More on Scumbags....

By: pennytalk (RB JPHC Board)
25 Feb 2006, 11:49 PM EST
Msg. 32753 of 32753
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Feb 24, 2006 (The Oregonian - Knight Ridder/Tribune Business News via COMTEX) -- For long-suffering investors in Metro One Telecommunications Inc., the past several days must have seemed too good to be true.

As it turns out, they probably were.

The Beaverton company's tiny stock value tripled in just two trading days, beginning last Friday. Overnight, trading volume in Metro One shares increased twentyfold.

On Thursday, though, the company's share price fell by 25 percent as investor interest waned.

It appears now that the sudden rise and fall in Metro One shares was triggered by a shadowy Web site that abruptly began touting the company's stock, then just as quickly stopped.

On Thursday, stock market experts, while not commenting on the specifics of Metro One's stock movement, said the Internet is home to Web sites that exploit day traders to make a quick profit. Such sites use the Web as a vehicle to put a new twist on an old-fashioned scam.

Those sites are on shaky legal ground, according to those experts, but investors may have little recourse if they lose money on a bad stock pick.

"At some point, it's buyer beware here," said John Bizjak, a finance professor at Portland State University. "You should be careful when you buy and sell securities, and you should be careful about who's providing information."

Metro One's share price has been in decline for years, as the 4-1-1 directory-assistance contractor started losing its major clients. At its peak in 2001, the stock traded at more than $40 a share. It fell below $1 last May and continued to decline as the company ran low on cash.

A week ago today, though, Metro One's share price leapt from 33 cents to 72 cents. It jumped again in the two days after the Presidents Day holiday, closing Wednesday at 94 cents.

The flurry of interest in Metro One's stock mystified even the company, which said it had no explanation for the surge.

Metro One's roller coaster ride seems to be the result of Internet hype. Last week, a site called The Stockster began touting Metro One, proclaiming, "We found the Motherload!" , and forecasting that investments in the company could yield "Potential Short-Term Profits of 1000 percent+."

The Stockster gave scant rationale for its claims, citing financial data that is nearly 4 months old. Stock message boards on the Internet talked up the tip, though, and Metro One shares shot up.

On Thursday, the site's advice switched, and it began promoting two other low-priced stocks, each of which jumped. Metro One, meanwhile, immediately slid.

Paid ads promoting The Stockster have appeared on several popular financial news sites, such as Yahoo Finance, MarketWatch and BusinessWeek.com. It's not clear who runs The Stockster, however, or what its goals are, but the site claimed its administrators owned Metro One shares.

Operators of the site could not be reached for comment. The site's Web domain is registered to a company that, as a service, shields site owners' identities.

The SEC warns investors to beware of "pump and dump" schemes, in which unscrupulous people seek to manipulate stock prices for their own enrichment.

Such schemes are designed to create a "buying frenzy," according to a Web site of the U.S. Securities and Exchange Commission. Site operators seek to profit by selling shares after pumping up the stock price.

So-called penny stocks, which trade under $1, are especially vulnerable to manipulation because they're less closely monitored and because even a small dollars-and-cents increase in their share price can translate into large percentage gains for stockholders.

"Once these fraudsters sell their shares and stop hyping the stock, the price typically falls, and investors lose their money," the SEC warns on its Web site.

The SEC declined Thursday to discuss The Stockster and Metro One or to say whether the commission is investigating The Stockster's activities.

SEC investigators have taken action against roughly two dozen Internet-based stock sites recently, according to Don Langevoort, professor at the Georgetown University Law Center, but prosecutions can be difficult. The line between free speech and fraud, he said, is hard to draw when a Web site is talking up a stock.

It's plainly illegal for paid investment advisers to try to profit at their clients' expense, said Langevoort. But with free advice on the Internet, he said, it can be difficult to prove that a Web site's owners are trying to defraud people rather than simply express an opinion.

"What the SEC or investors would have to show to take action gets much more difficult," Langevoort said.