U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

Washington, D.C.

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)


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 previously purchased.

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.


Modified: 03/28/2005