SEC Charges 33 in Internet Fraud Crackdown

A school bus mechanic with no previous experience in the stock market was among those rounded up by the U.S. Securities and Exchange Commission (SEC) in its latest sweep against online fraud, the government agency said Wednesday.

The SEC said that it had charged 33 companies and individuals with Internet fraud in an ongoing effort to crack down against those who use the Internet to profit illegally from the stock market.

The perpetrators were engaged in so-called "pump-and-dump" stock manipulations, meaning they acquired stock in a company, distributed false information to inflate the price of the stock, and then dumped the shares for a profit.

The actions involved the stocks of more than 70 companies and resulted in illegal profits of more than $US10 million, the SEC said in a statement. The cases include 11 civil actions filed in district courts throughout the U.S. and four related administrative proceedings.

This was the SEC's fourth sweep against fraud schemes involving the Internet and brings to more than 180 the total of number of Internet cases filed, the SEC said. The first sweep was conducted in November 1998.

The agency has set Internet fraud among its highest priorities as it tries to cope with the growing number of individuals who take advantage of the wide reach and instantaneous nature of the World Wide Web to profit from stock market manipulations.

"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," Richard Walker, SEC Director of Enforcement, said in Wednesday's statement.

The cases brought Wednesday involve individuals and small entities that spread false information through electronic newsletters, Web sites, email messages and through posts on Internet message boards, the SEC said. Some of the respondents have no securities industry experience. One of them is a bus mechanic, and another is a college student who also drives for a car service, the SEC said.

Several of the actions involve foreign entities and individuals who used the Internet to reach U.S. investors.

To avoid being duped by pump-and-dump schemes and other types of Internet fraud, investors are advised to do their homework about companies they invest in and to be highly skeptical of information they receive from strangers on Web sites, message boards and chat rooms, the SEC said.

Also Wednesday, the agency launched an online brochure to educate investors about stock market fraud on the Web. "Pump&Dump.Con: Tips for Avoiding Stock Scams on the Internet" is available at http://www.sec.gov/consumer/iemmtips.htm/.

Among those charged in the SEC's latest sweep are Chill Tech Industries Inc. and its chief operating officer, Lee Gahr, the SEC said. Gahr allegedly misled investors and failed to disclose facts about Chill Tech through statements issued on the Web and through other means. The statements referred to, among other things, the "environmentally friendly" nature of a self-cooling beverage can developed by Chill Tech. The can actually uses Freon, a banned substance, the SEC said.

The statements helped cause the price and volume of Chill Tech stock to increase between 15 percent and 94 percent in the short term. While Gahr disseminated the false statements, he personally sold more than 1 million shares of stock in the company for a profit of $US277,136, according to the SEC.

Through its lawsuit filed in U.S. District Court for the District of Nevada, the SEC is seeking a permanent injunction against Gahr and Chill Tech, as well as a civil monetary penalty against Gahr. An attorney for Gahr didn't immediately return a call seeking comment, and Chill Tech couldn't immediately be reached.

Also charged is Christopher Hastings, of Independence, Kansas, who, acting under the screen name Stockpicks1, allegedly talked up the stock of 10 companies through a free e-mail letter, on an Internet Web site he maintained and in messages posted on various Internet message boards, the SEC said.

In two instances, Hastings allegedly sold his personal holdings in the stocks he touted for total profits of approximately $US70,309, the SEC said. He also coordinated his activities with other touters against whom the SEC obtained a preliminary injunction in April 2000, according to the SEC.

Hastings, 33, had no previous experience in the securities industry and currently works as a school bus mechanic, the SEC said. Without admitting or denying guilt, Hastings agreed to an order that enjoins him from future securities violations and requires him to pay $US70,309 plus pre-judgment interest, the SEC said. The order waives payment of disgorgement of all but $US22,312, and does not impose a civil penalty based on Hastings's demonstrated inability to pay, the SEC said.

That action was filed in U.S District Court for the District of Kansas. Reached by telephone, Hastings declined to comment.

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