SEC Finds Fishy Business in the Net

Mar 01 2001

The SEC on Thursday announced 11 enforcement actions against 23 companies that allegedly used the Internet to defraud investors.

According to the SEC, executives at the companies involved - which include both private and public ones - attempted to pump up market capitalization by more than $300 million and tried to raise $2.5 million from investors in the U.S. and abroad. Spam e-mail messages, electronic newsletters, Web sites, hyperlinks and message boards were all used in the alleged scams.

Some of the alleged violations are case studies in chutzpah:

- A former roofing contractor, Ricky Laine Gaspard, claimed to be a trader with 14 years of experience. He set up a Web site called WallStreet Prophet that claimed his advice had "an 85 percent success rate" and returns of "up to 860 percent." Gaspard has agreed to cease and desist from future violations of SEC rules.

- PinkMonkey.com, an online publisher in Houston, issued a fraudulent press release that caused the PinkMonkey's common stock to rise 950 percent. The release announced the "launch" of a new Web site service that could "quickly reach a significant market share in the $400 million" study aids market. However, according to the SEC's complaint, the Web site was neither newly launched nor likely to realize any significant market share. As of the date of the release, PinkMonkey had operated the Web site for 14 months and generated only $30 in sales. Patrick R. Greene, its founder and controlling shareholder, has agreed to pay a $20,000 penalty.

- Kenneth W. Schilling is accused of disseminating false revenue and stock-price projections on the Internet for iBIZ Technology, a computer company based in Phoenix. The complaint alleges that Schilling, president of iBIZ, provided false financial projections to a purported independent analyst for use in research reports recommending the purchase of iBIZ stock. Then Schilling allegedly approved and placed 17 press releases on iBIZ's Web site, which contained direct hyperlinks to the analyst reports. According to the SEC, iBIZ characterized the analyst as "independent" even though iBIZ had agreed to pay the analyst 200,000 shares of iBIZ common stock for the report. IBIZ has agreed to a cease-and-desist order, and Schilling has been fined $20,000.

- In Texas, the 26-year-old CEO of a private company called Chidwhite Enterprises allegedly used spam e-mail and a Web page to lure 6,000 people into paying $10 each for "free stock credits" redeemable for shares in an upcoming IPO. The SEC complaint says the company made false statements about the offering - including one that it was approved by the SEC. The company had also said Chidwhite would conduct an IPO after the stock-credit sale and that the IPO shares would be valued at $20 to $50 each. Chidwhite has gone out of business, and CEO Jerry Chidester is in jail on charges of vehicular homicide, according to SEC attorney Spencer Barasch.

This is the SEC's fifth "nationwide Internet fraud sweep." The total number of Internet cases filed now stands at more than 200.