaint that Chester and JMAX violated the antitouting provision of the securities laws. According to the complaint, Chester and JMAX failed to disclose in the press release announcing the publication of Thompson's investment review of Winchester, and on the website on which they published Thompson's review, that Chester and JMAX had received 250,000 shares of Winchester stock in return for touting Winchester.
The SEC's complaint alleges that the above conduct violated the anti-fraud and anti-touting provisions of the federal securities laws, specifically Sections 17(a) and 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.