SEC Lifts Ax For Minnesota Stock-Price Spammer

thejuggler writes "A call to Samuel Meltzer's St. Paul home is greeted with the message that he doesn't want to be bothered by solicitations. But, this story in a Minneapolis newspaper tells how the Feds and SEC claim he is a huge spammer. They claim he sends out spam spreading false and misleading information about various penny stocks. So far he has made at least $159,600 in stock and cash from 1998-2001 for spreading this false information. In a brief interview Tuesday, Meltzer (The evil spammer), 37, said he hadn't seen the complaint. "This is a surprise," he added."

Comments

Happened before (?)

[beef3k]

I seem to remember a TV show about a 16 year old that made a lot of money this way, i.e. buy a lot of cheap stock in some company, send out thousands of email tipping people off: "Watch this stock, it'll really roof in a week". Thousands of other buy the stock and the price on it goes up.

I think he got to keep 500k or something, the rest was taken away (by who I don't remember).

Re:Happened before (?)

[Yosemite_Mark]

Yes, his name was Jonathan Lebed. See this article here He was never convicted, but did reach an agreement with the SEC and was fined about $285 K. The article states that his total profit from his dealings were over $800 K, so he did get to keep a huge chunk of his profits. Nice work if you can get it.

The two problems (which impact more than e-mail)

[Mdog]

(1) You (and I) get too much spam.

(2) Your e-mail system administrator (and mine) need to keep beefing up the servers because the sheer volume of e-mail is growing so quickly.

To a first approximations, filters solve (1) but not (2), and black hole lists solve (2).

whirlycott summarizes the problem with (2) in two words: "collateral damage." How much of the e-mail network do we need to destroy in order to save it?

We need to move past first approximations. We need systems that work at the server level, but that somehow address the problems of collateral damage and false positives.

This is only the tip of the iceberg. Any network messaging medium is vulnerable to abuse by spammers. The problem started with Netnews, it continued with e-mail, it's happening now with instant messaging. We need at least high level solution that helps solve the problem regardless of prototcol.

I wish I had one.

Pink Sheets & dormant shells

[scoove]

While it's nice to see the "don't bug us, we're woefully underpaid and overworked" SEC finally going after one of these parasites, it's too bad they have to get geeked out about the whole spam bit to do so. That's only the tip of the iceberg on these pink sheet company abuses.

I got taken by a pink sheet bulletin board stock deal in the mid-90s. We put a good company and $15 million of local investor capital into what's called a dormant shell - a publically trading company that perhaps didn't make it in a former life, got kicked off of NASDAQ (or never made it), is probably late on SEC filings, and is operationally dormant. You can buy these things for a quarter million or so in Nevada, apparently.

The whole pitch is "you can go public for much less than an IPO, and get a publically trading stock which is much more liquid for your investors and allows you to get more investing money for less equity." The reality is that the shell's broker gets a credible asset in the shell to use for pump & dump.

The only problem is that every single one of them I've come across has had a controlling parasite "broker" in the middle - as was the one we encountered. The broker broke all the merger terms by refusing to hand over control of the company. He illegally siezed the company and the millions invested and looted it all. Ficticious board resolutions were used to change who could sign on the company bank accounts, etc. Offshore Bermuda accounts were used to funnel things to Swiss accounts - sounds hollywood, but it was very effective.

By the time the courts caught up with it all, the company was absent any cash or assets. The SEC's response? "Sorry - We have too many people doing this to be able to help you. Call your congressperson and ask them to increase our funding." Seriously.

Two years ago, I thought I found a company that had this background that wasn't a scam. WaveRider, a manufacturer of near-line of sight 900 MHz proprietary fixed wireless gear. Then I found the parasite, the Bermuda angle and the Swiss angle. It has since gone from $1/share to around $0.12. Like the best of these deals, the parasite retains competent management that really truly believes it has a chance. But they never do - not when legal control of the company is closely held by the parasite.

So... before you invest in a bulletin board stock, look for the parasite. Late on SEC filings? Run. See a Bermuda/Swiss connection? Run. Nevada corporation? Be very nervous. Read that 10K and 10Qs very, very closely.

Oh, and what ever happened to our parasite? He's still pushing his stocks and has avoided SEC and IRS enforcement for years. He's grown rather confident that he's untouchable and is probably right...

*scoove*

Re:Pink Sheets & dormant shells

[Tackhead]

> But, there must be some way to benefit indirectly from someone else's pump-and-dump operation. When you receive spam about a fresh company, you could buy in quickly and then unload it after a certain period of time before the 'dump' phase kicks in.

Actually, that's much easier said than done. It sounds great on paper - and like all "easy money" ideas, it really only serves the interest of the stock scammer.

The reason this sort of fraud is concentrated in the pink sheets is due to the relative illiquidity of penny stocks.

In a liquid market (say, Microsft - MSFT) millions of shares change hands each day, and hundreds (if not thousands) of people are willing to sell you their stock.

In an illiquid market, there may only be a handful of participants. The only seller, for instance, is likely to be the "pumper" - because he's already accumulated the stock at a steep discount.

So - your "buy in quickly" part - doesn't work, because you're buying from the scammer. If the stock's at $0.05, the scammer might sell you 1000 shares at $0.06, and another 1000 at $0.07. He's not likely to sell you 1,000,000 at $0.08 - because he'd rather find some poor sucker willing to buy 1000 at $0.09 - so he can sell (you!) his 1,000,000 at $0.10.

Your "and then unload it" part also fails in an illiquid market. You're not going to be sold much stock unless you pay far more than it's worth. And if you've got lots of stock, to whom are you going to sell it? Once the pumper dumps you his 1,000,000 shares at $0.10, he's out of the market, and certainly isn't going to be buying from you at $0.11. Or $0.10.

You're now the proud owner of 1,000,000 shares of worthless stock. You might sell some of it to stragglers to the game at $0.11, but the pump and dump is done - you're left holding the bag. When the buyers go away (the spammer isn't going to send out another load of emails to encourage anyone else to buy it!), the bid/ask spread widens up, and you're left holding the bag.

A few months later, you see someone bidding $0.04 for 900,000 shares, and now that you've been had, you realize that's better than nothing. That's the scammer, buying the stock back for the next round.

Remember - if you're sitting at a poker table and you don't know who the sucker is, it's you.

Re:Stock Tip: McDonalds sucks.

[Anonymous Coward]

If you're shorting the stock based on nothing other than your tips (reverse pump-and-dump), then yes, you may be committing securities fraud. Generally this is more likely to be true for thinly traded stocks instead of DJIA components like McDonald's, however.

Meltzer has a long history...

[meringuoid]

Here is the record of nanae discussions involving him. Here he is on ROKSO, the spamhaus.org register of known spam operations. The long-running pump-n-dump spammer. He finally got nailed, eh? Good! And we've already done Ralsky. Now for the diploma guy...

Re:Fools and their money...

[elluzion]

It doesn't take much.

We're talking about penny stock. So theoretically, if you could get even 50 people to make small purchases, that would up the amount of trading going on for that stock, which sets off alarms all over the world, with people who are monitoring penny stocks for movement. Remember, it's based on percentages. So you don't really see (unless you know what you're doing, which most folks don't) that the stock went from selling 5 shares a day to selling 50 shares a day. You see that it went up 1000%.

So then all those people jump on it, looking to invest pennies and ride a short spike and then dump it. Probably doubling their money at least. Going from 1 cent to 2 cents, or 2 to 4 or 3 to 6, etc isn't hard, and that is technically doubling your money.

So what happens is a few people make dumb decisions, a bunch of other people think those few people know something special, so they jump on it and so on. Before you know it you have a thousand people pumping money into a wothless stock. By the time everyone realizes what a dog they've bought, it's too late. They've already paid 40 cents for a 2 cent stock. Then a massive sell-off happens, which drives the stock into the dirt again, making it even more wothless.

Of course, this asshole had already bought a ton of it beforehand for pennies, then spent the whole time selling it to the newcommers for huge profit. I'm not sure if it's illegal, but it should be.

It would be a shame

[SquadBoy]

if someone were to link to documents that have his address in them.

http://www.wa.gov/ago/pubs/ChippynetComplaintfor Re lief.pdf

Re:It would be a shame

[SquadBoy]

and as an html

http://216.239.33.100/search?q=cache:FQ-XxYG7rUg C: www.wa.gov/ago/pubs/ChippynetComplaintforRelief.pd f+adam+meltzer+saint+paul&hl=en&ie=UTF-8

Him not being aware may be typical of SEC invest..

[Jackson Five]

I've been on the more pleasant side (if there is one) of SEC investigations, and one thing they do which is kind of cool is investigate everyone around the person first - particularly in insider trading.....then when they've compiled the data, they contact the potential guilty party - for example, I work in Mergers & Acquisitions and we represented a public company in a sale. SEC investigated some trades right around the announcement - and first asked for a list of people at my company that knew about the deal...they then sent us lists of people - ie, do you know any of these people...without any other info.

So maybe this guy will still get it. These guys piss me off - primarily because they are capitalizing on ignornace - it's no different then a cheap con.

Re:This is much worse than that

[Alea]

You make a very good point about the magnitude of the loss vs. the spammer's gain.

But the same argument applies to the Enron collapse. The tens and hundreds of millions that the executives walked away represents not only the loss of some big time investors, but countless small investors (several in the company itself who were encouraged to hold stock by the people robbing them) and many pension plans, which are really just another form of 'small investment'. I doubt the cost to the little guy from this spammer vs. any one of those execs really is comparable.

However, it is probably true that this remedy will have more impact on the other spammers then any Enron-level punishment will have on the other corrupt executives. The former expose themselves by the very nature of their scam. The latter will simply become more careful.

Also consider that the victims in the spammer's case are foolish to trust a random guy on the net who told them to buy something. The victims in the Enron case were, reasonably enough, placing trust in company and investment house reports, auditors, and legislation which the SEC is supposed to keep clean!

Re:I hope the FCC gets this guy.

[LuxFX]

but the $159,600 was from the manipulation of the stock market, not from selling advertising. This is breaking federal law -- as opposed to typically spamming which, in the strictest sense, still isn't actually illegal.