SEC Sues Minnesota Man
For Alleged Spam Scheme

WASHINGTON -- Securities regulators filed a lawsuit against a Minnesota man who allegedly used mass e-mail spam to commit stock fraud.

Samuel Meltzer, 37 years old, of St. Paul, Minn., operated under at least 30 different assumed identities online to push penny stocks, the Securities and Exchange Commission alleged in a complaint filed in federal court in Brooklyn, N.Y.

Mr. Meltzer claimed to recommend investments based on his own research when he was touting stocks he was paid to promote, the SEC said. The SEC also claims Mr. Meltzer included false and misleading information about the stocks in his e-mails and Web sites.

Regulators estimate Mr. Meltzer received about $160,000 in stock and cash to promote a dozen or more stocks from 1998 to 2001. The SEC is seeking a court order that would force Mr. Meltzer to stop the alleged fraud, return his fees, pay a fine and be barred from the penny-stock business.

Stocks promoted by Mr. Meltzer include CityView Energy Corp., Bach-Hauser Inc., Envirokare Tech Inc. and Silk Botanicals.com Inc., according to court documents. The companies weren't sued by the SEC in connection with the alleged scheme.

Mark Schonfeld, an associate regional director in the SEC's New York office, said the suit shows the SEC's willingness to target those who disseminate fraudulent information, including through high-volume e-mail spam.

Mr. Meltzer's attorney, Daniel Boivin, said Mr. Meltzer's e-mails and Web sites included a disclaimer that he was paid to promote stocks. "Sam is a young guy who thought he did everything right," said Mr. Boivin. "He provided full disclosure." Mr. Boivin declined further comment, saying he hadn't seen the SEC's lawsuit against Mr. Meltzer.

A call to Samuel Meltzer's St. Paul home is greeted with the message that he doesn't want to be bothered by solicitations.

But in what could be considered an extreme case of "Do as I say, not as I do," federal authorities are accusing Meltzer of sending millions of unsolicited e-mail messages as part of a fraudulent scheme to promote at least a dozen penny stocks.

Meltzer received at least $159,600 in stock and cash from 1998-2001 for spreading false and misleading information about the companies, according to a civil suit filed Tuesday in federal court in New York by the Securities and Exchange Commission. The SEC labeled him a "professional Internet spammer."

SEC spokesman Mark Schonfeld said this isn't the first time the SEC has gone after people who spread misleading information on the Internet. But he added that the case is "a little unusual" because it is "another rung down the ladder" from the issuers of the stock and stock promoters to an individual who simply disseminated the stock promoters' information.

In a brief interview Tuesday, Meltzer, 37, said he hadn't seen the complaint. "This is a surprise," he added.

His lawyer, Daniel Boivin, said Meltzer provided a disclaimer with each e-mail that raised the issue of his compensation and possible conflicts of interest.

"The SEC wants complete disclosure and he's giving complete disclosure," Boivin said. He said Meltzer is essentially a one-man operation who rents computer server time for mass mailings.

The SEC said Meltzer owned and operated two companies during the time period addressed in its complaint: a Minnesota corporation, Hoek Industries Inc.; and a Nevada corporation, Interstock Inc.

Both companies offered Web hosting, design and unsolicited e-mail ad services.

Besides sending the unsolicited e-mails, the SEC said Meltzer created numerous Web sites to spread misinformation given to him by stock promoters. To conceal his identity -- and avoid the detection of Web hosts seeking to stop Internet spam -- Meltzer operated under at least 30 different assumed Internet identities, the SEC said.

The suit accuses him of two counts of fraud and asks that he be barred from similar activity, repay the money gained through the fraud plus interest, and pay an undisclosed civil penalty.

The SEC's Schonfeld said the agency had received numerous comments in the past few years in its Internet complaint center about stock-related spam in which the messages seemed to use consistent language. An investigation led back to Meltzer.

"He certainly has a vast Internet presence," Schonfeld said.

The suit says Meltzer falsely said his e-mail recommendations represented his investment opinions based on his review of the issuer's filings and his interviews with company managements. Instead, he simply republished recommendations and representations that he received from the promoters who hired him, the SEC said.

Through his e-mails and Web sites, Meltzer made false and misleading representations concerning the stock issuers' business and projections of future performance that had no reasonable basis in fact, the SEC said.

The complaint said the fraud applied to at least a dozen companies that were quoted on the over-the-counter bulletin board, including CityView Energy Corp. Ltd. in Burswood, Western Australia; Cayuga, Ontario-based Bach-Hauser Inc.; Envirokare Tech Inc. in Las Vegas; and Delray Beach, Fla.-based SilkBotanicals.com Inc.

Meltzer "flooded the Internet with touts" concerning CityView beginning in December 1999 through February 2001, the SEC said, in many cases directing people to at least five Web sites he had set up to further praise the stock. The SEC said Meltzer told potential investors that, after speaking with management, he had determined that the gas-and-oil company was a potential takeover target worth 10 times its value. He noted that revenue was likely to leap from about $2 million in 2002 to nearly $40 million by 2004.

Though the complaint says the touts had no basis, the stock price rose more than 12 percent to $2.50 a share between December 1999 and January 2000 after Meltzer's first spam. Similar price increases occurred after other e-mail efforts.

In February 2001, Melzer recommended Envirokare on a Web site and projected annual income for the manufacturer of plastic pallets of $2.2 million in 2001 and $4.3 million in 2002, the SEC said. According to public filings, though, Envirokare was a development-stage company that had reported no revenue since its inception in 1998.

With SilkBotanicals.com (formerly Diversified Restaurant Holdings and now a marketer of artificial flowers) Meltzer is said to have touted the company with e-mails directing investors to a Web site, http://www.stock-researcher.com.

The e-mails in April 2000 projected potential sales for the company of more than $50 million a year, while the Web site predicted 2001 revenue of $11.9 million.

In reality, SilkBotanicals.com had negative working capital, a stockholders' deficit and said that as of May 1999 it had not yet begun any marketing or distribution, the SEC said.