Feds Settle 14 Cases of Misleading Trading Claims

SAN FRANCISCO (05/03/2000) - For $150 a month, Genesis Trading offered subscribers a chance to earn profits of between $2 and $10 per share within five days, on recommendations made by professional traders who had devised a system for tracking institutional buying and selling. The site also claimed that 81 percent of its recommendations hit their target prices.

But in fact, the site's lone operator, Robert Garganese, is an untrained Las Vegas, Calif., resident who uses commercially purchased software that does not specialize in tracking institutional buying and selling to provide Genesis' six to 10 daily stock recommendations. He also happens to be doing hard time. A Securities and Exchange Commission analysis found that of Genesis' 677 picks, 51 percent were profitable and 49 percent lost money. The 43 or so Genesis Trading subscribers had either lost money or seen only moderate success.

Genesis Trading is among 14 online companies with which federal agencies announced settlements yesterday in a sweep on fraud related to securities, commodities and Internet day trading. Garganese started Genesis Trading in August 1998. He began serving a one-year federal prison term in October 1999 after pleading guilty to telemarketing and bank fraud. A friend is believed to have run the site after Garganese, 37, was imprisoned, and two Garganese family members apparently provided administrative support for the site, says David M.

Levine, senior adviser to the SEC's director of enforcement.

Under the terms of the settlement, Garganese neither admitted nor denied allegations that he violated the antifraud provisions of the Exchange Act by disseminating false and misleading statements. "The anonymity of the Internet has made it too easy for people with little market expertise to pass themselves off as market professionals," Levine says. He warns investors to be skeptical "whenever you see a Web site geared toward investing and that has a banner headline that makes patently egregious claims about returns."

Also yesterday, the Federal Trade Commission announced a crackdown on three Web sites that promised to share the secrets of making easy money with little risk through strategic day trading. The operators of the sites - CompuTrade in California, Granite Investments in Georgia and Day Trading International in Missouri - agreed to proposed consent agreements but did not admit guilt. The sites sold online "real time" training, software programs, trading manuals, e-mail newsletters or mentoring services for prices ranging from $79 to $4,995.

They promised that subscribers would "make money regardless of the market going up or down" and touted returns of as much as 2,041 percent, or profits of up to $750 per day. An FTC analysis found, however, that seven in 10 day traders lose money. The sites now will be required to disclose that "day trading involves high risks and you can lose a lot of money." Meanwhile, the Commodity Futures Trading Commission announced that it has settled administrative proceedings against Granite Investments and nine other online companies it had charged with fraudulently promoting commodity trading systems and advisory services.

Commodity trading systems typically are computerized programs that alert the public when to buy and sell futures and options contracts based on technical analysis of market trends. The Web sites claimed results that were false and often based on hypothetical or simulated trading, not actual trading in futures and options markets, the agency says. The Web sites, which did not admit guilt, agreed to pay fines of $10,000.

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