Cybergossip or Securities Fraud? Some First Amendment Guidance in Drawing the Line.

Authors

Lyrissa Lidsky, University of Missouri School of LawFollow
Michael Pike

Document Type

Article

Publication Date

2001

Abstract

Fifteen-year-old Jonathan Lebed, the youngest person ever pursued by the SEC in an enforcement action, made over $800,000 in six months by promoting stocks on Internet message boards. Using several fictitious screen names, Jonathan posted hundreds of messages on Yahoo! Finance, hyping selected over-the-counter stocks and then promptly selling his pre-purchased shares as soon as the stock prices rose.

Publicly, the SEC painted a picture-perfect case of securities fraud. Yet, the SEC forced disgorgement of only $285,000 of Jonathan's profits, leaving many observers to wonder why the resolution of this supposedly clear-cut case left its teenaged perpetrator with over $500,000. The skepticism heightened when Michael Lewis, in an influential article in The New York Times, suggested that the SEC's pursuit of Lebed was partially motivated by a desire to keep a “little jerk” (to quote one SEC investigator) from outsmarting federal regulators. The Lewis article further portrayed a regulatory agency fundamentally unable to adapt to the challenges of regulating fraud on the Internet.

Recommended Citation

Lidsky, Lyrissa Barnett, Cybergossip or Securities Fraud? Some First Amendment Guidance in Drawing the Line, 5 No. 5 Wallstreetlawyer.com: Sec. Elect. Age 15. (2001).