By day, Jonathan G. Lebed was just another 15-year-old high
school student in Cedar Grove in northern New Jersey.
But after school, securities regulators say, Mr. Lebed
masterminded a stock manipulation scheme on the Internet
that earned him almost $273,000 in illegal gains.
Yesterday, just days before Mr. Lebed's 16th
birthday, the Securities and Exchange Commission accused
the teenager of developing a scheme to increase the
prices of nine obscure, low-price stocks he had bought
by sending numerous optimistic messages to investing
chat rooms on the Internet. As other investors read his
messages and bought the shares, prosecutors said, Mr.
Lebed sold his holdings at profits ranging from $11,000
to $74,000 a trade. The scheme began in August 1999,
when Mr. Lebed was 14, prosecutors said, and continued
until Feb. 4 this year.
Mr. Lebed settled with the S.E.C. yesterday, neither
admitting nor denying the civil accusations but agreeing
to pay the money he made plus interest, for a total of
$285,000.
The S.E.C. did not require him to pay a fine or
penalty. His lawyer, Kevin H. Marino, said, "The
Lebeds feel that this is a reasonable settlement, and
they are very happy to have the entire matter behind
them." Neither of Mr. Lebed's parents was accused
of wrongdoing by the S.E.C. Mr. Lebed was not available
for comment.
Late yesterday afternoon, Gregory Lebed, Jonathan's
father, stood outside the family's two-story brown-
shingle house greeting reporters. Dressed in jeans and a
gray T-shirt, he said he could not comment on his son's
situation other than to say he was fine. "He's a
good student," he said. Acknowledging that many
people are trading stocks on the Internet these days,
Mr. Lebed said: "So they pick on a kid."
Regulators said Jonathan Lebed was the first minor to
be sued by the S.E.C. "Jonathan Lebed's conduct was
essentially a pump-and-dump scheme, and it was every bit
as serious as other Internet fraud cases we have
brought," said David S. Horowitz, assistant
district administrator at the S.E.C.'s Philadelphia
district office. "What's different is his
age."
Mr. Lebed conducted his trading in accounts set up
for him in his father's name at two different brokerage
firms. One was a firm that caters to online investors.
Eleven times, regulators said, Mr. Lebed bought a
large block of a small stock. A few hours after each
purchase, he would send as many as 500 false and
misleading e-mail messages to various Yahoo
Finance message boards promoting the stock he had just
bought. The messages were sent using fictitious names,
making it seem that many different investors thought the
stocks held promise.
Often at the same time that he bought the shares, Mr.
Lebed would place an order to sell them at prices well
above the prevailing market, Mr. Horowitz said. This was
done to ensure that he could profit from a jump in the
stock even if it came during the day while he was at
school, Mr. Horowitz said.
Mr. Lebed lured investors into the stocks with
predictions that the shares would soon soar in price. He
said in one message that a company trading at $2 would
be trading at more than $20 "very soon."
Another posting said that a stock would be the next
"to gain 1,000 percent."
The regulators said that Mr. Lebed's messages always
caused the price and volume of the mentioned stocks to
increase significantly. In some cases, the stocks
reached their record highs in both price and volume
after the e-mail messages. Shares of all nine of the
companies Mr. Lebed sent e-mail messages about are
traded on the over-the- counter bulletin board, a market
for the smallest and least-known stocks.
The stocks involved in Mr. Lebed's scheme were Manchester
Equipment, Just Toys, Yes Entertainment,
Fotoball USA, Man Sang Holdings, West
Coast Entertainment, Havana Republic, Classica
Group and Firetector. None of the companies
have been charged with any wrongdoing in the matter.
Mr. Marino described Mr. Lebed as a self-taught stock
trader who developed an interest in the market when he
was 12. "He has done other investing and has done
extremely well," he said.
About three or four years ago, Mr. Lebed and two
schoolmates at the Memorial Middle School in Cedar Grove
entered a nationwide stock- picking contest and did very
well, said a resident who spoke on the condition of
anonymity. The three were featured in an article in the
local newspaper, The Verona Cedar Grove Times.
Mr. Lebed was described as a loner and an outsider in
a high school known for its cliques. "He's a nice
kid, just a little different," the resident said.
The Lebed home is in a hilly, wooded neighborhood
where some residents can see Manhattan. A neighbor out
tending his lawn, who declined to identifiy himself,
raised his eyebrows yesterday when he heard about the
profits Mr. Lebed had been accused of making. He said,
"I just wish he'd told me about it, that's all I
can say."
Regulators declined to say how they found out about
Mr. Lebed's trading. Mr. Horowitz said the S.E.C.'s
Internet surveillance team often identified unusual
trading activity in stocks that can lead to such cases.
He also said that brokerage firms sometimes tipped the
agency off to highly profitable, short-term trading in
customers' accounts.
Perhaps the most amazing aspect of this case is that
there are investors who will buy stocks based on
anonymous Internet tips. Even though the messages had
little substance — one characterized an investment as
"the most undervalued stock ever" —
investors rushed in.
Ronald C. Long, administrator of the S.E.C.'s
Philadelphia district office said: "I implore
investors to be highly skeptical of any advice they
receive from the Internet. People should do thorough
research before making investment decisions and verify
all information before acting on it."
