Federal regulators accused a Mission Viejo teenager of civil securities fraud Monday, alleging that the 17-year-old concocted an elaborate Internet-based scheme that defrauded investors of more than $1 million.
In the second such case ever filed against a youth, the Securities and Exchange Commission accused Cole A. Bartiromo of operating a Web site and Internet message board that promised "risk-free" returns of up to 2,500% within a few days or weeks of initial investments.
The scheme, which occurred from at least Nov. 1 through about Dec. 15, duped more than 1,000 investors, the SEC said.
The "Invest Better 2001" Web site claimed to make money by pooling investors' funds and placing "safe bets" on sporting events, according to the SEC. Some investors received payouts, but others complained about not receiving promised returns--which may have triggered the SEC investigation.
Bartiromo, a senior at Trabuco Hills High School, appeared to go to great lengths to drum up interest in his scheme. In a posting on another Internet site, he promised that investors would earn 200% within seven days--"plus 50% to the Red Cross!!!"
Bartiromo listed four investment programs offering returns based on length of investment. The most lucrative was the "2,500% Christmas Miracle Program," pledging a 25-fold return to investors who sent him money by Dec. 15. Participants were instructed to use one of a handful of Net payment systems to transfer funds.
In a settlement with the SEC, Bartiromo agreed to turn over about $900,000 that had been transferred to an account at a Costa Rica-based casino.
Bartiromo also must repatriate within 48 hours any other funds that he moved out of the country and provide a list of all U.S. accounts within 20 days, said Alexander Vasilescu, an SEC attorney.
Bartiromo may have to disgorge additional funds as the SEC investigation continues, Vasilescu said. The agency also has asked a federal court in New York to assess an unspecified fine, he said.
The youth settled the charges without admitting or denying guilt, Vasilescu said.
Bartiromo declined to comment when approached by a reporter at a baseball practice field at his high school Monday. "My lawyers told me not to talk to anybody," he said. "I wish I could. I'd like to. I'll talk when it's over, but I don't know when that will be."
Bartiromo's attorney, David Bayless, did not return several phone calls to his office.
Indicating that it may charge others with helping Bartiromo, the SEC's suit includes 10 "John Does" who may be named later.
Bartiromo is the second case of a minor accused by the SEC of securities fraud. The first was a high-profile case two years ago in which a New Jersey teenager, Jonathan Lebed, agreed to repay $285,000 in misbegotten gains after allegedly using Internet message boards to manipulate stock prices.
The Lebed case raised questions about the potential for Internet-savvy teenagers to be lured into Web-based financial fraud in the wake of the stock market's historic surge in the late 1990s.
Besides the Bartiromo and Lebed cases there have been other instances of teenagers attempting to commit securities fraud but they were caught early and let off with warnings, an SEC spokesman said.
In one case, a boy offered to sell an "Online Scam Guide" listing 1,001 ways to bilk people via the Net. When approached by the SEC, the youth burst into tears and said: "I am only a teenager. Please don't tell my mommy," according to a 1999 speech by an SEC official.
"There are plenty of kids without scruples," said Michael Josephson, president and founder of the Josephson Institute of Ethics in L.A. "I have a sinking feeling that more kids will admire what [Bartiromo] did than be repelled by it."
In interviews Monday, investors from as far away as Australia said they were taken in by the scheme.
Steven Daigle, a 47-year-old electrical engineer from Austin, Texas, said he lost $6,000. He said he invested $30 in November. After getting his first payout about a week later, he began investing ever-larger sums.
"I thought this was pretty neat so I kept going," Daigle said, saying he believed it was legitimate because it was "so professionally done." However, he became concerned when the payouts stopped. "The fact that it was run by a 17-year-old makes me even more upset," he said.
Bartiromo lives with his parents. His father, John, 44, is a longtime employee of Southern California Edison. His mother, Jeanise, 41, is a grade school teacher.
With TV crews and other media outside the family home Monday afternoon, Bartiromo and his father drove off shortly after the son returned from baseball practice.
Some people who know Bartiromo said they were shocked at the charges. "This is unbelievable," said Michael Greenwood, who moved into a house across the street from the Bartiromos a year ago. "Cole is a great kid, very quiet. The kids love him. He's very polite, so polite it's sickening."
Neighbors said Cole and his father are big sports memorabilia collectors. The son has traded memorabilia over the Internet, Greenwood said. He called the family "model citizens."
Some of Bartiromo's baseball teammates knew he liked the fantasy sports leagues on the Internet and said he was particularly fond of WallStreetSports.com, an interactive game that blends sports with the stock market. He often talked about going on EBay to trade sports memorabilia, they said.
"He was always talking about creating a golf tournament for us," said teammate Adam Mitchell.
A member of Bartiromo's family told government investigators that the youth was a cousin of Maria Bartiromo, a reporter for the CNBC financial cable channel, a source said. But a CNBC spokeswoman said "Maria is definitely not related to this young man. She's never heard of him."
Times staff writers Jerry Hirsch, Josh Friedman, James S. Granelli, Jessica Garrison and Daniel Yi contributed to this report.