February 26, 1999
 
 
 

                   SEC Charges 13 in Ongoing Sweep
                   Against Illegal Online Stock Touting

                   By MICHAEL SCHROEDER
                   Staff Reporter of THE WALL STREET JOURNAL

                   WASHINGTON -- The U.S. Securities and Exchange Commission,
                   continuing its battle against burgeoning online fraud, charged 13 individuals
                   and companies with illegally touting stocks on the Internet.

                   The SEC Thursday filed four enforcement
                   actions charging four companies and nine
                   promoters, brokers and Web-site operators
                   with misrepresenting the prospects of 56
                   public companies via online newsletters and
                   message boards. The defendants are also
                   accused of failing to disclose that the
                   companies paid them a total of $450,000 and
                   2.7 million shares for issuing positive plugs.

                   The cases stem from the SEC's first major online-fraud sweep announced
                   in October, which already resulted in similar charges against 44 companies
                   and online promoters. Sweeps are part of the agency's strategy of
                   assigning enforcement teams to investigate large-scale fraud.

                   Seeking Publicity Splash

                   The blitzkrieg approach is geared to producing cases in months, rather
                   than years, and to creating the biggest publicity splash possible to deter
                   fraud. The increasingly media-savvy agency is focusing on timely,
                   large-scale cases to generate greater media coverage. And using teams
                   can compensate for the SEC's undermanned staff and high turnover.
                   Enforcement officials plan to discuss the effort at an annual SEC
                   conference for securities lawyers beginning Friday.

                   The strategy is the brainchild of Richard Walker, the SEC's enforcement
                   chief since April. "Historically, what we do is reactive, meaning we wait
                   until things become problems, and then act," Mr. Walker said. "Sweeps
                   help us to be more proactive. With Internet touting, we didn't wait for
                   things to blow up before we did something."

                   Both batches of Internet cases were assembled by the agency's
                   "cyberforce" -- 125 enforcement staffers, most from the home office and
                   about a third from SEC offices nationwide. In July, the group was trained
                   in Internet investigation techniques and told to focus on the growing
                   problem of online touting of small stocks.

                   "The point is to accelerate all the cases and move them together," Mr.
                   Walker said. "I want coordinated efforts in specific areas and to hit them
                   hard so we get the message out."

                   The task force got a wealth of leads by monitoring chat rooms and Web
                   sites. Within four months, the SEC prepared and filed 23 cases. The
                   additional four cases filed Thursday were a continuation of the probe.

                   Other Sweeps

                   Other recent sweeps include 13 actions in September against 41
                   defendants for allegedly engaging in small-company stock schemes that
                   bilked investors of $25 million. More recently, the SEC used two actions
                   to send the message that it is serious about year-2000-related disclosure.
                   In October, 37 broker-dealers were fined for late filings; last month, nine
                   transfer agents were similarly penalized.

                   Harvey Pitt, a former SEC general counsel now in private practice, said
                   the approach "will only be an advantage for everyone if the process speeds
                   up." The downside, he added, is that "it means the burden and cost of
                   SEC investigations will go up for companies" because of added legal help
                   needed to respond to probes.

                   The approach also has helped the SEC compensate for an unusually large
                   enforcement turnover the past two years, particularly in New York and
                   California offices. While the headquarters staff has been replenished, Mr.
                   Walker said key openings remain in the important New York City regional
                   office, which lost half of its 137-member enforcement staff.

                   The result of turnover and inexperienced new staff, Mr. Walker said, is
                   that some cases "fall through the cracks" and "there are others that
                   continue to have whiskers." He added, "But we're doing the best we can."