Tree Trimmer Charged With Securities Fraud
A Los Angeles tree trimmer pocketed nearly $1.4 million in less than 10 days by selling shares of EConnect, a struggling San Pedro Internet banking company whose share price he boosted through phony news releases, the Securities and Exchange Commission alleged Monday.
In a civil case filed Friday in U.S. District Court in Los Angeles, the SEC accused Stephen Sayre, 43, of touting EConnect’s stock through two news releases that appeared to come from an equity research company, Independent Financial Reports Inc. After the statements spread to several Web sites, EConnect’s stock price soared. Sayre then sold thousands of EConnect shares he owned through another company, Silver Screen Industries Inc., whose trading account he controlled, the SEC said.
The SEC in its complaint accuses Sayre of fraudulently offering, selling and purchasing securities. It says he profited by issuing false statements about the company’s stock.
A judge ordered a 10-day freeze on Sayre’s assets Saturday, said Lisa Gok, assistant regional director of the SEC’s Los Angeles office. The commission wants Sayre to pay civil penalties to be determined in court. It says he runs a Hollywood tree trimming service and has no training in financial analysis.
Sayre did not return repeated calls seeking comment. Reagan Wilkins, listed as an Independent Financial Reports contact in one of Sayre’s investment opinion releases, said, “I don’t know anything about Independent Financial. What I do for Steve is the tree business--I run that for him.”
SEC officials said that securities fraud cases such as Sayre’s are becoming more common as more small investors scour Web sites and other sources looking for little-known technology companies that they believe could yield spectacular returns.
“Because it’s complete unsorted, unsifted information, people who rely on the Internet are just prey to people who are like this guy,” SEC Regional Director Valerie Caproni said of Sayre.
“People are, via the Internet, creating a kind of a buzz about the microcap stocks,” Caproni said. “They buy in advance of the buzz and sell in the buzz--that’s the pattern of a classic market manipulation.”
The case comes less than a month after the SEC briefly halted trading in EConnect shares and sought a court order against the company and Chief Executive Thomas Hughes for issuing allegedly fraudulent statements about a licensing agreement with Palm Inc.
Sayre’s releases reinforced those from EConnect, the SEC complaint said, bolstering the company’s shares from $1.39 on Feb. 28 to a high of $21.88 on March 9.
An EConnect executive posted one of Sayre’s fraudulent releases on RagingBull.com, an investment-related Web site, the SEC alleged in its complaint against Sayre. EConnect spokesman Fred Biddle declined to comment.
The SEC suspended trading in EConnect on March 13. After trading resumed, shares plunged to less than $2. They closed Monday at $1.16, down 1 cent, in over-the-counter trading.
After the SEC investigation, the company hired a new legal and public relations team to review its news releases. On April 3, Hughes and the company agreed to a permanent injunction limiting their statements.
The company, which Biddle said is trying to develop electronic payment systems, reported a net loss of $6.2 million, or 10 cents a share, for the quarter ended Sept. 30, 1999, compared with a loss of $10.1 million, or 31 cents a share, in the year-ago period, according to public filings.
Authorities said Sayre put out a Feb. 29 investment opinion from IFR that said EConnect shares were undervalued. “This stock could easily be trading at between $12--$25 or higher in the short term and then aggressively move forward on the Nasdaq,” the statement said.
A second release dated March 8 said EConnect had “ever increasing global recognition as the new powerhouse in the emerging technology sector,” and said shares could rise to $135 within a year.
Distributed through a news-release distribution service, Sayre’s statements were posted on several Web sites and contributed to a rise in EConnect shares, the SEC said, allowing Sayre to profit.
Within a 10-day period from the end of February through early March, he bought and sold 177,300 shares of the stock through accounts under the Silver Screen name, generating $1.4 million in profit, authorities said.
The statements were distributed over Business Wire, which charges members a fee for each item posted, plus a $100 annual fee, said Business Wire spokeswoman Cathy Baron Tamraz. Members are required to sign a pledge that their statements are authentic, but individual releases are not verified, she said.
Biddle said the SEC’s case against Sayre was not related to a separate SEC probe of EConnect’s statements regarding an agreement with Palm. “This issue is totally different,” he said.
