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Friday, Sep. 25, 1998
SEC cracks down on stock schemes
Agency targets `pump and dump' scam, other penny-stock swindles
By MARCY GORDON
Associated PressWASHINGTON - Federal regulators, in a sweep targeting penny-stock fraud, on Thursday announced separate enforcement actions against 41 people and companies that allegedly bilked investors of more than $25 million.
The stock manipulation schemes involved bogus medical breakthroughs, phony hotel renovations and online shopping, among other areas, the Securities and Exchange Commission said.
Many of the cases were said to be classic ``pump and dump'' schemes, in which promoters push up a stock's price by making false claims about the company and later sell their own shares to cash in on the artificially high price.
Cheap, high-risk penny stocks, most of which are traded legitimately, have been a breeding ground for fraud.
``We are dedicated to ferreting out and prosecuting those who prey on innocent investors,'' SEC Enforcement Director Richard Walker told reporters. ``We're making progress in this battle.''
The SEC has made the fight against small-stock fraud a high priority. The agency warns investors to avoid being taken in by sales pitches, especially those making exaggerated promises of big returns. Pitches are usually made by telephone, in television, radio or newspapers ads or on the Internet.
Asked whether Wall Street's recent volatility has affected the incidence of fraud, Walker said, ``Our business remains strong in good times and bad.''
In the latest actions, the SEC filed suits against the people and companies involved, charging them with securities fraud and seeking restitution of allegedly ill-gotten gains. Some of those targeted also have been charged in related criminal cases brought by other law enforcement authorities.
Among the cases:
A Florida company portraying itself as in the business of building golf driving ranges allegedly ran a Ponzi scheme, cheating more than 350 investors out of some $15 million.
In a Ponzi scheme, promoters typically promise high rates of return on investments. The rates are paid at first to attract more investors, but the scheme ultimately collapses as money is diverted for the promoters' personal use.
A Utah company claimed to have developed a new data transmission technology called digital wave modulation. The company's stock soared from $3.50 to more than $40 a share. The price later collapsed when the company failed to produce a promised prototype, but not before its chairman and his children sold some $3 million of their shares in an alleged ``pump and dump'' scheme.
A biotechnology company in Nevada falsely claimed it had an exclusive license to market breakthrough medical devices. The company also allegedly lied about its efforts to market a new line of nutritional supplements.
Promoters in South Florida allegedly sold unregistered shares in bogus hotel renovation projects. They were said to have printed the stock certificates themselves and kept the money from the sale.
A brokerage firm in the Los Angeles area allegedly made more than $4 million by manipulating the shares of an online shopping company.
Three people published what were billed as independent news reports about 50 small companies, which allegedly paid the publishers nearly $400,000 in cash and stock to promote them. The newsletter was sent to about 60,000 people a month.Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web