Teen Stock Broker Profits from Manipulation

The teen-age trader who paid $285,000 to settle stock manipulation charges didn’t come away empty handed: He kept about a half-million dollars in profit.

The Securities and Exchange Commission last month brought civil fraud charges against Jonathan G. Lebed, claiming he made his money through a “pump and dump” scheme. Lebed, now 16, bought large blocks of nine low-priced stocks, hyped them on Internet financial message boards and then — within 24 hours — sold his shares after the price rose. He used this method twice with two stocks.

The trades were made between Aug. 23, 1999 and Feb. 4, 2000.

Lebed’s Settlement Lebed agreed to pay back $285,000 without admitting or denying the allegations, as a settlement of SEC charges related to 11 trades.

But, according to 60 Minutes, he actually made about $800,000 from 16 trades that the SEC did not pursue charges for.

Lebed spent some of the profits on a $42,000 Mercedes-Benz sport utility vehicle for his family, his mother said.

SEC regulators told The Wall Street Journal that they alleged wrongdoing in the cases they felt they had abundant evidence.

“We charged violations with clear instances of fraud,” SEC enforcement chief Richard Walker said.

Lebed’s attorney, Kevin Marino, said the SEC had wanted to recover his client’s total earnings, but they settled on a “somewhat arbitrary” figure.

No Remorse In an interview with 60 Minutes, Lebed said he sees nothing wrong with what he did.

“I wasn’t posting any kind of false information. I didn’t make up any facts or do anything like that,” Lebed said on the show, which will air on Sunday.

SEC Chairman Arthur Levitt said Lebed made more than 200 postings on individual securities. “And that represents, in my view, a wholesale effort at deceiving many investors,” Levitt said.

Marino said most of the Internet postings included a disclaimer, “Be sure to take the time to do your research.”

Making the Initial Profits The SEC found that Lebed sent e-mail messages under fictitious names. One claimed a company trading at $2 per share would be trading at more than $20 per share “very soon.” Other postings claimed a stock would be the “next stock to gain 1,000 percent.”

“Well, I’m not aware of one investor that exists that I cheated,” said Lebed, a junior at Cedar Grove High School. “And I don’t think the SEC is aware of one investor that exists that I cheated.”

Marino, who has declined to make the boy available for an interview with The Associated Press, did not return a message left Thursday, when 60 Minutes released a transcript of the segment.

Lebed has said he was fascinated by finance since he was 11. In eighth grade, he and two friends were among the finalists in CNBC’s stock-picking contest. Lebed eventually traded in custodial accounts in his father’s name at two brokers, the SEC said.

On the CBS show, Marino admitted “there was some manipulation,” but argued there is little difference “between what he did and what is done every single day of the week on Wall Street. That is, he touted various stocks. And he sold them, after the prices went up.”