15-Year-Old Fined in Manipulation of Stock Prices

A New Jersey teenager has agreed to repay $285,000 that stock regulators said he made when he was 14 by manipulating stocks via the Internet.

The Securities and Exchange Commission said Wednesday that Jonathan G. Lebed bought large blocks of penny stocks, hyped them on financial message boards and then dumped his shares after the price rose.

In some instances, Lebed placed an order just before the market closed to sell a stock at a specified price--known as a limit order--so he wouldn’t miss an anticipated price spike in the stock while he was in school the next day, the SEC said.

The 11 alleged civil violations, involving shares of nine companies, took place from Aug. 23, 1999, to Feb. 4. The case against Lebed, who is now 15, marks the first time the SEC has brought a case against a minor.

“We were surprised and dismayed to find out that he was a minor, though we’ve been increasingly finding violations by younger people without business backgrounds,” SEC enforcement director Richard H. Walker said. “The Internet has become a staple of young people from grade school on, and this case shows that you can hide your identity on message boards whether you’re 50 or 20 or 10.”

Lebed, a sophomore at a New Jersey public high school, neither admitted nor denied the commission’s findings, but agreed to refrain from similar behavior.

His lawyer, Kevin H. Marino, described him as an intelligent, well-rounded youngster “who has been very interested in the securities industry for some time and has been an avid investor.”

“He and his family feel it’s a very fair and appropriate settlement and are happy to have the entire matter behind him,” Marino said.

He declined to make Lebed available for an interview. The family could not be reached for comment.

Lebed traded in custodial accounts that were in his father’s name, the SEC said.

The stocks were in a variety of sectors, including entertainment and the toy industry, said Joy Thompson, associate director of the SEC’s Philadelphia office, which handled the case.

“They were very thinly traded, low-price stocks. They are very volatile because they are very thinly traded,” Thompson said.

According to the SEC, the stocks involved, traded over the counter or on the Nasdaq Stock Market, were: Manchester Equipment Co., Just Toys Inc., Yes Entertainment Inc., Fotoball USA Inc., Man Sang Holdings Inc., West Coast Entertainment Inc., Havana Republic Inc., Classica Group Inc. and Firetector Inc.

“We’ve not alleged any harm against these companies. But anyone who was in the market and paying attention to these messages was hurt if they bought in too late or sold too late,” Thompson said.

No aggrieved investors have contacted the SEC, and no decision has been made on whether they should be compensated, Thompson said.

The SEC found that after Lebed bought a stock he sent hundreds of identical, false e-mails to Internet message boards, each under a fictitious name, touting the stock he had just purchased.

One said that a company trading at $2 per share would be trading at more than $20 per share “very soon.” Another posting said a stock would be the “next stock to gain 1,000%.”

Lebed’s profits on each trade ranged from more than $11,000 to nearly $74,000, ultimately totaling $272,826. The $285,000 settlement reflects prejudgment interest of $12,174.

In one case detailed by the SEC, Lebed bought 18,000 shares of Man Sang, a Hong Kong-based pearl distributor, for $1.38 to $2 a share on Jan. 5. That day, Man Sang closed at $1.81 on volume of 60,700 shares.

Late that night, in messages posted on the Internet, Lebed declared Man Sang “the most under-valued stock in history,” the SEC said. The next day, volume in the stock soared to 1.1 million shares and its price reached $4.69 a share. Lebed sold out his position for $3.81 to $4 a share, reaping tens of thousands of dollars in profit.

Regulators said the case demonstrates the risks of Internet stock tips.

“I implore investors to be highly skeptical of any advice they receive from the Internet. People should do thorough research before making investment decisions and verify all information before acting on it,” said Ronald C. Long, administrator of the SEC’s Philadelphia office.

Thompson, said the agency could not comment on how it learned of Lebed’s trading.

Marino said the case began after the SEC identified trades “it felt were problematic.”

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This report was compiled with material from Associated Press and Bloomberg News.