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SEC files 'Net fraud action
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February 25, 1999: 9:07 p.m. ET
Second action in 'Internet Sweep' targets 13 people said to defraud online
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NEW YORK (CNNfn) - In their latest crackdown of stock "touting" in cyberspace, U.S. regulators filed four enforcement actions against 13 people and companies Thursday for alleged use of the Internet to commit securities fraud.
The U.S. Securities and Exchange Commission said those behind the allegedly deceptive "touts" -- a tactic by which an adviser with a vested interest promotes an investment -- received more than $450,000 in cash and some 2.7 million shares for their services.
The alleged "fraudsters" were said to have illegally touted 56 companies, by either making false statements about the companies or failing to disclose how much the firms paid them.
The actions alleged a range of violations of both anti-fraud and anti-touting laws, including fraudulent Web sites, message board postings, and cyber-junk mail known as spam.
It was the SEC's second cyberspace enforcement since the launch of its so-called "Internet Sweep" last October to flush out such fraud. A total of 27 such cases have been filed, involving 57 people and firms.
In a stern warning, SEC officials said more enforcement actions may be on the way.
In a statement, Richard Walker, the SEC's director of enforcement, said: "The bad news for cyber-scammers is that the SEC continues to be vigilant in its efforts to stamp out fraud on the Internet. If you're trying to cheat investors on the Internet, we are watching and we will catch you."
The crux of the matter involves advisers who pushed certain stocks without disclosing their personal interests in those equities' price swings. It isn't illegal to talk up a stock, but it is illegal to fail to disclose how much the adviser receives in return.
"A blunt reminder to people who are paid to tout stocks on the Internet: You must disclose the nature and amount of your compensation and it must be easily accessible, not buried somewhere on the Web site," said Walker.
In one case, the alleged fraudsters sold their stock or exercised their options immediately following their recommendations, a practice commonly known as "scalping."
In a separate matter, the SEC alleged that Scott Flynn, convicted of securities and wire fraud in an unrelated September 1998 case, and his Minnesota investor relations company, Strategic Network Development Inc., published profiles of 10 publicly traded companies on the stockprofiles.com Web site.
Hastings Communications, which owns and publishes the site, has already settled an SEC anti-touting charge without admitting or denying guilt.
Flynn and his company received more than $180,000 in cash and 322,500 shares of stock from the companies but did not fully disclose it, the SEC said. They also "spammed," or sent out mass, unsolicited e-mail messages, to half a million potential investors.
Flynn's lawyer, Travis Snider, did not immediately return a telephone call seeking comment.
Walker said the SEC has "access to good equipment for purposes of doing the (Internet) surveillance that we need," but the technology "changes so rapidly and so quickly that we're always going to be in need of upgrading." 
-- from staff and wire reports
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