I’ve been reading about this Jonathon Lebed case, and keep asking myself, “what law did he break?” They claim it’s fraud but I see a few elements of that charge missing.
Most notably, fraud generally requires that “victim” relied on the misrepresentation and that the reliance was rightful or justified. Is relying on information you receive from an unknown person, who owes you no fiduciary duty, rightful or justified? It seems to me that anyone who made purchases of the stocks he pumped are lazy and stupid. They should have checked it out themselves. Why is posting his opinion (even if his intent is to pump the price - after all, all stockowners want to pump the price of their stock if they can) illegal?
(Incidently, I personally believe he could have beaten the charge.)
Is the reliance rightful and justified? Probably. There is a presumption (other than in those setting where parody or humor can be shown to have been intended) that information offered is in fact belived to be truthful. Generally, it is only argued by a few hard-shelled anarchocapitalists that offering deliberately misleading information for which the informant had not received remuneration is not a tort.
We note that, equally, there is generally no obligation to offer information at all. If I am a private individual (or even if the capital stock of Akatsukami, LLC is held by me), I need not tell anyone of my expectation that the price of Consolidated Fuzz stock (NASDAQ: CFUZ) is about to increase sharply, and I may act as I please in this regard (aside from possible violations of the laws regulating inside trading). I can even say, in a oublic forum (such as this one), “I think that CFUZ is going to go to the moooooon!”. I cannot say, however, “I think that CFUZ is a good investment, and so do my five hundred sock pup…err, close personal friends here. Right, guys?” and then reply to myself, “Gee, brilliantly reasoned, Akatsukami, can I have your baby?” under different aliases.
Note that Lebed did not act even remotely honestly. He created hundreds of false identities to make it appear that the enthusiatic recommendations were coming from many different sources simultaneously, lied about the extent of his knowledge, and failed to reveal that he was already long in the stocks that he was touting. Had he written, in his e-mails and message board posts, “I, Jonathan Lebed, believe that CFUZ’s share price is about to double on a moment play; BTW, I am long 15,000 shares of CFUZ, which I may sell on the open market at any time”, he would have been entirely within the law.
Moral issues asside, it’s illegal because it’s in the best interests of the economy for it to be illegal. In a pure capitalist economy, the market reacts to real market forces, product information, etc. “Perfect information” is assumed in the ideal case. If you let people lie about products or market info, the system doesn’t react to the correct signals.
Why do we have so many traffic laws? Can’t people just watch where they’re going? They could, but the system operates much more efficiently if everybody obeys certain rules. It’s the same with the financial markets.
Not all lies constitute the crime of “misleading advertising”. Not all lies constitute the crime of “libel and slander”. He is accused of telling many lies, but excatly which crime is he accused of breaking?
I’m not saying that he didn’t do anything wrong; I just want to know what was illegal about it.
It’s illegal to lie in order to affect the price of a stock. What’s illegal about is that the law specifically says “It’s illegal to lie in order to affect the price of a stock.” Of course I’m paraphrasing
The general-purpose laws of slander, libel, false advertising, etc. aren’t needed- there are laws specifically dealing with financial securities.
That’s my point as well. I think what it did was deceitful and improper. I don’t know that he broke any law. I also still don’t believe that peopel reading a message board have any right to rely on the contents of the messages within it. And anyone who does so, does so to their own detriment.
Okay, now we’re getting somewhere. What is the law he was charged under? (Please note how I do not take the word of a perfect stranger as gospel and act on their say-so because I read it in a message board. ;))
It illegal because his lies created “a false or misleading
appearance of active trading in any security registered on a national securities exchange, or a false or misleading appearance with respect to the market for any such security” That is illegal according to Title 15, Chapter 2B, Sec 78i.(a).(1) of the US Code
Yes, but I think the question remains as to why that should be illegal. Used car salesmen misrepresent the condition of cars they sell every day, and in most of the instances it’s strictly buyer beware. Stock trading is, after all, just legal gambling and casinos, the horse track and the Ill state lottery run ads on TV that “imply” everybody wins big sooner or later. -And anyway, I doubt he could pull this off more than two or three times before everybody stopped believing him. - MC
Also, there seem to be many people suggesting that it’s illegal because it’s immoral or just plain wrong. While I certainly believe that is a valid argument to condemn his actions, they certainly don’t make them illegal. Preying on the uninformed and gullible is a way of life in America. From P.T. Barnum (“there’s a sucker born every minute”) to Psychic Hotlines and infomercials. They all prey on the uninformed and gullible. Hell, if you take it far enough, almost every ad on TV preys on this (What does Tiger Woods have to do with whether or not a Buick is a good car?).
Before this gets turned into a GD, I’d like to ask this – Does anyone know which statute he was charged under (cite please)?
The laws against stock fraud date from the Great Depression. After the stock market crash, there was a need for something to restore public confidence in stocks. One way was to find ways to ensure that it was illegal to provide misleading stock information. As a matter of fact, stockbrokers are specifically forbidden from saying certain things about the stocks they recommend (you can’t say, for instance, “This is the greatest opportunity ever!”).
If anyone could say anything about stocks, investors would lose confidence in the market. Sharp operators would spread all sorts of rumors to make money and screw other investors who are trying to gauge the market. As investors get rooked by shady dealing, they pull out of the market and put their money into something they can be more sure of. As money pulls out, the market drops (supply and demand).
A used car dealer can screw a handful of customers. An unscrupulous stock manipulator could wreck the entire economy.
Unfortunately, all the WSJ says is, “The young Mr. Lebed, the SEC said, broke securities laws because, using fictitious names, he posted baseless predictions about stock-price increases and other false information about company prospects. The SEC said that personally benefiting from such a scheme is illegal.” I wish they would have given the law.
As I believe I’ve said before, “Manny, stay out of this!” Umm, I mean “You da Man, Manny!”
Okay, I like that statute a little better, and much better than common law fraud. Although the kid may be a little overreaching and deceitful, I’ll say this for the kid, you have to admire the tenacity and ingenuity for such an age. While other kids are busy playing playstation and downloading naked pictures of Jennifer Aniston, this kid’s making millions.
Hillary Clinton did the same thing (well in reverse). She shorted shares of pharmsuticals right before a speech she make bashing them, the stocks dropped and she made a killing. Why isn’t this fraud?
