Stock Picker Faces Fraud Charges
“Tokyo Joe” Park, the operator of a well-known Internet stock-picking site, was charged Wednesday with stock fraud, as regulators alleged that he profited by selling shares of companies soon after telling his subscribers to buy them.
The Securities and Exchange Commission suit represents the highest-profile case yet in the government’s intensifying battle against Internet stock fraud. Just last month, the SEC filed charges against three men who allegedly used computers at UCLA to pepper the Net with messages aimed at manipulating a thinly traded stock.
With the charges against Park, the SEC is going after one of the best known of the self-styled stock gurus who have attracted large followings of individual investors on the Internet in recent years.
After gaining notoriety for his aggressive stock touts in Internet chat rooms about three years ago, Park founded Tokyo Joe’s Societe Anonyme Web site in mid-1998. He charges investors as much as $200 a month for a daily diet of stock touts and trading advice, and took in $1.1 million in the 12 months through June as membership grew to 3,800.
The SEC lawsuit alleges that Park, 50, never disclosed to members that he often sold stocks shortly after recommending them--a practice known as a “pump and dump.” In such a scheme, an investor talks up a stock that he owns, then unloads at a profit amid the enthusiastic buying created by his tout.
“It’s a clear conflict of interest that he is not disclosing [his sales] to those paying a fee for his advice,” said Tim Warren, associate regional director of the SEC’s Chicago office, which filed the suit in federal court in Chicago. “It’s basically an old scam in a new medium.”
The SEC wants Park to disgorge his illegal profits, though a total was not specified, and to pay “appropriate” civil penalties.
The 20-page complaint alleges that Park, whose real name is Yun Soo Oh Park, also intentionally overstated his investment success and did not disclose that he once accepted stock from a company called DCGR International Holdings in return for promoting its shares on his site.
In some cases, Park indicated on the site that he was buying when he really was selling, the complaint alleges. The New York City resident also sometimes advised subscribers to hold stocks for several days when in fact he sold shortly after his recommendation, the complaint says. And he sometimes set target prices--levels he projected a stock would reach--but sold well before that price, the suit says.
A few times, Park submitted brokerage orders to sell shares minutes before posting a “buy” recommendation on his site, the suit claims.
Park’s attorney, Ira Lee Sorkin, said his client will fight the charges and disputed whether Park, as a private citizen rather than a licensed securities professional, had to inform subscribers when he bought and sold stocks.
“The first question you have to ask is whether he’s got any duty to make a disclosure,” Sorkin said. “If I tell you that you ought to go out and buy XYZ stock and you run out and buy it, and I’m not telling you that I have a position in it and I want to go sell tomorrow, do I have an obligation to tell you that?”
Park did have that obligation because he was being paid for his opinion, said Daniel Gregus, an SEC attorney on the case.
“Whether they’re on the Web, or sitting and talking to investors in an office, or sending a newsletter through the mail, [people] are required to disclose their own personal financial interest in the stocks they’re recommending,” Gregus said. “The recipients of that recommendation are entitled to know everything that could affect their decision whether to follow the recommendation or not.”
Park’s Web site includes a disclaimer in which he writes that he “does not advise investors to buy or sell securities” but instead outlines stocks that could rise because of momentum or rumors. But the disclaimer is inadequate and “so vague that it rises to the level of being misleading and obfuscating what he is doing,” Warren said.
In a story in Money magazine last April, Park was quoted as saying: “Everybody knows that I’m buying before you buy, and I’m selling when you’re buying. Otherwise, what am I? A charity?”
As for his stock-picking performance, the suit says Park exaggerated his success. His record contained “numerous false buy and sell prices” and labeled some trades as profitable when in fact they lost money, the suit says.
The SEC said Park received 100,000 shares from DCGR, which makes and sells imported cigars, for recommending its stock--a fact that Park did not disclose to members. He sold the shares the same day he received them, the complaint says. DCGR was not charged with wrongdoing.
