2 Plead Guilty in Internet Stock Fraud

Two recent UCLA graduates accused by federal authorities last year of running a “pump and dump” stock scheme over Internet message boards have pleaded guilty to charges of securities fraud, prosecutors said Thursday, even as the Securities and Exchange Commission brought new civil allegations against them. The SEC also accused a third UCLA graduate of manipulating stocks in a similar scheme.

The cases, believed to be among the first filed against individuals for Internet stock fraud in shares of companies with which they were not affiliated, illustrate the growing danger of investing in securities based on rumors and tips posted to online chat sites, said Luis Mejia, assistant chief litigation counsel for the SEC in Washington.

Arash Aziz-Golshani, 23, of Beverly Hills, and Hootan Melamed, 24, of Pomona, both pleaded guilty to charges that they bought thousands of shares of Dallas commercial printer NEI Webworld Inc., and then inflated the price of the over-the-counter Bulletin Board stock through a swarm of phony messages that said the company would be acquired.

No merger was ever discussed, prosecutors said. But NEI investors persuaded by the messages bid the price of the stock up from under a dollar to $15.50 in less than a week, authorities said, allowing Aziz-Golshani and Melamed to sell their shares at a profit of nearly $350,000.

The phony postings were made through a cluster of public computers at UCLA, Mejia said, but authorities were able to trace them to the senders.

Aziz-Golshani pleaded guilty to charges of securities fraud and conspiracy to commit securities fraud on March 15, and Melamed pleaded guilty May 1 to a conspiracy count, the U.S. attorney’s office in Los Angeles said Thursday. Both were free on bail pending sentencing, prosecutors said.

Lawyers for the men could not be reached for comment Thursday. The two will be sentenced in September. They face possible federal prison time and fines.

But the SEC later found that the men had run a similar scheme in 11 other OTC Bulletin Board stocks between April and October 1999. Those trades, the SEC said in an amended case filed Thursday in U.S. District Court in Los Angeles, allegedly yielded Aziz-Golshani an additional $321,000 and Melamed an additional $1,928.

The SEC also brought a civil securities fraud case against Refael Shaoulian, 24, of Beverly Hills, who allegedly engaged in similar trading of OTC stocks while posting phony messages from computer clusters at both UCLA and USC. He allegedly made $388,000 in profit from the sale of shares of Universal Standard Healthcare, IChargeit, WorldTradeShow.com, Casino Parata.com, and E-TwoMedia.com.

Shaoulian did not return calls seeking comment. He was a friend of Aziz-Golshani at UCLA, Mejia said.

The SEC has not resolved its case against a La Crescenta man, Allen Derzakharian 26, against whom it also brought civil charges over NEI stock fraud.

Manuel Abascal, the assistant U.S. attorney who helped prosecute Aziz-Golshani and Melamed, said the status of the cases was not disclosed previously because the investigation into the illegal trading was still underway at the time of the pleas.