In the brief history of online stock chat rooms, nobody has made more of a name than "Tokyo Joe."
A South Korean immigrant who ran a chain of burrito restaurants in Manhattan, Yun Soo Oh Park (a. k. a. Joe Park, a. k. a. TokyoMex) discovered Internet stocks a few years ago. Posting prescient picks on message boards, he got so swamped with calls and e-mails that he herded thousands of fans to a Web site of his own and charged them up to $200 a month for a private window into his wisdom. Park pocketed more than $1 million in fees in just one year.
"Not to be confused with Warren Buffett, Tokyo Joe Park is the leader of a new breed of online stock gurus who are moving stocks and claiming scorching returns," Money Magazine gushed in a lengthy feature last year on the Marlboro-smoking stock picker who sports granny sunglasses.
On a more ominous note, it wondered: "Can what he does be legal?"
That question was answered today with a resounding "no" by stock regulators. The Securities and Exchange Commission filed civil fraud charges against Park, alleging that he used his vast influence to pump up the price of stocks just before he sold them and lied to members about his performance. The SEC said Park made "substantial profits" but many of the trades involved low-priced stocks. While providing no estimate of Park's profits, the SEC provided examples of 10 cases in which he appeared to make profits totaling tens of thousands of dollars.
"Mr. Park, who took money for stock tips and investment advice, traded ahead of the picks he provided to the people paying him for picks," said Daniel Gregus, an SEC lawyer who handled the case. "And he sold around the time he was recommending that people purchase the stock."
Ira Sorkin, a prominent securities lawyer representing Park, denied the charges, saying rules have simply failed to keep up with technology, leaving "murky areas" in the law.
"I would have hoped that the SEC would have dealt with these emerging issues of free speech, free exchange of information in cyberspace through regulation, not litigation," said Sorkin, a former top SEC official. "These issues of day trading, chat rooms, exchanging ideas of investments in companies are part of a whole new world. The SEC has failed to keep pace."
Tokyo Joe's rise serves as a cautionary tale to investors who think that if you pay money to join an exclusive Internet investing site you can trust the information you get there. Tokyo Joe always admonished members to exercise "due diligence" before buying a stock, but the advice might well have been best applied to himself.
"People have a lot of access to a lot of opinions on the Internet," said John Mann, who tracks Internet businesses at Patricia Seybold Group, a management consultant. "This proves the risks of taking advice from unknown people. I think people will eventually learn that."
Park is 50 years old, according to the SEC complaint, though most of the media coverage says he's 40.
Park's stock-picking career took off in 1997, when he began posting messages on the popular Internet bulletin boards Silicon Investor and Raging Bull, according to the SEC complaint. During 1998, Park posted thousands of messages promoting stock picks and other investment advice, using the screen names "Tokyo Joe" and "TokyoMex." Many of these chat rooms were swelling with day traders--people who rapidly buy and sell stocks.
The individual stock-picking craze picked up steam fast, and by early 1998 people were contacting Park directly for advice. In March 1998, Park created a list of e-mail addresses and sent his stock picks to his fans.
In July 1998, he began a Web site called Tokyo Joe's Societe Anonyme and began charging $299 a year for e-mails of his daily stock picks and access to the members-only areas of the site, where he dispensed further investment advice. After adding an Internet real-time chat room last January, Park increased the fee to $100 per month and charged many members $200 a month for expanded services.
By May 1999, Societe Anonyme's membership had grown to about 3,800. And, by then, Societe Anonyme had collected more than $1.1 million from members for e-mails and access to the non-public areas of his Web site, where he posts 10 to 20 messages per day, including stock tips, reactions to market events and day-trading techniques, according the SEC suit.
Generally, according to the SEC, from 600 to 1,000 members participated in daily chat sessions with Park on markets and the stocks that they were currently trading. Park told them when to buy and sell. After sharing information with his members, Park would post it on a public portion of the site--and on Raging Bull and Silicon Investor.
Park's influence, by all accounts, was vast--and Park took full advantage of that power. "Park knew that, following his recommendations, the price of a recommended stock would increase, if Societe Anonyme members bought his picks, as they often did," the SEC alleges.
So, according to the SEC, Park purchased the stock shortly before his recommendation to buy and profited by selling the stock into the buying flurry that followed his recommendation, a practice known as scalping. On some occasions, Park recommended that his subscribers hold a stock for several days or longer or assigned a certain target price while Park himself was selling the same stock that day and/or selling it below his target price.
"Park made substantial profits from buying stocks he recommended prior to recommending them," according to the complaint.
In certain instances, the SEC said, to pique buying interest, Park misrepresented to Societe Anonyme members and the investing public that Societe Anonyme was in the process of buying a stock when Park already owned the stock or was in the process of selling it.
For example, according to the SEC, on Feb. 1 and 2, 1999, Park bought 11,500 shares of K2 Designs Inc. On Feb. 2, he recommended that members buy K2 Designs.
He told members that they should plan to hold the stock for at least three days and that the stock's target price was $7 per share.
Park did not disclose that he already owned shares and that he intended to sell his shares at a price well below his claimed target price within a day of making his recommendation to buy.
On Feb. 2, K2 Designs' volume reached 410,600 shares, up 1,925 percent from the average daily volume the week before Park bought his shares. The stock's closing price increased from $3.84 a share on Feb. 1 to $4.06 on Feb. 2.
Park profitably sold the majority of his shares on Feb. 2, the same day he recommended that members buy and hold the stock for at least three days; he sold at an average price of $4.09, well below his target price. He sold the remainder of his shares on Feb. 3 at an average price of $4.01.
In the five days after Park's recommendation, K2 Designs' average daily volume dropped to 34,280 shares, and it continued dropping for the next several weeks. The stock's price closed as low as $3.19 within a week.
Since it began in April 1998, Tokyo Joe's Web site has included results purporting to reflect Park's performance since January 1998, using the performance results to recruit members. The SEC said it found 800 misstatements.
CAPTION: Yun Soo Oh Park sold his picks on the Web.