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SEC Web Fraud Sweep Nets 2 Suspects in State

Internet: In separate lawsuits, the Californians are accused of manipulating stock prices online.

September 07, 2000|From Times Staff and Wire Reports

Two Southern California residents were among 33 companies and individuals accused by the Securities and Exchange Commission on Wednesday of fraudulently using the Internet to make more than $10 million in illegal profits by driving up the prices of more than 70 small stocks.

SEC officials said this latest round of 11 civil fraud lawsuits seeks to curb increasing use of Internet chat rooms, Web sites, and e-mail messages to try to hype small, thinly traded stocks for a profit.

"What used to require a network of professional promoters and brokers, banks of telephones, and months to accomplish can now be done in minutes by a single person using the Internet and a home computer," SEC enforcement director Richard H. Walker said.

In a suit filed in U.S. District Court in Los Angeles, the SEC alleges that Michael A. Furr, 46, a resident of the Orange County community of Coto de Caza, netted at least $3.4 million by manipulating stocks through the Internet and radio infomercials.

Furr spread false information about at least 26 micro-cap companies from January 1999 to January 2000, the SEC alleges in its suit, using a Web site, bulk e-mails and nationally broadcast radio infomercials. He made false revenue and stock price projections and understated the compensation he received for touting the shares, the SEC alleges.

Regulators allege that Furr, in a so-called pump-and-dump scheme, sold shares of the companies he touted after their prices spiked dramatically. The SEC is seeking an injunction against Furr, disgorgement of wrongfully obtained trading profits, and a civil fine.

Furr's attorney, Irving Einhorn, declined to comment on the suit.

In 1997, the National Assn. of Securities Dealers barred Furr from the stock brokerage industry and fined him $270,000 for diverting customer funds, the SEC said.

In the other Southern California case, Thomas Carter, 27, of Santa Barbara, is alleged to have sent out false mass e-mails in May and June of 1999 to pump up four penny stocks he owned.

The SEC alleges that Carter claimed to be from a "momentum trading service" called "Unity List." The e-mails "recited purported rumors about the companies and urged the e-mail recipients to purchase the stocks at specified times," the SEC alleges.

"Many of the recipients acted upon the e-mails and purchased the profiled stocks, and the prices and trading volume rose dramatically," allowing Carter to sell the four stocks for total profit of more than $12,000, the SEC contends.

Carter could not be reached for comment. The SEC said it believes he is vacationing in Europe.

Altogether, the companies and individuals charged--including a school bus mechanic, a car-service driver, and a self-chilling can company--boosted the total market value of the stocks involved in these cases by $1.7 billion, the SEC said.

The series of coordinated lawsuits was the SEC's fourth high-profile attempt to send the word that its investigators are determined to crack down on stock fraud involving the Internet.

"The market-manipulation area is where most fraud is taking place on the Internet," said John Stark, the SEC's Internet enforcement chief. "It's getting easier to do, and more and more people are using the Internet to do it."

Among cases announced Wednesday, the SEC alleged that Heartsoft Inc., an educational software developer, used its Web site to announce nonexistent agreements to distribute software to foreign countries and develop a child-safe Internet Web browser. The Broken Arrow, Okla.-based company's stock, which closed Tuesday at a five-month high of $2.53, fell 38% Wednesday to $1.56.

The SEC has brought 180 Internet-related cases since 1995, with 64 this year alone. Last week, Mark Simeon Jakob of El Segundo, a 23-year-old community college student, was accused of defrauding Emulex Corp. investors by issuing a phony news release that sent the company's stock plunging.

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More information on the SEC's lawsuits and "pump-and-dump" schemes is available at the SEC's Web site at http://www.sec.gov/consumer/iemmtips.htm.

Times staff writer Josh Friedman contributed to this report.

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