In the first fraud case ever brought against the operator of a stock-advice Web site, the S.E.C. filed charges yesterday on four counts against Yun Soo Oh Park, aka Tokyo Joe. The story about the expat burrito restaurateur turned flashy investment guru got heavy play in the press - including a front-page spot in the New York Times. But while the issues involved are complex, most stories were remarkably similar, paying more attention to Park's persona than to the tangled issues the case raises.
The SEC's complaint charges that Park defrauded users who paid as much as $200 a month for his day-trading advice. It claims Park recommended that his customers buy stocks and hold them until they reached a specific target price, thus driving up their value. Then, while his disciples raced to buy the shares, Park would unload his, a practice known as scalping. The SEC also accused Park of accepting 100,000 shares of DCGR International Holdings in exchange for recommending the stock, and of lying to his customers about his performance record.
The case is tricky, though. As the New York Times reported, Park is being charged with violating the Investment Advisors Act, although he has not registered as an investment advisor with the SEC. This raises First Amendment issues that the media largely glossed over. The Washington Post quoted Park's lawyer, Ira Sorkin - who denied the charges - as saying that the SEC's rules have failed to keep up with technology. "I would have hoped that the SEC would have dealt with these emerging issues of free speech, free exchange of information in cyberspace through regulation, not litigation," said Sorkin, who was described by the Post as a former top SEC official. "These issues of day trading, chat rooms, exchanging ideas of investments in companies are part of a whole new world. The SEC has failed to keep pace."
The Times went to its favorite First Amendment champion, the formidable Floyd Abrams. But even Abrams didn't seem clear on what, exactly, was the issue at hand. Try to follow this quote: "The position of the S.E.C. is not ridiculous and cannot by blown away by hoisting a First Amendment banner, but the case does raise a serious First Amendment issue involving the continued availability of the Web as a place where people can speak broadly in an uninhibited manner about topics, including the stock market." That's more than 50 words to say that yes, the First Amendment is somehow relevant here.
The legal issues are murky because anyone can become a guru online. Can self-proclaimed experts in a chat room or on a homepage be held liable if they fail to divulge their conflicts of interest? Few bothered asking. With a flamboyant protagonist like Tokyo Joe, why linger on issues?