A US teenager has agreed to pay back $285,000 that shares regulators said he made through illegal trading on the Internet.
Jonathan Lebed (15) used $8,000 of accumulated birthday money to buy stocks, talk them up on message boards and then sell them at a profit - usually within 24 hours - according to the US Securities & Exchange Commission (SEC).
Without admitting or denying the charges, Lebed has agreed to repay the money he made, plus interest. He also agreed to refrain from similar trading in the future. The SEC did not require him to pay a fine or penalty.
By day, Lebed was just another high school student in Cedar Grove in northern New Jersey. But after school, he masterminded a stock manipulation scheme that earned him almost $273,000 in illegal gains.
The teenager developed a scheme to increase the prices of nine obscure, low-price stocks he had bought by sending numerous optimistic messages to investing chat rooms on the Internet. As other investors read his messages and bought the shares, prosecutors said, Lebed sold his holdings at profits ranging from $11,000 to $74,000 a trade. The scheme began in August 1999, when Lebed was 14, prosecutors said, and continued until 4 February this year.
Lebed was the first minor to be sued by the SEC. “It was essentially a pump-and-dump scheme,” said David S. Horowitz, assistant district administrator at the SEC’s Philadelphia district office. “What’s different is his age.”
Lebed conducted his trading in accounts set up for him in his father’s name at two different brokerage firms. One was a firm that caters to online investors.
Eleven times, regulators said, Lebed bought a large block of a small stock. A few hours after each purchase, he would send up to 500 false and misleading e-mail messages to various Yahoo Finance message boards promoting the stock he had just bought. The messages were sent using fictitious names, making it seem that many different investors thought the stocks held promise.
Often at the same time that he bought the shares, Lebed would place an order to sell them at prices well above the prevailing market. This was done to ensure that he could profit from a jump in the stock even if it came during the day while he was at school.
Lebed lured investors into the stocks with predictions that the shares would soon soar in price. He said in one message that a company trading at $2 would be trading at more than $20 very soon. Another posting said that a stock would be the next to gain 1,000%.
Regulators said that Lebed’s messages always caused the price and volume of the mentioned stocks to increase significantly. In some cases, the stocks reached their record highs after the e-mail messages. Shares of all nine of the companies Lebed sent e-mail messages about are traded on the over-the- counter bulletin board, a market for the smallest and least-known stocks.
The stocks involved in Lebed’s scheme were Manchester Equipment, Just Toys, Yes Entertainment, Fotoball USA, Man Sang Holdings, West Coast Entertainment, Havana Republic, Classica Group and Firetector. None of the companies have been charged with any wrongdoing in the matter.
His lawyer, Kevin Marino, described Lebed as a self-taught stock trader who developed an interest in the market when he was 12. “He has done other investing and has done extremely well,” he said.
About three years ago, Lebed and two schoolmates entered a US stock-picking contest and did very well, featuring in an article in the local newspaper.
Perhaps the most amazing aspect of this case is that there are investors who will buy stocks based on anonymous Internet tips. Even though the messages had little substance – one characterized an investment as “the most undervalued stock ever” – investors rushed in.
Ronald Long, administrator of the SEC’s Philadelphia district office said: “I implore investors to be highly skeptical of any advice they receive from the Internet. People should do thorough research before making investment decisions and verify all information before acting on it.”