October 22, 2000

8:27 PM

"I wasn't doing anything wrong..."So says Jonathan Lebed, the 16-year-old who paid out $285,000 to the SEC to settle his pump-and-dump case. His father agrees: "He earned it. He did a lot of work. He didn't sit behind a garage smoking pot, or stealing wheels off a car." Yeah, right: after all, he bought his parents a Mercedes with the profits of his stock manipulation.
posted by holgate (17 comments total)

White-collar crime is insidious, because it has the veneer of respectability. After all, this is a middle-class kid who's exploiting the basic gullibility of people on stock message boards: no one appears to get "hurt". Of course, that's untrue: he's just as much a thief as someone who climbs in through a back window. With such a brazen attitude, supported by his parents, he's likely to become a big-time fraudster: Wall Street will welcome him.
posted by holgate at 8:34 PM on October 22, 2000

Is there no age limit to share trading?

This child has highlighted the problems with publicly traded companies. If you don't want this to happen to your company, stay private. This kind of thing probably happens more than anyone thinks or knows about.
posted by Zool at 8:41 PM on October 22, 2000

With such a brazen attitude, supported by his parents, he's likely to become a big-time fraudster: Wall Street will welcome him.

Good point, holgate, my sentiments exactly.

What's galling to me is the fact that news reports did state that this kid is much sought after, and for what? Fraud. Nice resume.

What I can't understand is why white collar crime isn't just treated lighter than other crimes, as if defrauding thousands of people out of their retirement money is somehow better than smash-and-grab robbery. And what about the guy saddled with the dubious distinction of unleashing the "ILOVEYOU" virus on the world? He got job offers up the wazoo.

Nice priorities. I'll be in the shed being darkly cynical if you need me.
posted by ethmar at 8:53 PM on October 22, 2000

Don't be too sure he's off the hook here. He's still vulnerable to civil suits by people who lost money due to his stock manipulation. And they lost a lot more than he made, and he could be liable to all of it PLUS punitive damages.

I'm not sure it's possible to sue a minor, but I am damned sure it's possible to sue his parents. They may come to regret this yet, when they lose that car AND their house AND all their retirement savings.

[I see we have a couple of new buttons. Howcome the window is still teeny tiny, hmmm?]
posted by Steven Den Beste at 9:02 PM on October 22, 2000

This kind of thing probably happens more than anyone thinks or knows about.

More gallingly, most people in the business seem aware of it: James Cramer has created "Buzz and Batch", two fictional traders who manipulate the markets; William Fleckenstein talks about "tape-painting" and the manipulation of quarterlies to match or beat estimates. Analysts come up with "price targets" in order to create surges of interest. After all, it's only a game when it's other people's money.
posted by holgate at 9:12 PM on October 22, 2000

The way I look at it the stock market is based on pure greed, people trying to make money without doing any work. So, when they get bitten by a system driven purely by perception, and populated by those stupid enough to make major investment decisions based on chat-room tips by 16 year olds, I don't really cry too many tears for them.
posted by Doug at 9:36 PM on October 22, 2000

First off, if you make investments without research, you deserve any looses you take. The only reason that kid's scheme worked is because people were stupid, and people should not be protected from their own stupidity. Secondly, every major brokerage that pays an analyst does the same thing.
posted by Nothing at 10:20 PM on October 22, 2000

Screw with investors: you're a capitalist hero.

Screw with computer networks: you're a criminal.

Not that I'm defending crackers, but isn't this essentially the same thing? Its fancy name is social engineering, its real name is fraud.
posted by skallas at 10:35 PM on October 22, 2000

"People should not be protected from their own stupidity." So if companies, say, start shipping bricks instead of hard drives to make their numbers or fudging their books, we should ignore it because people should have realized that the numbers didn't make sense? What about Lernout & Hauspie's legal woes? What if instead of a kid talking up penny stocks on the Net, it had been an analyst talking up, say, EToys on CNBC while simultaneously selling shares? Or, even worse, the CEO?

Jeez, I thought even Libertarians drew the line at fraud.
posted by snarkout at 7:44 AM on October 23, 2000

The way I look at it the stock market is based on pure greed, people trying to make money without doing any work.

You have to do work to get the seed money to invest, generally speaking.

In theory, the return you get is your reward for letting some business use your money to expand their operations, instead of spending it on, say, a trip around the world in a pleasure yacht...

Does it actually work that way? Not my field of expertise - but at least in theory there is some work-doing involved.

-Mars
posted by Mars Saxman at 12:02 PM on October 23, 2000

"So if companies, say, start shipping bricks instead of hard drives..." That is an entirely different situation, as it the fixing of the books. Both are acts that are clearly against the law. Fraud is defined as "Intentional misrepresentation or concealment of information in order to deceive or mislead". (Investor Words) Unfortunately I have never once seen an example of what this kid posted, so I can't say for sure, but from what he, his parents, and some of the news stories say, he never lied or knowingly misrepresented a company.Analysts do manipulate stock prices for the benefit of brokerages, all the time. They use a loophole by selling short before issuing a recommendation, but it amounts to the same thing.
posted by Nothing at 12:29 PM on October 23, 2000

If they sell short before issuing a recommendation, they're doing something foolish, since selling short only makes you money if the stock goes down. On the other hand, if they're selling short before downgrading a stock, they're behaving illegally. I know it happens and you know it happens, but they're breaking the law.

The Securities Act of 1934 prohibits issuing "false or misleading" information about stocks; I'd assume that case is predicated upon the idea that the kid sending dozens of emails under false identities is proof of his intent to mislead. In particular, the relevant section of the law reads as follows:

It shall be unlawful for any person in the offer or sale of any securities by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, directly or indirectly ... to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading...

I'll refer interested MeFiers to this very detailed guide to securities fraud law.

And it's hard for me to accept the kid's protestations of innocence given the reports that he sent emails under "hundreds" of names. The gullibility of those who lost money doesn't make him any less culpable for his actions.
posted by snarkout at 1:09 PM on October 23, 2000

Stupid gigantic URLs. The newspaper report I meant to link to is actually here. I'm not sure that it's still available on the Atlanta Journal's actual site.
posted by snarkout at 1:11 PM on October 23, 2000

Last try, and I apologize for cluttering like this: the story on the Journal's actual site.

Not sure why the cached Google page doesn't want to show up, but hey.
posted by snarkout at 1:15 PM on October 23, 2000

Nothing: I saw this story on 60 minutes, and this is more than just taking advantage of people's gullibility. Lebed used numerous fictitious names, using phrases like "the most undervalued stock" in his posts. The SEC allow only certain people to make such claims, and these people don't profit from their market analysis and evaluations when they're touting them on TV or in papers.

The "pump and dump" is a very serious crime in the eyes of the SEC. You're basically buying in at 3 cents, telling the world it's going to go up to 20 cents, then dumping at 6 cents when your claims naturally spike the price of the stock. Legit companies do this too, but it doesn't make it any more legal; the SEC go after them also.
posted by aprilgem at 3:09 PM on October 23, 2000

Of course, those laws were written before random 16-year-olds had access to worldwide computer networks. I have to say that it's getting harder to feel sorry for people getting stung by this: there are so many OTHER ways they can get information, all the way up to reading scans of the ACTUAL SEC filings a company makes. The average Joe investor a generation ago would have given his eyeteeth for this much information.

That's also the problem: too much information. And theres a certain psychology out there that would rather trust an anonymous posting on a chat board than anything "official".
posted by dhartung at 10:10 PM on October 23, 2000

Well, yeah! People on the chatboards are looking out for me, while the SEC is controlled by the Elders of Zion and the Illuminati and the Trilateral Commission! Duh!

I've been reading a dandy book lately: The Big Con, a study of the art and lingo of confidence men written in the early '40s. Good stuff!

posted by snarkout at 7:06 AM on October 24, 2000