The U.S. Securities and Exchange Commission (SEC) filed fraud charges Monday against a 20-year-old Kentucky man who raised more than US$100,000 in an online investing scheme.
According to a statement from the SEC, between May 2002 and February 2003, K.C. Smith of Oak Grove, Ky., allegedly set up two Web sites -- which have since been taken down -- and sent out approximately 9 million spam e-mail messages to potential investors promising them double-digit monthly returns, which were backed by a phony investment company, Kryer Financial.
Smith could not be reached for comment.
Regulators also alleged that Smith said the investments were insured by the U.S. Deposit Insurance Corp. (USDIC), another entity he had invented. According to the SEC, Smith created a Web site for the USDIC, featuring the SEC's official seal.
According the SEC complaint, filed in the U.S. District Court, Eastern District of Tennessee, Northeastern Division, none of the money Smith raised through the Web sites was invested and none of it was insured. The SEC said Smith used the money to pay for his living expenses.
The complaint also alleged that Smith promoted the fictitious investment opportunities in 9 million spam e-mail messages and that he took careful steps to conceal his identity, including calling potential investors on disposable cellular telephones, using stolen service provider accounts to access the Internet, and collecting investor funds through online payment services that maintain payee confidentiality.
SEC spokesman John Stark said the SEC learned of Smith's activities through complaints made by consumers at its Complaint Center.
Stark said yesterday that Smith, while neither admitting nor denying the allegations, agreed to a settlement calling for him to repay the $102,554 to the investors and $4,956 in interest. Stark said Smith has also agreed not to commit any more violations in the future.
Stark said SEC officials opted not to ask for any further monetary penalties because the commission decided Smith could not afford to pay those penalties.