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U.S. Securities and Exchange Commission

SEC Charges 44 Stock Promoters in First Internet Securities Fraud Sweep



Purveyors of Fraudulent Spam, Online Newsletters, Message Board Postings, and Websites Caught

Washington, D.C., October 28, 1998 – Following an unprecedented nationwide sweep, the Securities and Exchange Commission today announced the filing of 23 enforcement actions against 44 individuals and companies across the country for committing fraud over the Internet and deceiving investors around the world.

The sweep, the first orchestrated coast-to-coast operation by the SEC to combat Internet fraud, involved actions filed by SEC offices in Atlanta (1), Boston (1), Chicago (3), Denver (3), Fort Worth (2), Los Angeles (2), Miami (2), New York (2), Philadelphia (1), Salt Lake City (1) and Washington, D.C. (5).

The 23 cases involve a range of Internet conduct including fraudulent spams (Internet junk mail), online newsletters, message board postings and Web sites. The allegations include violations of the anti-fraud provisions and the anti- touting provisions of the federal securities laws. The authors of the spams, online newsletters, message board postings and Web sites unlawfully touted more than 235 Microcap companies, by either: (1) lying about the companies; (2) lying about their own "independence" from the companies; and/or (3) failing to disclose adequately the nature, source and amount of compensation paid by the companies. The creators of the Internet touts purported to provide unbiased opinions in their recommendations, but failed to disclose that they had received in total more than $6.3 million and nearly two million shares of cheap insider stock and options in exchange for touting services. In some instances, the fraudsters sold their stock or exercised their options immediately following their recommendations, a deceptive practice commonly referred to as "scalping."

SEC Director of Enforcement Richard H. Walker said, "In all of these cases, the Internet promoters gave ostensibly independent opinions about Microcap companies that in reality were bought and paid for. Not only did they lie about their own independence, some of them lied about the companies they featured, then took advantage of any quick spike in price to sell their shares for a fast and easy profit. Today's sweep demonstrates the SEC's commitment to cleaning up the Internet, by aggressively prosecuting securities violations occurring in Cyberspace."

Among the schemes in today's sweep, the SEC alleges a wide range of Internet-related securities fraud. Below are a few highlights.

  • An Internet newsletter called The Future Superstock ("FSS"), written by Jeffrey C. Bruss of West Chicago, Illinois, recommended to FSS's more than 100,000 subscribers and to visitors to the newsletter's Web site the purchase of approximately 25 Microcap stocks predicted to double or triple in the months following dissemination of the recommendations. In making these recommendations, FSS: (1) failed to adequately disclose more than $1.6 million of compensation, in cash and stock, from profiled issuers; (2) failed to disclose that it had sold stock in many of the issuers shortly after dissemination of recommendations caused the prices of those stocks to rise; (3) said that it had performed independent research and analysis in evaluating the issuers profiled by the newsletter when it had conducted little, if any, research; and (4) lied about the success of certain prior stock picks. (SEC v. The Future Superstock, et al.)

  • An Internet touting service called Stockstowatch ("STW"), and its president, Steven A. King ("King") ran an Internet stock touting service operated from King's home in Sarasota, Florida, which claimed at one time to have more than 200,000 subscribers. STW and King conducted the scheme from October 1997 until at least July 1998, fraudulently touting the stocks of at least five publicly-traded Microcap companies in e-mails sent to STW subscribers and in profiles posted on STW's Internet Web site. With respect to almost every stock touted by STW, the price and/or volume of the profiled company's stock sharply increased shortly following the STW buy recommendation, and STW and King took advantage by selling shares to reap more than a $1 million profit. (SEC v. Steven A. King, et al.)

  • John Wesley Savage and Princeton Research, Inc. touted the stocks of seven different companies while receiving 276,500 shares and 75,000 options from those companies. Savage and Princeton also lied about the financial condition of two of the issuers. Simultaneous with the filing of the complaint, Savage and Princeton consented, without admitting or denying the SEC's allegations, to the entry of a permanent injunction and payment of a civil penalty of $40,000. (SEC v. John Wesley Savage, et al.)

  • Francis A. Tribble and his promoting company, Sloan Fitzgerald, disseminated more than six million spams touting two Microcap companies and were the subject of the largest number of complaints received in the history of the Enforcement Complaint Center (SEC Enforcement's Online Complaint Center at www.sec.gov). They also republished their touts in several other forms including an online newsletter and a Web site. Simultaneous with the filing of the complaint, Tribble and Sloan Fitzgerald consented, without admitting or denying the SEC's allegations, to the entry of a permanent injunction and payment of a civil penalty of $15,000. (SEC v. Tribble)

  • Illustrating the migration of stock touters from traditional media to the Internet, a southern California promoter moved his Microcap touts from newspaper ads to the "Investors Edge" Web site he created this year, without disclosing that Microcap issuers had paid for his touts. At the same time the promoter and one of his companies were recommending that investors buy an issuer's stock, they were engaged in scalping the shares they had received from the issuer, profiting in excess of $64,000. Those defendants also were charged with making false statements in newspaper ads. (SEC v. Volmer, et al.)

The SEC today also issued an investor alert to help investors evaluate investments promoted on the Internet. "Internet Fraud" tells investors how to spot fraud and how to use the Internet to invest wisely and avoid costly mistakes.

"Never, ever, make an investment based solely on what you read in an online newsletter or Internet bulletin board, especially if the investment involves a small, thinly-traded company that isn't well known," said Nancy M. Smith, Director of the SEC's Office of Investor Education and Assistance. "Assume that the information about these companies is not trustworthy unless you can prove otherwise through your own independent research."

"Internet Fraud" is available on the SEC's Web site, at http://www.sec.gov/investor/pubs/cyberfraud.htm.

Below is a complete list of all sweep SEC actions: