SEC Charges Operator of Stock Picking Website with Secretly Profiting in Investment Scam
FOR IMMEDIATE RELEASE
Washington, D.C., August 1, 2006 — The Securities and Exchange Commission today announced the filing of civil securities fraud charges against the operator of an Internet website who made more than $2.7 million in profits by secretly selling the stocks he recommended as “mega bonus buys” on his site, www.thestockster.com (the Stockster website).
The Commission’s complaint alleges that Nicholas A. Czuczko, age 34, of Beverly Hills, Calif., routinely recommended thinly-traded penny stocks on his website while he personally planned to sell the stock into the rising price spurred by the recommendation. Czuczko’s practice was to buy shares of the recommended stocks shortly before posting the selection on the Stockster website. When unsuspecting Internet visitors bought the recommended stocks and drove up the price of the shares, Czuczko sold or “scalped” his holdings for substantial profits without disclosing his own sales on the Stockster site. A screen shot of the Stockster website from March 3, 2006, is attached to this release.
According to the Commission’s complaint, Czuczko funded an extensive Internet advertising campaign to drive traffic to the Stockster website. Between mid-December 2005 and the end of March 2006, the Commission alleges, Czuczko paid approximately $1.15 million to Internet search companies and other web advertisers. Ads for the Stockster site appeared on Google and Yahoo! in response to Internet searches for terms like “stocks” and “investment advice,” and on popular financial websites like Marketwatch.com, TheStreet.com, and The Wall Street Journal Online. Czuczko’s advertising campaign proved successful, and his stock picks reliably fueled trading and price increases in the recommended stocks.
Linda Chatman Thomsen, Director of the Commission’s Division of Enforcement, said, “Investors need to be wary of unsolicited stock recommendations they find on the Internet. As in this case, the website operator may have hidden motives in recommending stocks to the detriment of unsuspecting investors.”
Helane L. Morrison, District Administrator of the Commission’s San Francisco District Office, said, “The Commission is committed to stamping out these scalping schemes that prey on unsuspecting investors.”
In a related scheme, the Commission charges that Czuczko touted shares of his own company, Epic Media, Inc. Epic Media, based in Los Angeles, is a development stage company with plans to publish “lifestyle magazines” for men and women. Czuczko is Epic Media’s CEO and CFO, and chairman of the company’s board of directors, as well as its majority shareholder. The Commission alleges that in early December 2005 Czuczko recommended the purchase of Epic Media stock on a website that was the predecessor to the Stockster site. After the price of Epic Media stock spiked, Czuczko sold his shares for a small profit. Czuczko did not publicly disclose those trades, among others, in stock ownership forms required to be filed with the Commission under federal securities laws.
The Stockster website included a boilerplate disclaimer that the site’s unidentified officers and employees “may” trade in the recommended stocks. The truth, however, was that Czuczko always sold his shares as soon as his recommendation had its intended effect of increasing the price of the stock. The Stockster website provided no warning to Internet visitors that the site’s operator intended—and in fact made it a regular practice—to sell the stocks at the same time that he posted buy recommendations on the site. By failing to disclose his intent to sell at the time when he made the recommendation, Czuczko was able to turn a quick profit at the expense of the investors who followed the site’s advice.
The Commission’s complaint, filed in federal district court in Los Angeles, seeks to enjoin Czuczko from future violations of the antifraud and ownership disclosure provisions of the federal securities laws. The Commission requests that the district court order Czuczko to disgorge his ill-gotten gains plus prejudgment interest, impose a civil monetary penalty, and bar him from participating in penny stock offerings and from serving as an officer or director of a publicly traded company.
The Commission acknowledges the assistance of NASD Market Regulation with its investigation.
For tips to avoid costly mistakes, the Commission encourages investors to read “Pump & Dump.con: Tips for Avoiding Stock Scams” on the Internet at http://www.sec.gov/investor/pubs/pump.htm.
For more information, contact:
Helane L. Morrison
Tracy L. Davis
United States Securities and Exchange Commission
San Francisco District Office
Additional materials: Litigation Release No. LR-19787 and Complaint