The US Securities and Exchange Commission (SEC) yesterday announced
11 enforcement actions against 23 companies and individuals that
used the internet to defraud investors. Both publicly-traded
securities and privately-held companies were involved.
The alleged perpetrators used the Internet to "pump" the market
capitalisation of the stocks involved by more than $300 million and
raise $2.5 million in proceeds from investors in the US and abroad.
The SEC reported that the frauds were accomplished by on-line
means, including spam e-mails, electronic newsletters, web sites,
hyperlinks, message boards and other internet media.
SEC Director of Enforcement Richard H. Walker said:
"Today's cases are a sobering reminder for
investors that, on the internet, there is no clearly defined border
between reliable and unreliable information. Therefore, investors
must exercise extreme caution when they receive investment pitches
online."
Childwhite Enterprises, a private company, used spam e-mail and
a web site to announce that its upcoming, SEC-approved IPO (at a
price of $20 to $50 per share) was imminent and that it would
realise at least $1 billion through on-line eyewear sales.
The SEC alleges that, in reality, the company never received SEC
approval for an IPO, the company had no offices, no inventory, and
no products or services; moreover, the SEC alleges that the
company's owner misappropriated investor funds for a variety of
personal expenses, including securities purchases through personal
brokerage accounts and expenses at restaurants, gambling casinos,
and adult entertainment clubs.
A public company, PinkMonkey.com, issued a press release
claiming it would "quickly reach a significant market share in the
$400+ million" study aids market. The company's share price nearly
tripled an hour after the release, eventually increasing more than
1000% within two days.
The SEC alleges that, in reality, PinkMonkey.com's internal
projections anticipated a year's time to reach, at most, a mere 5%
market share of the $160 million study aids market, and that, in
support of their projections, the company had only $30 in gross
sales during the entire 14-month period prior to the issuance of
the press release.
Another public company provided hyperlinks on its web site to
the reports of a purportedly independent analyst who actually was
paid 12,500 shares of the company's stock in undisclosed
compensation for publishing the reports.
Network Associates settles securities lawsuit for $30
million
Network Associates, an e-business security company in the US,
yesterday announced that it has paid $30 million to settle a
federal shareholder class action suit arising from the accounting
treatment of in-process research and development in connection with
various acquisitions by Network Associates and predecessor
corporations in 1998 and prior years.
The money will be split among 80,000 to 100,000 investors who
lost money.
The settlement is subject to judicial approval.
