SAN FRANCISCO (03/16/2000) - Some of the messages on Yahoo Inc.'s Finance stock boards are beginning to take on a more cautious tone this week.

"If you know something do not tell ANYONE, NOBODY, NO ONE!!" typed Poynker to Justbepatient on the StarBase (SBAS) stock board. "You should not even 'wink' 'wink' on this board. Justbehappy and keep quiet. ... Yes, we all want to know what is going on, but lets not be dumb about it."

This particular message came in response to a Tuesday night posting by Justbepatient, who wrote that he owns 100,000 shares of StarBase stock and has a friend who is an insider in the company. While other traders posted messages begging Justbepatient to either disclose the information or give up his e-mail address so they could discuss it in private, Poynker was trying to stop the conversation before everyone got in trouble.

Seems Poynker wanted to teach fellow traders a lesson that John Freeman never learned. On Tuesday, the U.S. Securities and Exchange Commission (SEC) announced that it has filed insider trading charges against Freeman and 18 others who it says made more than US$8 million in illegal profits based on insider tips that were traded over the Internet after Freeman provided them.

In 1997, Freeman, a 34-year-old Brooklyn graphic artist, was working as a temporary employee at Goldman Sachs when he became acquainted with two strangers in a stock chat room on America Online Inc. (AOL). According to the SEC, Freeman announced that he had insider access to merger and acquisition activity through his job, and he promised to share tips with them. In exchange, the strangers agreed to pay Freeman 10 percent of any returns they made from his tips.

Freeman and the strangers told other friends and coworkers, the SEC says.

During the next two years, nearly two dozen individuals in New York, Kentucky, West Virginia and Tennessee allegedly made millions in profits by investing in 23 companies. Freeman worked at both Goldman Sachs and Credit Suisse First Boston during the time period.

The complaint filed by the SEC weaves an intricate web, detailing the connections between the defendants and describing the lengths to which some of them went to avoid being caught. Among the defendants are a dentist, a waiter, an insurance agent, a car salesman and a retired schoolteacher.

But if this case is being framed as the great Internet insider-trading scam, the Internet's role is far more anomalous than the SEC has made clear. SEC officials did not use any traceable evidence from the chat rooms or instant-message conversations to apprehend Freeman. In fact, according to William Baker, the SEC's associate enforcement director, the commission did not even learn that the Internet had played a role until after Freeman's arrest in January. But that didn't stop some SEC officials and press reports from calling this "the first federal cyberspace insider-trading case."

To be sure, the Internet has opened a new door for stock scammers, and the SEC has responded, making significant investments to stay abreast of fraudulent online activity. And the chat rooms allowed three individuals, who otherwise might never have crossed paths, to meet. But the actions that ensued from that meeting were pure Old Economy.

"This is a little different than fraud committed offline because it was committed by people who used the Net for communication," Baker says. "The Net is just a vehicle for delivery of information, but it's an extraordinarily efficient one."

Neither the SEC nor America Online conducts surveillance of private chat rooms or instant messenger conversations. Rich D'Amato, spokesman for America Online, says the information from those services is not stored or accessible on AOL's servers, even for a short time. "It's gone," he says of the conversations that allegedly took place among the traders. "We're not in the storage business."

The Internet is no more to blame for this trading case than the telephone was for Ivan Boesky's scams in the 1980s. Private chat rooms are "the functional equivalent of a three- or four-way telephone call," admits the SEC's Baker.

What the Net has created is a forum for people to communicate openly with strangers, enabling criminals to find other criminals. By the end of the day yesterday, Justbepatient still hadn't posted his supposed insider information.

Perhaps the would-be criminal heeded Poynker's advice. How different his life might be had Freeman run into him first.