An LSA sophomore could face civil charges for a possible “pump-and-dump” scheme involving falsely raising the stock price of six companies in which he and two others had invested to obtain a substantial profit.
The suspect, 20-year-old Scott Nielsen, could also face sanctions under the University”s ITD policy for using University-owned computers.
“Our computing use policies do specify that you need to use computing in a legal matter,” University spokeswoman Julie Peterson said. No University computers have been confiscated by authorities for the investigation, she added.
A “pump and dump” involves buying a stock before recommending it to thousands of investors, and a quick increase in price is followed by an equally speedy crash after the perpetrators sell off the stock early once its price peaks.
John Nester, spokesman for the U.S. Securities and Exchange Commission that investigates stock crime, said he could neither confirm nor deny Nielsen”s suspected involvement in such a crime until an investigation is complete.
“While the SEC investigates evidence of wrongdoing, it can bring a case,” Nester said. “”Pump-and-dump” cases may look open and shut, but it must be determined whether the information was knowingly false” before a person is charged with a civil infraction, Nester said.
Investigations can be completed in lightning speed, but some can last years, he added.
The Internet has become a very efficient way for to commit “pump-and-dump” schemes because of its expediency when compared to the boiler-room scams of the past, Nester said.
A share beginning at five cents could inflate to $2.15 if false information is posted on the Internet, he said.
“There are people who have reaped tens of thousands of dollars in a short amount of time before we have caught up with them,” Nester said.
The Internet can also give users a false sense of anonymity.
“Someone can believe they are covering themselves but they leave electronic fingerprints and footprints,” Nester said.
Unlike most federal agencies, the SEC cannot bring criminal charges against violators.
“Usually (a case) is brought before an administrative law judge instead of going to court,” Nester said. “Frequently one or both parties may be willing to settle.”
Judgments can include civil or punitive fines, he added.
Individual companies can seek criminal charges depending on the severity of the crime.
“If a company felt that it was violated, it could go to a court and seek redress,” Nester said.
America”s Senior Financial Service, Citizen”s Capital Corp., Monogram Pictures Inc., Cambridge Energy Corp., Kings Road Entertainment Inc. and International Cavitation Technologies Inc. are possible companies that could sue Nielsen and his father, who jointly owns Nielsen”s brokerage account.