SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17396 / March 6, 2002
SECURITIES AND EXCHANGE COMMISSION v. DAVID ALLEN LESTER, Civil
Action No. 02CV 0424 (D.D.C.) (filed March 6, 2002)
COMMISSION SUES DAVID A. LESTER FOR
FRAUDULENT INTERNET PUMP AND DUMP SCHEME
The Commission today filed a settled action in the United States
District Court for the District of Columbia against David Allen Lester, a
resident of Dayton, Tennessee, alleging that Lester engaged in an illegal
Internet pump and dump scheme. The complaint alleges that Lester, using an
alias, transmitted at least four fraudulent, spam e-mails for the purpose
of manipulating the securities of Hayes Corporation ("Hayes") and ChatCom,
Inc. ("ChatCom"), during the period beginning July 28, 1999 and ending
August 10, 1999. A single message about Hayes, and the first of three
messages concerning ChatCom, contained materially false information
intended to make the recipient believe that the stock price of each
company was going to skyrocket.
The complaint specifically alleges that Lester sent his false e-mails
in the hopes of fooling the recipient into thinking that he or she had
accidentally been copied on a private e-mail between two other persons.
According to the complaint, Lester wanted to make the spam e-mails seem
believable and intended for the recipients to purchase the stock of Hayes
and ChatCom. Lester's scheme was designed to drive up the stock price and
thus provide him the opportunity to sell at a profit the stock that he had
With respect to Hayes, Lester sent a single e-mail falsely claiming
that Hayes was about to announce a deal with AT&T to make all the
cable modems for AT&T, Comcast, and Microsoft. Lester sent this e-mail
to a large number of persons using a mass-mailing program that he had
previously downloaded from the Internet. Lester's fraudulent July 28, 1999
spam e-mail concerning Hayes had a material impact on its stock price and
trading volume. Over the next trading day, the closing price of Hayes'
stock more than doubled, its market capitalization increased by over $1
million, and its trading volume spiked 77-fold.
The complaint further alleges that Lester took steps to hide his
identity. He created a fictitious pseudonym and disguised the spam e-mails
with a forged message header to make it appear that the pseudonym had sent
the messages. He also transmitted the fraudulent spams through the e-mail
accounts of two persons for whom he had installed AOL accounts. At the
time, Lester was a part-time computer network installer through his
company, Chattanooga Business Systems. While installing those customers'
AOL accounts, he had kept their passwords.
Simultaneously with the filing of the complaint, Lester consented,
without admitting or denying the allegations of the Commission's
complaint, to the entry of a final judgment that permanently enjoins him
from violating the antifraud provisions contained within Section 17(a) of
the Securities Act of 1933 and Section 10(b) of the Securities Exchange
Act of 1934, and Rule 10b-5 promulgated thereunder, but which does not
impose a monetary penalty based upon his sworn Statement of Financial
Condition and other documents submitted to the Commission.
For tips on how to avoid Internet "pump and dump" stock manipulation
schemes, visit http://www.sec.gov/investor/online/pump.htm. For more
information about Internet fraud, visit http://www.sec.gov/divisions/enforce/internetenforce.htm.
To report suspicious activity involving possible Internet fraud, visit http://www.sec.gov/complaint.shtml.