SEC Sues Spammer for Alleged Web Fraud

The suit charges 20-year-old K.C. Smith with raising more than $100,000 through bogus Web sites and unsolcited E-mail

InformationWeek Staff, Contributor

March 4, 2003

2 Min Read

WASHINGTON (AP) -- Regulators filed fraud charges Monday against a 20-year-old Kentucky man who allegedly scammed money from would-be investors by creating a Web site for a fictitious federal agency.

The Securities and Exchange Commission lawsuit, filed in U.S. District Court in Tennessee, charged K.C. Smith with raising $102,554 through bogus Web sites and about 9 million unsolicited E-mail messages. Smith even used the SEC's own seal to convince investors the scheme was legitimate, according to the lawsuit.

Smith, of Oak Grove, Ky., didn't admit to or deny the allegations, but agreed to a settlement requiring him to return $107,510 of gains and interest, and barring him from future violations.

Regulators allege that between May 2002 and February 2003, Smith ran a Web site for Kryer Financial, a bogus investment company offering double-digit monthly returns said to be insured by the "United States Deposit Insurance Corporation," another entity he invented.

Smith created a Web site for the USDIC featuring the SEC's official seal and claimed investments with Kryer Financial were fully insured against loss, the SEC said. The SEC said none of the money Smith raised was invested and none of it was insured. Instead, regulators said Smith used the money to pay his living expenses.

To conceal his identity, Smith allegedly called potential investors on disposable cellular telephones, accessed the Internet through stolen accounts, and collected funds through confidential online payment services.

"He took more efforts to evade detection of anyone we've ever sued," said John Reed Stark, head of the SEC's Internet enforcement program, in Washington, D.C. To date, the group has charged about 1,200 companies and individuals with online stock fraud.

The suit is the first to allege an investment scheme that used the SEC's own seal.

In a second alleged scheme, known as the Maryland Investment Club, the SEC said Smith offered high-yield international tax-free investments, which he claimed were guaranteed by the Canada Deposit Insurance Corporation for up to $60,000.

Smith isn't represented by a lawyer and didn't immediately return a phone call to his home.

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