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SEC Accuses 23 Defendants of Internet Fraud

Probe: Agency says firms, individuals used e-mails and Web sites to boost stock prices, raise money.

March 02, 2001|From Bloomberg News

The Securities and Exchange Commission on Thursday accused 23 companies and individuals of fraudulently using the Internet to pump up stock prices by more than $300 million and to raise $2.5 million from investors.

In its fifth nationwide Internet fraud "sweep," the SEC said the defendants used spam e-mails, electronic newsletters, Web sites, hyperlinks, message boards and other Internet media in cases involving both publicly traded securities and privately held companies.

SEC enforcement chief Richard H. Walker said the agency's crackdown on Internet fraud will not let up with acting SEC Chairwoman Laura Unger taking the agency's helm after the retirement of Arthur Levitt, known as an investors' advocate.

Walker called Thursday's cases "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."

Walker said the new cases represented a "virtual checklist" of common securities fraud techniques.

In a case filed against Inc. and its founder, Patrick R. Greene, the SEC said the company made extravagant claims about its potential in a news release, helping spur its stock to a two-day gain of more than 1,000% to $17 a share.

Without admitting or denying wrongdoing, and Greene settled the case by agreeing to be subject to stiffer penalties if they commit similar violations in the future. Greene agreed to pay a $20,000 civil penalty, the SEC said. A lawyer for the defendants could not be reached for comment.

PinkMonkey shares rose 1 cent to 10 cents in over-the-counter trading Thursday.

In another case, Chidwhite Enterprises Inc. of Austin, Texas, and Chief Executive Jerry L. Chidester, 26, used spam e-mail and a Web page to promote 100 stock credits "free" to each applicant who paid a $10 fee, the SEC said. Investors were told they could redeem stock credits for common stock when the firm completed a supposedly upcoming initial public offering, the SEC said.

Actually, Chidwhite never got SEC approval for an IPO, and the company had no offices, inventory, products or services, the SEC said. Chidester spent investors' dollars at gambling casinos, restaurants and adult entertainment clubs and for other personal expenses, the SEC said.

Chidwhite officials could not be reached for comment.

No Southern California companies were named by the SEC.

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