US moves on web fraud

Pinkmonkey: Accused of baseless financial projections

The US Securities & Exchange Commission (SEC) on Thursday accused 23 companies and individuals of using the internet to defraud investors.

It said its fifth nationwide internet fraud sweep had uncovered activities that involved the pumping up of share prices by more than $300m and the fraudulent raising of $2.5m from investors.

"Today's cases are a sobering reminder for investors that, on the internet, there is no clearly defined border between reliable and unreliable information," SEC director of enforcement Richard Walker said.

"Perpetrators lured investors with promises of fast and easy profits in thinly-traded, or even privately-held, development stage companies that operate in 'hot button' industries."

IPO promises

He said the commonly used frauds included false promises of an imminent initial public offering (IPO).

He said Chidwhite Enterprises had announced its IPO and claimed it was heading for online eyewear sales of $1bn.

In reality, no IPO approval had been obtained from the SEC and the company had no offices, products or services. Chidwhite's owner spent funds raised from investors in casinos and adult entertainment clubs, the SEC said.

In another "pre-IPO" case, owners of Smart-Mart used investor funds to buy cars, pay off their mortgages and go on holiday to Florida and Hawaii, the SEC said.

Pinkmonkey projections

A company called Pinkmonkey.com was accused of baseless financial projections. The SEC said the company had issued a press release saying it would "quickly reach a significant market share in the $400m-plus" study aids market.

The company's share price tripled in the hour following the release. After two days it was up more than 1,000%.

However, according to the SEC, Pinkmonkey's 14-month old business had achieved gross sales totalling only $30.

Other cases involved frauds including publication of false track records and resumes, inflated performance claims and fake testimonials, the SEC said.

The cases announced on Thursday brought the total number of internet cases filed by the SEC to more than 200.

They involve more than 750 named companies and individuals.