SEC Charges 3 With Internet Stock Fraud

Three San Diego-area men face charges of operating an Internet “pump-and-dump” stock scheme that produced more than $4 million in improper profits, the Securities and Exchange Commission said.

The SEC said that James E. Franklin used the Web site Red Hot Stocks from January 1997 into 1998 to tout stocks he and others had bought low so they could sell high following bogus recommendations on Red Hot.

The SEC’s civil suit seeks a court order to prevent Franklin, two other men and four related businesses from engaging in further alleged fraud as well as forfeiture of their profits plus penalties.

“Statements in Red Hot’s profiles were materially false or misleading because, among other things, they contained unreasonable price predictions” and failed to disclose that the defendants owned stock in the profiled companies, according to the suit.

The complaint, filed in U.S. District Court in San Diego, also alleges that Samuel Wolanyk operated the Red Hot site and wrote some of the stock picks while Dieter Raabe issued trading instructions for stocks profiled on Red Hot that were held in a Canadian brokerage account.

The defendants and their lawyers could not be reached for comment.