Posted by on June 24, 2003 at 22:08:00:
SEC Claims the Upper Hand
In Battle Against Web Fraud
By AARON ELSTEIN
WSJ.COM
In the early hours of Sept. 10, Robert Moore allegedly sent out a mass e-mail promoting a $1 billion bond offering for the Kingdom of EnenKio. Unfortunately for him, one recipient was an attorney for the Securities and Exchange Commission.
The SEC promptly filed suit in federal court in Hawaii, charging Mr. Moore with securities fraud for trying to sell bonds in a nation that isn't recognized. Mr. Moore, a 67 year old resident of Honolulu, last month settled with the SEC without admitting wrongdoing, agreeing to remove information about the bond offering from a Web site. The swift settlement -- before Mr. Moore could sell any of the allegedly bogus bonds -- underscores the commission's increasing effectiveness in policing the Internet, says John Reed Stark, head of the SEC's Office of Internet Enforcement. The commission filed 88 Internet-related fraud cases so far this year, a 60% increase over the number for all of 1999. 'Investors and would-be manipulators are getting the message that we are watching,' says Mr. Stark, who has run the office since Congress first funded it in 1998.
But attorneys and Internet-crime experts question whether the SEC is really making significant inroads. Although the agency has filed some high-profile cases in the past year, such as one against a 15-year-old teenager who was touting stocks online, they say that online fraud is as prevalent as ever.
'I think the SEC has done something by bringing an important topic to the public's attention,' says Bill Singer, a New York securities lawyer who has represented clients prosecuted by the SEC. 'Have they reduced fraud on the Internet or anywhere else? I really doubt it. I think they are spitting in the ocean.'
Mr. Stark maintains that the SEC is getting its hands around online securities fraud, which once seemed an overwhelming problem. 'In 1994 and '95, when we first started thinking about this, it seemed a little intimidating,' he says. 'But when you start to think about what kinds of crime goes on online, dividing it up into segments, you can start to organize and police it.'
When the commission created its online enforcement unit in 1998, it had only three full-time staff and was struggling in Congress for funding. Given the commission's budget constraints and longstanding problems of keeping staff, it seemed unable to get a grip on online fraud. But Congress recently appropriated the SEC all the money it requested for next year, although it is part of broader legislation that President Clinton has threatened to veto.
Mr. Stark says his office is well-staffed with some 60 full-time staffers. In addition, with SEC attorneys in satellite offices devoting at least some of their time to Internet fraud, he says the commission is making great strides in tackling the problem. Some still question the commission's toughness. For example, the 15-year-old charged with online securities fraud, Jonathan Lebed, settled without admitting wrongdoing and agreed to disgorge $285,000 in ill-gotten gains. But the SEC allowed him to keep about $500,000 in profits he made from selling the stocks he touted. SEC Enforcement Director Richard Walker said the commission charged Mr. Lebed only when there were 'clear instances of fraud.'
'They nail the obvious cases, trot out some small-fry, but they are far behind the curve,' says Michael Allison, chief executive of Internet Crimes Group, a Princeton, N.J., firm that monitors the Internet for corporate clients. 'We've referred some 50 examples of online fraud to the commission, and none yet have resulted in charges being filed. It would be interesting to know how many referrals result in prosecutions.' Mr. Stark declined to discuss such numbers. But he noted two areas where the SEC had made considerable progress in combating online fraud: Promoters are now much more conscientious in disclosing exactly how much they are paid for recommending stocks. And he says the number of companies trying to generate interest by offering stock for free has shrunk to almost none.
'It used to be that 30% of complaints from the public involved free stock offerings,' Mr. Stark says. 'Now, we rarely hear about that.' David Bayless, an attorney with Morrison & Foerster and former head of the SEC's San Francisco office, says he sees signs that the SEC's online enforcement unit is pursuing more sophisticated online crimes. 'When it started, the SEC was prosecuting cases like pyramid schemes, old-fashioned frauds that just happened to occur online,' he says. 'But now they going after more complex market manipulation schemes unique to the Internet.'
The key to policing the Internet effectively, Mr. Bayless says, is for the SEC to continue filing charges against dozens of Internet fraudsters, a practice known as 'sweeps.' Such sweeps tend to generate media attention and remind would-be fraudsters that the SEC is watching. Congress appears inclined to support the SEC's efforts. The Senate recently approved the SEC's budget request for 2001 of $422.8 million, a 15% increase over last year. The appropriation would allow the SEC to hire 42 additional employees in its enforcement division, 17 of which would be responsible for monitoring online stock fraud, according to the commission's budget statement.
Meanwhile, Mr. Stark says the commission is spending much of its time pursuing cases involving allegedly fraudulent online stock or bond offerings, such as Mr. Moore's case.
Mr. Moore sent a mass e-mail at 1:14 a.m. on Sept. 10 to promote the $1 billion bond offering for the Kingdom of EnenKio, the SEC says. EnenKio, a small island located west of Hawaii, is a U.S. territory known as Wake Island, although an EnenKio Web site (www.enenkio.org) contends it is an independent nation 'dominated by U.S. occupation forces.' Mr. Moore, reached at his home in Honolulu, declined to comment and referred any questions to the EnenKio Web site. His attorney, Thomas Dunn, says Mr. Moore, who is retired, has ancestral rights in Wake Island 'that he feels very strongly about' and has somehow gotten involved with people who seek to create nations that exist on the Internet in order to sell passports, print currency, and undertake other affairs of government.
'My client isn't a sophisticated man,' Mr. Dunn says. 'I feel bad for him.'
Susie Youn, an SEC attorney in Denver who prepared the case, says it appears Mr. Moore sent the e-mail out to as many people as he could and didn't know that one of the recipients worked for the SEC. On Oct. 23, Mr. Moore consented to an order from U.S. District Judge Susan Oki Mollway demanding that he and any associates refrain from marketing the bond offer online or anywhere else. stop bull-_deleted_ !! U.S. SECURITY & EXCHANGE COMMISSION SEEKS INJUNCTION ON SALE OF ENENKIO BONDS
ADVISORY
November 7, 2000: Honolulu, USA --
TO: Honolulu Advertiser, Honolulu Star
Bulletin
FROM: EnenKio Ministry of Foreign Affairs REPLY: Mr. Moore is prohibited from talking to you by order of the United States Security & Exchange Commission (hereafter 'SEC'). The action against Mr. Moore is an unprovoked attack against a private citizen of the United States, not against an official representative of the Kingdom of EnenKio. The following reply is therefore issued in observance of the sovereign authority of the government of EnenKio to confront disinformation and to provide the whole truth. You are advised that the SEC has not charged the Kingdom of EnenKio with anything. The SEC has no jurisdiction over the Kingdom of EnenKio, a sovereign Pacific Island state. The SEC argument is made solely against Mr. Moore and his personal business affairs. Please be VERY clear about this.
Despite heavy scrutiny, the SEC has proved nothing and there were no findings of fact as a result of exhaustive SEC investigations. In other words, SEC has NO proof of wrongdoing by the Kingdom of EnenKio or by any person acting in their official capacities as representatives of the Kingdom of EnenKio.
The only thing the SEC accomplished was to prove its arrogance and ignorance, first by circumventing lawful processes and then by bullying up on a single individual veteran-of-war who proudly served the USA. Mr. Moore has spent over 20 years trying to help defenseless Marshallese families over whom the USA has historically dominated, disenfranchised, subverted and literally poisoned with nuclear weapons testing. Lastly, EnenKio has never gotten a fair shake from the media.... ever. They generally have an agenda that fails to honor truth in reporting, but promotes the dissemination of ad copy by sensationalizing events rather than embracing impartial disclosure of factual information. When we choose to respond to the recent attacks on the credibility of our national sovereignty, we will do so in full at our site. Much is there now if one can keep an open mind. We haven't found that to be in existence in the media.... yet.
Reply to: EnenKio
1 808 737-7372 fax/phone PROOF THAT SMOKING IS BAD FOR YOU. M P