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SEC accuses Stockster creator of misleading investors
(Oregonian (Portland, OR) (KRT) Via Thomson Dialog NewsEdge) Aug. 2--Investors trolling the Internet for stock advice last winter might have thought they'd found a winner in Metro One Telecommunications Inc., based in Beaverton.
"Turn your portfolio into a monster performer," proclaimed a Web site called The Stockster. "We found the Motherload!"
But if they followed such advice, the U.S. Securities and Exchange Commission says the investors came up losers.
On Tuesday, the SEC accused a 34-year-old Beverly Hills, Calif., man with using a shadowy site called thestockster.com to pump up the value of downtrodden stocks that he would secretly unload at a profit.
Nicholas Czuczko allegedly made $2.7 million with his site. Among the 60 companies he touted from December through March was Beaverton's beaten-down Metro One Telecommunications Inc., which nearly tripled in value during a week in February after The Stockster declared it the "1 Hot Stock to Buy Right Now!"
The Stockster soon moved on to promote other stocks, and Metro One's shares plummeted. Tipped off by an article in The Oregonian on The Stockster's activities, the SEC says, it began investigating the site and traced its ownership to Czuczko.
"He was using his Web site basically as a cash machine," said Robert Tashjian, an SEC staff attorney in San Francisco.
Neither Czuczko nor his California attorney returned calls Tuesday seeking comment.
There's nothing wrong with using a Web site to give stock advice, according to the SEC, but Tashjian said Czuczko ran afoul of the law by telling investors to do one thing and not telling them he was doing something else.
"He wasn't telling people he intended to sell while advising them to buy," Tashjian said. "That's what forms the heart of our securities fraud charge against him."
In addition, Czuczko allegedly used a parallel Web site to promote the stock of a Los Angeles company he owns called Epic Media Inc. without telling investors he owned it.
The SEC wants Czuczko to repay his alleged $2.7 million in profits, plus as much as $2.7 million more in penalties. In a complaint filed with a U.S. District Court in California, the SEC also is asking the court to block Czuczko from future violations of securities law and to prohibit him from serving as an officer or director of a publicly traded company.
The SEC said it did not know whether Czuczko might also face criminal charges, and the U.S. Department of Justice could not be reached for comment late Tuesday.
Additionally, the SEC alleges that Czuczko's 59-year-old father, also named Nicholas Czuczko, and a 34-year-old associate named John Yeung used early word on The Stockster's upcoming tips to cash in -- and out. The SEC said it wants them pay back what they made, too.
Czuczko picked on cheap "penny stocks" such as Metro One, according to the SEC, because such stocks are lightly traded and their low values make it easy for even a few trades to dramatically affect the price.
"If you try to manipulate the price of Microsoft it's much harder," Tashjian said.
The Stockster advertised its free investment advice on some of the most popular financial Web sites, including Marketwatch.com, TheStreet.com and The Wall Street Journal Online. The site shows pictures of celebratory investors, but The Stockster's ownership was hidden -- registered through a company that shields the identity of the people running the site.
The SEC wouldn't disclose how it traced The Stockster to Czuczko, but said it can use subpoenas and other investigative tools to find information ordinary Web surfers can't turn up.
"I think it's good that the SEC is looking at this behavior," said John Bizjak, a finance professor at Portland State University. "But at the same time, it's up to investors to be careful."
People who blindly follow the advice of an anonymous Web site are asking for trouble, Bizjak warned.
"It's sort of up to investors to do their homework and take some responsibility and do some research," he said.
The Stockster was still operating on Tuesday, though with new disclaimers that explain that the site's family members, friends and employees may sell the very stocks The Stockster recommends.
"We think it's important for investors to be cautious when they go to the site, based on the conduct we allege in the complaint," said the SEC's Tashjian.
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