Teen-ager agrees to return $285,000 in illegal stock profits

NEWARK, N.J. - In less than half a year, Jonathan G. Lebed earned more than a quarter-million dollars trading stocks on the Internet - though he was only a sophomore in high school.

But the boy's gains were wiped out Wednesday when the Securities and Exchange Commission brought civil fraud charges, claiming he made his money through 11 illegal manipulations involving nine stocks.

Lebed, now a 15-year-old junior, agreed to repay $285,000, which the SEC said represented illegal profits and interest. He neither admitted nor denied the allegations, but agreed to refrain from similar behavior. It is the first time the agency has brought charges against a minor.

The teen-ager, a resident of Cedar Grove in northern New Jersey, 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 told The Wall Street Journal. ''I've always been interested in business - any kind of politics, finance, anything of that nature.''

A year later - at 12 - he was putting money from his savings account into stocks.

Lebed allegedly reaped profits with a ''pump and dump'' - buying large blocks of thinly traded stocks, hyping them on financial message boards on the Internet and then - within 24 hours - dumping his shares after the price rose.

The 11 trades cited by the SEC represented a fraction of the thousands of transactions Lebed made since he was 12, said Joy Thompson, associate director of the agency's Philadelphia office, which handled the case.

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 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, but did tell The New York Times: ''They pick on a kid.''

Lebed's lawyer Kevin H. Marino described him as an intelligent, well-rounded youngster.

''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 the boy 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 interest of $12,174.

On days Lebed sold his shares, and realized his profit, the trading volume in that stock reached either record or near-records, 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 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.

The agency said it 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.''

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On the Net:

SEC news release: http://www.sec.gov/news/lebed15.htm