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U.S. Securities and Exchange Commission

SEC Continues Internet Fraud Crackdown

FOR IMMEDIATE RELEASE

99-24

Agency Files Four More Cases Against Purveyors of Fraudulent Spam, Online Newsletters, Message Board Postings and Websites in its
Ongoing Effort to Clean Up the Internet

Washington, D.C., February 25, 1999 – Continuing its nationwide sweep targeting Internet fraud, the Securities and Exchange Commission today announced four enforcement actions against 13 individuals and companies across the country, including one current and two former stock brokers, for committing fraud over the Internet and deceiving investors around the world. The filing of these cases follows the SEC's October 28, 1998 Internet Sweep, the first orchestrated nationwide operation by the SEC to combat Internet fraud.

These new sweep cases involve a range of illicit Internet conduct including fraudulent spams (Internet junk mail), online newsletters, message board postings and websites. 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 56 public companies, by either making misrepresentations about the companies or failing to disclose adequately the nature, source and amount of compensation paid by the touted company. The alleged creators of the fraudulent Internet touts purportedly provided unbiased opinions in their recommendations, while at the same time receiving more than $450,000 in cash and approximately 2.7 million stock shares and options for their services. In one instance, the fraudsters sold their stock or exercised their options immediately following their recommendations, a deceptive practice commonly referred to as "scalping."

Richard H. Walker, Director of the SEC's Enforcement Division, said, "Today we have good and bad news to report and a reminder to impart. The good news for investors is that the disclosure of information they need has improved dramatically since our first Internet fraud sweep in October. The bad news for cyber-scammers is that the SEC continues to be vigilant in its efforts to stamp out fraud on the Internet. If you're trying to cheat investors on the Internet, we are watching and we will catch you. Finally, a blunt reminder to people who are paid to tout stocks on the Internet: You must disclose the nature and amount of your compensation and it must be easily accessible, not buried somewhere on the website."

Details of Today's Four Cases

  • Pump and Dump – In a classic microcap scam involving the securities of Interactive MultiMedia Publishers, Inc. (IMP) of Akron, Ohio, the SEC alleges that a corporate insider, P. Joseph Vertucci, and a stockbroker, Bruce Straughn, conducted a "pump and dump" market manipulation scheme. The SEC alleges that: Straughn and Vertucci sold to the public essentially worthless securities of IMP, a software development company, which were not registered with the Commission as required by federal securities laws. They also arranged for publications to tout IMP on the Internet and elsewhere, for which they paid the touters undisclosed compensation in the form of cheap or free stock. When the stock's price rose in the wake of these touts, Vertucci, Straughn and the touters all sold their shares at a profit, a deceptive practice known as "scalping." Subsequently, the stock collapsed and the company ceased operations. The SEC has sued the various participants involved for violations ranging from the fraudulent sale of securities to the fraudulent touting of securities and seeks remedies that include federal injunctions, civil penalties and disgorgement. (SEC v. Vertucci, et al.; Contact: Richard Sauer (202) 942-4777);

  • Illegal Touting – In a typical touting fraud, the SEC alleges that Scott Flynn, a former stockbroker recently convicted of securities fraud in another matter, used "spam" (Internet junk mail) and a website to spread information about certain companies, without properly disclosing the receipt of compensation from those companies. The SEC alleges that unbeknownst to investors, Mr. Flynn spread information through his company, Strategic Network Development, Inc., without disclosing cumulative compensation of at least $183,200 in cash and 322,500 shares of stock from at least ten of the companies. The SEC has instituted cease and desist proceedings against Mr. Flynn and Strategic Network Development, Inc. for related violations of the anti-touting provisions of the federal securities laws. In addition, based on Mr. Flynn's criminal conviction for violations of the federal securities laws, the SEC has instituted administrative proceedings against him to determine if any remedial action should be taken. (In the Matter of Scott P. Flynn and Strategic Network; Contact: Elizabeth Gray (202) 942-4631);

  • Illegal Touting – The Commission simultaneously instituted and settled administrative proceedings against Hastings Communications (Hastings), the owner and publisher of the Stockprofiles.com website. The Commission's order alleges that Hastings violated the anti-touting provisions of the securities laws by publicizing the securities of publicly-traded companies on the Internet without disclosing fully that it was compensated in cash and stock by these companies. Without admitting or denying the allegations in the Commission's order, Hastings consented to the entry of the Commission's order which requires the company to cease and desist from committing or causing any violation or any future violation of Section 17(b) of the Securities Act of 1933. (In the Matter of Hastings Communications, Inc.; Contact: Elizabeth Gray (202) 942-4631);

  • Illegal Touting – The SEC alleges that RCG Capital Markets Group, Inc. (RCG) and Max Ramras touted the stocks of nine issuers on RCG's Internet website from November 1998 through January 1999. RCG and Mr. Ramras failed to disclose, however, that RCG received cash and performance- based stock options from the touted issuers. The SEC alleges that RCG had agreements with the issuers to receive monthly fees ranging between $3,350 and $5,850 for financial relations services, which included the website touts. Since November 1998, RCG has earned in excess of $100,000 pursuant to the agreements. Mr. Ramras is the president, chief executive officer and sole shareholder of RCG, and is also associated as a registered representative with a registered broker-dealer. The SEC instituted proceedings against Mr. Ramras and RCG seeking a cease and desist order. Additionally, because Mr. Ramras was associated with a registered broker-dealer at the time of his alleged fraudulent conduct, the SEC instituted administrative proceedings against him to determine if any remedial action should be taken. (In the Matter of RCG Capital Markets Group, et al.; Contact: Kelly Bowers (323) 965-3924).

Investors are advised to read the SEC's "Cyberspace" Alert before purchasing any investment promoted on the Internet. The free publication, which alerts investors to the telltale signs of online investment fraud, is available through the Investor Assistance and Complaints link of the SEC's home page on the World Wide Web, www.sec.gov. It can also be obtained by calling (800) SEC-0330.

Investors are encouraged to report suspicious Internet offerings (or other suspicious offerings) via e-mail to enforcement@sec.gov. A user-friendly form to assist in making a report is available at the Enforcement Complaint Center on the Enforcement Division link of the SEC's home page, www.sec.gov. Investors can also mail a report to the Enforcement Complaint Center, Mail Stop 8-4, 450 Fifth Street, Washington, DC 20549.

http://www.sec.gov/news/headlines/spamcase.htm


Modified:02/25/1999