Teen Returns $285K From Stock Deals
In less than half a year, Jonathan G. Lebed earned more than a quarter-million dollars trading stocks on the Internet.
Amid a raging bull market, the accomplishment would be of little note except that Lebed was then a 14-year-old high school sophomore in northern New Jersey.
But his gains were wiped out Wednesday when the Securities and Exchange Commission brought civil fraud charges against the youth, claiming he made his money through 11 illegal manipulations involving nine stocks.
Lebed, now 15, of Cedar Grove, has agreed to repay $285,000, which the SEC said represented illegal profits and interest. He neither admitted nor denied the commission's findings, but agreed to refrain from similar behavior. It is the first time the agency has brought charges against a minor.
The teen-ager said his interest in the stock market began at age 11, watching the financial network CNBC.
"It intrigued me watching all the numbers go by on television," he said. "I've always been interested in business -- any kind of politics, finance, anything of that nature."
A year later -- at age 12 -- he was putting money from his savings account in stocks.
Lebed allegedly reaped profits by buying large blocks of thinly traded stocks, hyping them on financial message boards and then -- within 24 hours -- dumping his shares after the price rose.
The trades, from custodial accounts in his father's name at two brokers, took place from Aug. 23, 1999, to Feb. 4, 2000. Officials said there was no indication that his parents knew anything about the alleged illegal activities.
"He's a good student," his father, Gregory Lebed, told reporters. He said he could not comment on his son's case.
Lebed's lawyer Kevin H. Marino described him as an intelligent, well-rounded youngster who has been a successful 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.
The SEC found that after Lebed bought a stock he sent hundreds of identical, false e-mail messages, each under a fictitious name, touting the stock he had just purchased.
One claimed that a company trading at $2 per share would be trading at more than $20 per share "very soon." Other postings claimed that a stock would be the "next stock to gain 1,000 percent" and was "the most undervalued stock ever."
The SEC said, "The posted messages always caused the price and volume of the touted stocks to increase dramatically."
In some instances, Lebed placed a sell limit order before the market closed on the day he purchased the stock to ensure that he would not miss the price increase of the stock while he was in school the next day.
His profits on each trade ranged from more than $11,000 to nearly $74,000, ultimately totaling $272,826. The $285,000 settlement reflects prejudgment interst of $12,174.
On days that Lebed sold his shares, and realized his profit, the trading volume in that stock reached either record or near-record highs, in some cases reaching a 52-week high for both volume and price, the SEC said.
The stocks included Man Sang Holdings Inc., Manchester Equipment Co., Just Toys Inc., Yes Entertainment Inc., Fotoball USA Inc., West Coast Entertainment Inc., Havana Republic Inc., Classica Group Inc. and Firetector Inc., according to SEC documents. None of the companies was charged with any wrongdoing.
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, which handled the case.
His associate director, Joy 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."