SEC Conducts First Ever Nationwide Internet Securities Fraud Sweep, Charges 44 Stock Promoters in 23 Enforcement Actions

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
www.sec.gov/consumer/cyberfr.htm.

                           #  #  #

Below is a complete list of all sweep SEC actions:

SEC v. Attalienti, et al.
SEC v. Carlisle, et al.
SEC v. The Future Superstock, et al.
SEC v. Liberty Capital Group, et al.
SEC v. Ruebel
SEC v. Savage, et al.
SEC v. Schlieben
SEC v. Starwood, et al.
SEC v. Stockstowatch.com, et al.
SEC v. Taxin, et al.
SEC v. Tribble, et al.
SEC v. Volmer, et al.

In the Matter of Baillargeon, et al.;
In the Matter of Core Communications, et al.
In the Matter of High Growth Publishing Group, et al.;
In the Matter of IBJ Publications, et al.
In the Matter of ICS Communications, et al.;
In the Matter of Investment Hotlines, et al.
In the Matter of Klein;
In the Matter of Martineau;
In the Matter of National Investors Council, et al.;
In the Matter of Smith;
In the Matter of TKO International, et al.