Friday, March 09, 2007

Stock Trading Halted Because Of ... Spam

Last September, Internet spam messages touting the stock of Covina-based Healtheuniverse Inc. started landing in e-mail in-boxes across the country.

The "hot biopharmaceutical stock," the messages promised, was "getting ready to explode!!!"

It did — for two days. Amid a surge in trading volume, the share price nearly doubled, to 22 cents, before declining steadily over the following week and eventually falling below its pre-spam price.

The Securities and Exchange Commission on Thursday took a big step in its crackdown on the spam stock touts that crowd millions of in-boxes: The agency suspended trading in Healtheuniverse and 34 other obscure stocks for 10 days.

Regulators say the spam campaigns behind those and other stocks appear to be an electronic twist on the decades-old "pump and dump" scam, in which manipulators load up on a small stock, tout it aggressively and sell it at a profit after unsuspecting investors take the bait and pile in.

Some of the e-mails about the stocks suspended Thursday urged investors to "ride the bull" or get "fast money," the SEC said. One of the 35 companies claimed to be in the anti-spam business.

"When spam clogs our mailboxes, it's annoying," SEC Chairman Christopher Cox said. "When it rips off investors, it's illegal and destructive."

The SEC described what it called Operation Spamalot — a reference to a hit Broadway play — as its largest crackdown on stock spammers. Investors in the 35 stocks lost tens of millions of dollars by jumping in, the agency said.

The SEC estimates that 100 million stock spam messages are sent every week.

R. Cromwell Coulson, chief executive of Pink Sheets, operator of an electronic market on which 34 of the suspended stocks traded, said that although some people who reacted to stock spam were simply foolish, others knew what the messages were but gambled that they could get out before a stock plummeted.

"It's people who say, 'Maybe I got the spam first. There may be more idiots after me,' " Coulson said. "If you're buying something because you got a spam e-mail, you deserve what you're getting."

The SEC said it suspended trading in the shares because it had questions about the adequacy and accuracy of information investors were given about the companies. The agency is trying to determine who sent the spams and whether any of the companies were involved, said Bruce Karpati, assistant director of the SEC's New York office.

The SEC is barred by law from imposing trading suspensions beyond 10 days. But if it determines that a company's statements are inadequate or misleading it can sue to revoke the registration of the securities.

Healtheuniverse did not respond to phone and e-mail messages seeking comment.

In a news release in August, Healtheuniverse said it sought to be "the first to commercialize stem cell applications in the $15-billion worldwide plastic surgery and cosmetic surgery market."

The stocks of two other Southern California companies were suspended: WayPoint Biomedical Holdings Inc. of Huntington Beach and Asgard Holdings Inc. of Escondido.

WayPoint sells Hangover-Free Patch, which people paste to their arms before drinking alcohol to prevent hangovers the next morning, said Steven Fox, its chief executive. It's sold at convenience stores, he said.

WayPoint noticed spam touting its stock a year ago and notified the SEC, Fox said. The company had nothing to do with the e-mails and has always given investors accurate information, he said.

"This is something that hurts the honest investor and has a negative effect on the companies," Fox said.

Asgard officials could not be reached for comment.

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