A Shark In Kid's Clothes

Jonathan Lebed was something of a legend at his high school in the leafy suburb of Cedar Grove, N.J., even before last week, when he became the first minor ever to be charged with stock fraud by the Securities and Exchange Commission. The 15-year-old possessed that most coveted brand of 21st-century schoolyard cachet: he knew how to make big money on the Internet. Famous for toting his black leather briefcase wherever he went, Lebed, who counts Bill Gates among his heroes and likes his friends to call him "the Great One," was routinely asked for stock tips by classmates. "He was very modest about it," says one 16-year-old friend.

His modesty masked whopping profits. Working from a computer in his bedroom, Lebed made hundreds of thousands of dollars trading stocks online. Unfortunately, not all of it was legal, according to the SEC. Last week the agency brought and settled civil fraud charges against Lebed saying he used the Internet to manipulate stock prices in a scheme that netted him more than a quarter of a million dollars. The SEC says Lebed used online chat rooms to drive up the price of 11 stocks he owned, a practice known as "pumping and dumping." Without admitting or denying the SEC findings, Lebed agreed to return $285,000 to the U.S. Treasury.

Lebed's parents back their boy. "I'm proud of my son," Lebed's father, Gregory, told reporters while standing near a shiny Mercedes SUV said to have been paid for at least in part with Jonathan's earnings. But the case shines a light on the underbelly of the Internet economy--and shows how the Web provides another potent outlet for mischievous youth.

Investigators say the trouble started last August. Lebed began snapping up low-priced stocks using his father's online brokerage accounts, and then talking up the offerings by posting hundreds of bogus messages in online chat rooms. In January, for instance, the teen bought 18,000 shares of Man Sang Holdings, a Hong Kong-based pearl distributor, which was then trading at around $2 a share. Then he posted messages on a Yahoo Finance bulletin board, insisting the Man Sang shares would climb to more than $20 each "very soon." When the stock price doubled a day later, Lebed cashed out, raking in a profit of $34,959. Such scams are a growing problem for the SEC: out of 180 similar cases on file, more than a third have been brought in the last year.

Lebed seemed remarkably unfazed by his brush with the Feds. "I'm feeling great today," he told The Washington Post the day the settlement was announced. Indeed, the teen's investments have earned him much more than he'll pay to the SEC. And the fracas has also drawn national attention to Lebed's other ventures, including an unrelated Internet marketing company he runs with Jared Glugeth, a 16-year-old Cedar Grove boy. Outside Lebed's modest house last week, Glugeth drove up to tout their company to the assembled reporters. "I'm just hoping [our company] gets whatever publicity we can," Glugeth said, then roared off in a Firebird. In America's overheated economy, it seems, even a bust can beget a boom.

A Shark In Kid's Clothes | News