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Youth Sought Investors While Dodging SEC

January 10, 2002|WALTER HAMILTON | TIMES STAFF WRITER

In the days immediately leading up to the collapse of his Internet-based fraud scheme, Cole A. Bartiromo worked furiously to evade government investigators even as he frantically sought new investors, according to court documents.

The filings indicate that Bartiromo's "Invest Better 2001" program may have had more than triple the 1,000 investors the government initially said were involved. The documents also show that regulators are investigating whether the 17-year-old may have operated a second fraudulent Web site.

On Monday, the Securities and Exchange Commission accused the Mission Viejo youth of running a scheme that may have swindled more than $1 million from investors worldwide between Nov. 1 and about Dec. 15.

Bartiromo is alleged to have offered huge short-term returns with no risk, through bets on sports events. Such claims are "the classic bait of fraudulent schemes such as Ponzi schemes," the SEC charged in its federal court filing in New York.

Bartiromo operated the Invest Better 2001 Web site and a separate message board on the MSN Communities Internet site.

The documents show that, as the government intensified its probe of Bartiromo's scheme in early December, he sought to evade investigators by planning to remove his operation from the Internet. Bartiromo told his investors in a Dec. 9 electronic missive that he would take his operation "private"--meaning he would communicate with them only via e-mail.

"Having the Web site caused [the] government to notice us," Bartiromo wrote. "To preserve IB2001, we believe that we must go completely private."

The Dec. 9 letter came as angry investors were barraging Invest Better 2001 with complaints about not receiving scheduled payouts.

Bartiromo defended his program as the "real deal" and labeled the gripes "ridicolous." He termed his investors "pioneers" who are "like those selected for Noah's Arc."

Bartiromo promised refunds to some disgruntled investors while telling others he was transferring their investments to a "2,500% Christmas Miracle Program" that would net them enormous gains.

Shortly thereafter, the operation collapsed.

The court documents paint a picture of an ambitious scheme in which Bartiromo went to great lengths to mask his troubles from investors. When some participants first complained on the MSN board about missed payments, Bartiromo erased their messages to prevent others from reading them. He warned investors, "NO NEGATIVE COMMENTS

Bartiromo went so far as to block the SEC itself from posting messages, according to a court declaration by SEC lawyer Alexander Vasilescu. As the agency filed a lawsuit against Invest Better 2001 on Dec. 13, Vasilescu sought to alert investors on the MSN message board. But his message was "rejected" by the board's administrator, apparently Bartiromo.

The SEC also is investigating whether Bartiromo may have launched another Web site that appears to be fraudulent, according to a declaration by SEC attorney Craig Warkol. On Dec. 11, the MSN board had a posting from a site called goldcapsule.com promising "real" investment opportunities. The operator of the Invest Better 2001 site "also may be operating Gold Capsule," Warkol wrote.

Bartiromo's attorney, David Bayless, did not return a call Wednesday seeking comment.

The SEC appears to have first approached Bartiromo on Nov. 19, when it sent an e-mail to Invest Better 2001. It received a reply the next day from "Tom Manning," an online alias that Bartiromo used.

The e-mail claimed Invest Better 2001 had "ceased operations" and that it was composed of only a few "Internet buddies" who had pooled no more than $5,000, according to Warkol's declaration.

In the Dec. 9 letter to investors, however, Bartiromo claimed to have 3,300 investors.

Apparently believing that the SEC was checking on the status of his Web site, Bartiromo expunged it in early December, according to Warkol's declaration. But on the MSN board, Bartiromo told investors the site was "taken down" by "hackers," according to Warkol.

Regulators have declined to say whether Bartiromo actually placed sports bets with the money that investors sent to him. But on his Web site, Bartiromo claimed that "we actually do invest," unlike other sites that he said were run as "Ponzi schemes."

Bartiromo told investors that he placed bets on professional and college sports, and said returns were guaranteed because "we don't just bet on favorites to win, we bet on really favored teams" that were unlikely to be upset.

In early December, as his program appeared to be unraveling, Bartiromo launched a marketing "blitz" to lure newcomers, saying his program would be "closed" to new investors on Dec. 15, according to Warkol's declaration. Government regulators said in the court papers that they were conducting an "expedited" investigation in part because of the last-ditch attempt to lure investors.

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Times staff writer Walter Hamilton can be reached at walter .hamilton@latimes.com.

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