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HELANE L. MORRISON (CA Bar No. 127752)
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
Plaintiff Securities and Exchange Commission (the "Commission") alleges: SUMMARY OF THE ACTION 1. This action concerns an Internet securities fraud perpetrated by Ned Sneiderman ("Sneiderman"). On October 8, 2001, Sneiderman posted a phony press release on an Internet stock discussion board in which Extreme Networks, Inc. ("Extreme Networks"), a Santa Clara technology company, purported to announce a cash tender offer for Viasource Communications, Inc. ("Viasource"), a small Florida technology company. The fabricated press release caused Viasource stock to double in price on volume nearly seven times that of the previous trading day. The price increase caused Viasource's market capitalization to be artificially inflated by nearly $4.7 million. 2. Minutes before posting the false press release, Sneiderman had purchased shares of Viasource stock. However, upon discovering the wrongdoing, Nasdaq MarketWatch temporarily halted trading in both Extreme Networks and Viasource, preventing Sneiderman from capitalizing on his fraud. Extreme Networks and Viasource thereafter issued corrective press releases denying the existence of any tender offer, and, once trading was resumed, the price of Viasource shares dropped by almost 50% from the day's high. 3. By his knowing or reckless misrepresentations and manipulation of the price of a publicly traded security, Sneiderman violated the antifraud provisions of the federal securities laws, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. AUTHORITY TO BRING THIS ACTION 4. The Commission brings this action pursuant to Section 21(d) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78u(d) and (e)]. JURISDICTION 5. This Court has jurisdiction over this action pursuant to Sections 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d)(3) and 78aa]. The defendant, directly or indirectly, has made use of the means and instrumentalities of interstate commerce or of the mails and of the facilities of a national securities exchange in connection with the acts, transactions, practices and courses of business alleged in this Complaint. 6. Venue in this District is proper pursuant to Section 27 of the Exchange Act [15 U.S.C. § 78aa]. The acts and transactions constituting the violations alleged herein, including the posting of a press release purportedly issued by a Santa Clara, California company on a stock discussion board hosted by Yahoo Inc. (a Sunnyvale, California company), occurred in the Northern District of California. INTRADISTRICT ASSIGNMENT 7. Assignment to the San Jose Division is appropriate pursuant to Civil Local Rule 3-2(d) because certain of the transactions (including the posting on the false press release onto the Yahoo message board), acts, practices and courses of business alleged herein occurred in Santa Clara County, California. THE DEFENDANT 8. Defendant Ned Sneiderman, 24, resides in Louisville, Kentucky. Sneiderman has used the alias "imafagcop" on the Yahoo Internet stock discussion boards. DEFENDANT'S FRAUDULENT ACTIONS 9. On Monday, October 8, 2001, at 10:20 a.m. (EDT), Sneiderman, using the alias "imafagcop," posted a message on the Yahoo stock discussion board for Viasource, a broadband technology company based in Fort Lauderdale, Florida, from his home computer. 10. Sneiderman's message bore the subject line "VVVV buyout for .90 a share." The text of Sneiderman's message began, "This came across the wire this morning." 11. The remainder of the posting was drafted to mimic a PR Newswire press release. The purported press release posted by Sneiderman read, in pertinent part:
The posting went on to set forth the structure of the merger and the terms of the tender offer, giving the purported press release the appearance of legitimacy. 12. Minutes before he posted the message, Sneiderman bought 4,500 shares of Viasource in his online brokerage account from his home computer, the same computer from which he posted the false press release. 13. The purported press release posted by Sneiderman was a complete fabrication. Extreme Networks did not issue or authorize any such release. Extreme did not make a tender offer for Viasource. 14. The morning of Sneiderman's false posting, Viasource stock had opened at $0.09 per share. Within 25 minutes after Sneiderman's posting, Viasource shares rose to a high of $0.22 per share on unusually heavy volume. 15. Approximately one hour after Sneiderman posted the message, after confirming with both Viasource and Extreme Networks that the press release was phony, Nasdaq MarketWatch, the surveillance department of the Nasdaq Stock Market, halted trading in Viasource and Extreme. 16. Subsequent to the trading halt, both Viasource and Extreme Networks issued press releases stating that Extreme Networks had not made an offer to purchase Viasource. 17. Nasdaq MarketWatch allowed trading to resume after the corrective press releases were issued. Viasource shares declined almost 50% to close at $0.13 per share. Viasource's trading volume reached 956,179, over seven times the volume of the prior business day. 18. Sneiderman failed to liquidate his Viasource stock holdings prior to the trading halt, and, thus, was unable to realize substantial profits from his fraud. Nonetheless, Sneiderman's fraud caused substantial market disruption, necessitating Nasdaq to halt trading in two securities and requiring two companies to issue corrective press releases. CAUSE OF ACTION Violations of Section 10(b) of the Exchange Act and Rule 10b-5 19. The Commission incorporates Paragraphs 1 through 18 by this reference. 20. Defendant has, by engaging in the conduct set forth above, directly or indirectly, by use of means or instrumentalities of interstate commerce, or of the mails, or of a facility of a national security exchange, with scienter: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices or courses of business which operated or would operate as a fraud or deceit upon other persons, in connection with the purchase or sale of securities. 21. By reason of the foregoing, defendant, directly or indirectly, violated Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 [17 C.F.R. §§ 240.10b-5] and unless enjoined will continue to violate Section 10(b) of the Exchange Act and Rule 10b-5. PRAYER FOR RELIEF WHEREFORE, the Commission respectfully requests that the Court: (a) Enjoin defendant Ned Sneiderman from future violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §§ 240.10b-5]; (b) Order defendant Sneiderman to pay civil money penalties pursuant to Section 21A of the Exchange Act [15 U.S.C. §78u-1]; and (c) Grant such other and further relief as this Court may deem appropriate.
DEMAND FOR JURY TRIAL
http://www.sec.gov/litigation/complaints/complr17294.htm
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