Jonathan Lebed grew up in Cedar Grove, New Jersey, a suburb of New York City. In 1997, His father, Greg, was working as a manager for Amtrak, a railroad company. His mother, Connie, was working as a secretary for a drug company.
Jonathan was eleven, and he was spending a lot of time watching baseball and professional wrestling on television. He was also spending a lot of time on the family computer and had even built a website about his favourite wrestler. Besides all that, Jonathan was starting to get interested in stocks shares of companies that can be bought and sold in the stock market.
His father had some stocks and Jonathan knew their names. When he got home from school he would sit and watch the stock ticker on TV. Sometimes, when he saw the name of one his fathers stocks, he would phone him at work to tell him the latest price.
Before long, Jonathan wanted to own stocks himself. On his twelfth birthday, he got $8000 from his parents, money they had put away for him when he was born. He asked his father to buy some stocks for him. He invested in America Online, an internet provider, even though his father said this was a mistake. In the next two weeks, the value of the stock rose quickly. Jonathan sold it and made a lot of money. He continued buying and selling, and in eighteen months his $8000 had turned into $28,000.
Jonathan had real skill as an investor. He learned a lot from TV and the internet. He learned how to get information about companies and how to use that information to decide which stocks to invest in.
He chose the companies he invested in by using three criteria. First, the companys stock had to be undervalued. Second, it had to be a kind of company that was popular among investors. Finally, it had to be a company that investors were still not very interested in.
Jonathan decided whether a companys stock was undervalued by looking at its financial reports to see how much money it was making and whether its profits were going up or down. He made his decision on the other two criteria based on what he learned from financial chat rooms and message boards on the internet.
In the chat rooms, investors talk to each other about stocks. On the boards, they leave messages for each other to read. By spending most of his free time hanging out online, he learned a lot, and he used his knowledge to transform his original $8000 into $28,000. But while he was doing this, he got an idea about how he could make more money more quickly.
He realized that one of the reasons why the values of some stocks went up very quickly was that these stocks were being promoted online. He also realized that people were promoting their own stocks to push the price up and then selling the stocks and making a good profit. He decided to try this himself.
He found that by getting up at 5:30 in the morning and working hard, he could post two hundred messages in various places saying wonderful things about one of the companies hed invested in and advising everyone to buy the stock for themselves. He says he didnt tell any real lies about the stocks, but he certainly made predictions about future prices that werent based on good information and he certainly used extravagant language. For example, he said the stock of one company, Firetector, was The most undervalued stock ever and that, in the next week, it was going to explode.
When people saw these messages they bought the stock and that pushed the price up. Then Jonathan sold and made a lot of money. Once he made $74,000 in just one day. In six months, he made almost $800,000.
In the chat rooms, Jonathan met a man called Ira Monas. Ira was connected with two companies Jonathan had invested in, Firamada, a temporary employment agency in Texas, and Havana Republic, a cigar distributor in Florida. He had been hired by both these companies to promote their stock. Jonathan repeated some of what Ira had said and even posted it on his own website. In the summer and autumn of 1999, however, it turned out that a lot of the things Ira had been saying about these companies were untrue. Both companies had actually been losing money.
When they learned that Ira had been lying about the companies, some of the investors complained to the SEC, an organization that supervises the stock markets in the United States. When the SEC investigated, they found out that Jonathan had been repeating Iras claims and they suspected that, like Ira, he was working for the companies. In the US, it is against the law to dishonestly promote the stock of a company you are working for. So Jonathan was charged with stock manipulation. When they questioned him however, the SEC realized that he was not working for the companies and that his only contact with Ira had been exchanging a few online messages. They continued to insist that Jonathan had been acting illegally, but they realized their case against him was weak. They couldnt prove he knew Iras information was false when he repeated it. They made a deal with him: he had to pay a fine of $280,000, but he was allowed to keep the rest of the money he had made, around half a million dollars.
Even though he paid the fine, Jonathan refused to admit he had done anything wrong. A year later he was still online, enthusiastically promoting stocks. But by that time he had probably learned the simple rules for getting away with this sort of thing: dont ever use your own name when you post; dont promote the same stock for a long time; and stay away from suspicious people.
- information from: New York Times, 00.09.21 (Gretchen Morgenson); The New York Times, 01.02.25 (Michael Lewis); The Independent (UK), 01.07.21 (Terry Bond); Money, 01.03.01 (Peter Carbonara)