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Speech by SEC Chairman:
Remarks at Press Conference on ‘Operation Spamalot’


Chairman Christopher Cox

U.S. Securities and Exchange Commission

Washington, D.C.
March 8, 2007

Good morning and thank you for coming. Joining me this morning is Linda Thomsen, Director of the SEC’s Enforcement Division, and Mark Schonfeld, Director of our New York Regional Office.

This morning, the Securities and Exchange Commission struck a blow for investors, and for every American with a computer, against one of the worst menaces of the information age: Email spam touting possibly worthless securities.

The Commission today suspended trading in the securities of 35 companies that have been promiscuously promoted in recent email campaigns. These were widely indiscriminate spam campaigns. Perhaps you yourself got some of the emails.

Today's action is the largest trading suspension of spammed companies in SEC history.

We ordered these suspensions because of serious questions about the adequacy and accuracy of information about the companies, and also because of the risk they present of future spam campaigns. Some of these securities pitches are still being made in spam campaigns underway even as we speak.

The code name for today’s emergency enforcement action is “Operation Spamalot.” The name reflects both the Commission’s commitment to protecting investors from potentially fraudulent stock market spam, and the fact that even while wading through some of the worst abuses of innocent investors that the Internet age has to offer, we can still maintain a bit of a sense of humor.

When we talk about spam, I’m sure everyone in this room knows exactly what we mean. None of you has a spam filter that stops them all. Not even the SEC’s system is immune to securities spam. One of our top officials just last week received a spam—in his SEC mailbox—touting one of the stocks included in today’s action.

It is estimated that 100 million spams hyping stocks and other securities are sent each week. That's 5.2 billion spam emails a year. The SEC has estimated that, if we value investors’ time at $10 hour, just deleting all this spam from Americans’ in-boxes costs our economy $50 million each year. These spam emails carry messages like, “This Stock's Ready to Explode,” “Ride the Bull,” and “Fast Money.”

Of course, for investors who succumb to these schemes, there is no fast money – just shadowy Internet thieves out to make a fast buck. The SEC has long advised investors to delete unsolicited stock tips from their mailboxes. But clearly, not every investor has gotten the message. We know that because spam campaigns are usually followed by sharp spikes in the share prices of thinly traded stocks. And it's easy for ordinary investors to get left holding the bag.

So today, we’re sending a message to the securities spammers: The SEC is committed to tracking you down. Those who prey on investors with false or misleading information about stocks will have a stiff price to pay.

When spam clogs our mailboxes, it’s annoying. When it rips off investors, it’s illegal and destructive.

Before turning the podium over to Linda, I’d like to show you a few examples of the spam campaigns that prompted today’s action, and their effect on share prices and trading volume.

[Chairman Cox displays chart on screen.]

Let’s take a look first at the securities of Apparel Manufacturing Associates, ticker AAPM. On Friday, December 15, shares closed at six cents, on trading of about 3,500 shares. That weekend, a spam campaign promised “Huge news expected out on APPM, get in before the wire. We're taking it all the way to one dollar.”

Now look what happened Monday. Trading volume was nearly 500,000 shares. Two days later, the price climbed to 45 cents a share. The next week, the price was back down to ten cents a share, but volume was still 20 times higher than before the spam.

[Chairman Cox displays next chart on screen.]

Let’s take a look at one more, Goldmark Industries, ticker GDKI. On December 19, trading closed at 17 cents on about 126,000 shares. The next day, the spam campaign started, setting a five-day price target of $2. On December 28, another round of spam boasted that GDKI was up 152% in 2 days and promised a five-day price target of $1.

That day, GDKI closed at $.35 on a volume of more than 5 million shares. By January 9, the closing share price was back down to $.15.

[Chairman Cox displays Goldmark spam on screen.]

I mention Goldmark because it now appears to be the subject of a new spam campaign, that was touted even to our public affairs director. In case you’re wondering, this particular spam was immediately forwarded to our Enforcement Division. To a certain extent, you have to question the judgment of a crook who spams the SEC.

While we have not charged any individual companies or promoters, I can assure you that our investigation is continuing. Today’s trading suspensions are a first step. In addition to taking these stocks out of play, we expect that today’s action, and those that will follow, will cause spammers to think twice before hitting the email send button to millions of computers. The SEC is watching.

Now I would like to turn the podium over to Linda Thomsen, the SEC’s Director of Enforcement.



Modified: 03/09/2007