Authorities in the US clamp down on internet securities fraud

The alleged perpetrators used the Internet to "pump" the market capitalisation of the stocks involved by more than $300 million and raise $2.5 million in proceeds from investors in the US and abroad. The SEC reported that the frauds were accomplished by on-line means, including spam e-mails, electronic newsletters, web sites, hyperlinks, message boards and other internet media.

SEC Director of Enforcement Richard H. Walker said:

"Today's cases are a sobering reminder for investors that, on the internet, there is no clearly defined border between reliable and unreliable information. Therefore, investors must exercise extreme caution when they receive investment pitches online."

Childwhite Enterprises, a private company, used spam e-mail and a web site to announce that its upcoming, SEC-approved IPO (at a price of $20 to $50 per share) was imminent and that it would realise at least $1 billion through on-line eyewear sales.

The SEC alleges that, in reality, the company never received SEC approval for an IPO, the company had no offices, no inventory, and no products or services; moreover, the SEC alleges that the company's owner misappropriated investor funds for a variety of personal expenses, including securities purchases through personal brokerage accounts and expenses at restaurants, gambling casinos, and adult entertainment clubs.

A public company, PinkMonkey.com, issued a press release claiming it would "quickly reach a significant market share in the $400+ million" study aids market. The company's share price nearly tripled an hour after the release, eventually increasing more than 1000% within two days.

The SEC alleges that, in reality, PinkMonkey.com's internal projections anticipated a year's time to reach, at most, a mere 5% market share of the $160 million study aids market, and that, in support of their projections, the company had only $30 in gross sales during the entire 14-month period prior to the issuance of the press release.

Another public company provided hyperlinks on its web site to the reports of a purportedly independent analyst who actually was paid 12,500 shares of the company's stock in undisclosed compensation for publishing the reports.

Network Associates settles securities lawsuit for $30 million

Network Associates, an e-business security company in the US, yesterday announced that it has paid $30 million to settle a federal shareholder class action suit arising from the accounting treatment of in-process research and development in connection with various acquisitions by Network Associates and predecessor corporations in 1998 and prior years.

The money will be split among 80,000 to 100,000 investors who lost money.

The settlement is subject to judicial approval.