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SEC versus a fifteen-year-old

posted Nov 8, 2010, 12:52 PM by Jordan Moretti   [ updated Nov 8, 2010, 1:48 PM ]
In the late 90's, a young teen named Jonathan Lebed was using Yahoo! Finance and E*Trade message boards to essentially market his stock picks, which over time generated close to a million dollars in trades for the kid.  These message boards are much like user reviews, where anyone with an email address can pick a username, and post thoughts on different publicly traded stocks.  Jonathan figured out quickly that he could rouse other users into a frenzy by pitching his picks like an over-caffeinated infomercial.  A brief excerpt from one of his post went as follows: 

"I see little risk when purchasing FTEC at these DIRT-CHEAP PRICES. FTEC is making TREMENDOUS PROFITS and is trading UNDER BOOK VALUE!!!

Jonathan became so adept at triggering trading excitement, that he reported made as much as a $74,000 profit in one day.  Companies with small trading volume would suddenly blow up to 50X the number of shares as traders dove in head first.  The SEC took notice, and tried to come down hard on Jonathan, but couldn't really prove that he'd done anything illegal.  He eventually returned $285,000, but walked away with about a half-million dollars.  

It's an interesting case of marketing individual interests on these group sites where, especially in the earlier stages, one could get away with some wild west-esque escapades. Is it entirely up to the individual to filter through such online postings, or does the site need to monitor usage?  In this case, it wasn't altogether clear.  Either way, it's safe to say that anyone can say just about anything over the internet...