Penny Stock Scam Used ‘AOL’ as Front, U.S. Says

Two men exploited “the dark side of the Internet” when they made more than $1 million by driving up the value of penny stocks with a flood of e-mails disguised as if they had been sent by America Online Inc., a prosecutor alleged Thursday.

U.S. Atty. Mary Jo White announced the securities fraud charges against James Sheret Jr. of Queens, N.Y., and Glenn Conley of Gaston, Ore., in connection with a nationwide, Internet-based scheme involving about 60 companies.

“Determined fraudsters can swindle a virtual audience by taking large positions in thinly traded stocks, disseminating hundreds of thousands of spam e-mails touting these stocks and then sell[ing] them into the fraudulently inflated market they have created,” White said in a statement.

She said this alleged method of cheating investors is similar to what goes on in so-called boiler rooms, where dozens of brokers at a time pitch stocks to investors to drive up prices.

The two men, both 31, allegedly operated from November until earlier this month, netting $1.13 million in illegal profits, prosecutors said. They allegedly sent hundreds of thousands of e-mails touting the investment prospects of thinly traded, largely dormant microcap companies whose stock they had purchased. The e-mails were disguised to appear as if they had been sent by Internet giant AOL, authorities said.