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SEC Goes After Bogus Internet Stock Analysts

The SEC filed its suit against Merger Communications and its owners, Jukka U. Tolonen and David A. Drake of Houston, alleging that the company sent out press releases over the Internet casting its clients in a highly favorable light, without letting on that Merger "analysts" received a portion of any increase in its clients' stock price.

The commission said Merger never disclosed that its analysts' promotional activities were bought and paid-for by the company whose stock was being touted. The SEC lawsuit, filed Aug. 15, alleged that Merger and its principals received shares of the touted issuer's stock, and that the amount of shares received was dependent upon the share price increase during Merger's promotional efforts.

The SEC's lawsuit notes that while the company's Web site boasted that its services often led to huge share price increases for its customers. In many cases that claim turned out to be true.

For example, the SEC found that one of Merger's client, PinkMonkey.com - a literature reference site - saw its shares increase 400 percent in the first two days after the it signed up with Merger. Merger pumped up the stock of another client, Clearworks Technologies Inc., by 66 percent in three days.

Yet these few aberrations aside, the SEC said the majority of Merger's efforts were short lived, and the price of its clients' stock nearly always returned to the pre-client price within a few days.

Tolonen and Drake agreed to settle the allegations without admitting to them, and submitted to paying civil penalties of $10,000 each. Merger Communications was fined $50,000.

It seems unlikely, however, that investors taken in by Merger's sweet-talk ever browsed through Merger's Web site, www.mergerusa.com, which offers an interesting take on disclosure rules.

"Unlike traditional public relations and investor relations firms, Merger offers unprecedented flexibility in the way its compensation can be structured. In addition to cash-only compensation, Merger can also accept part or most of the compensation in stock or warrants, meaning that companies with limited cash resources can avoid large cash expenditures."

For more information on the SEC action, visit www.sec.gov.

Reported by Newsbytes, www.newsbytes.com.

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