SEC Cracks Down on Stock Touters

Oct 28 1998

The U.S. Securities and Exchange Commission on Wednesday announced the first nationwide crackdown on Internet securities fraud, filing nearly two dozen cases against stock "touters."

Touters promote a company's stock to potential investors, often in exchange for cash or stock. The rise of the Internet has made touting a growth industry, with touters hyping stocks through online newsletters, message boards, Web sites and spam. The touters named in Wednesday's enforcement action illegally took in more than $6.3 million and 1.8 million shares from more than 200 low-valued "microcap" companies, according to the SEC.

Touting itself is not illegal, but failing to disclose payment for promoting a stock or lying about the stock issuer does violate antifraud laws. The government contends some touters violated disclosure requirements or misled investors about a company's prospects. Other touters allegedly "scalped" investors by selling shares in a company after running up its stock price.

"The Internet provides unquestionably phenomenal benefits to investors," said SEC enforcement chief Richard Walker at a press conference Wednesday. "Unfortunately, there is no mechanism to sort good information from bad information on the Internet. ... And unfortunately we've seen a rise in fraud on the Internet."

The SEC named 44 individuals and companies in the crackdown, filing complaints in Chicago, Miami, Los Angeles and eight other cities.

Walker called one defendant, Future Super Stock, as "the poster child" for the enforcement sweep. He said the West Chicago, Ill.-based Web site took in more than $1.6 million in cash and stock from issuers, scalped stock and misrepresented the companies to investors. The site on Wednesday at least was disclosing that it had received as much as $300,000 to prepare a "profile" on a stock issuer.

Another defendant, Stockstowatch.com, allegedly made a million-dollar profit by scalping stocks it recommended.

Walker said the crackdown should put Net fraudsters on notice. "People say it's impossible to police the Internet. They're wrong. The SEC is committed to making the Internet as safe as possible."

But the penalties already paid by two individuals named in the sweep may not exactly deter the committed scam artist. Francis Tribble and his promoting company, Sloan Fitzgerald, paid a $15,000 fine to settle charges related to six million spams touting microcap companies. And the Ivy League-sounding Princeton Research, Inc., and its owner, John Wesley Savage, disposed of fraud charges by paying a $40,000 fine.