Bartiromo was identified as a principal in Invest Better 2001 (IB2001), which operated a web site and Internet bulletin board. On Dec. 13, 2001, as part of its "real time" enforcement initiative, the SEC filed an enforcement action to stop an ongoing fraud by IB2001. The SEC subsequently discovered that Bartiromo was behind IB2001 and today amended its complaint against IB2001 to name Bartiromo as a defendant.
In a settlement also announced today, Bartiromo agreed to turn over approximately $900,000 he obtained from investors in the scheme and transferred to an account he controls at a casino in Costa Rica.
"This case illustrates the Commission's commitment to 'real time' enforcement," said Stephen M. Cutler, Director of Enforcement Division. "It also demonstrates that just about anyone - even a 17-year-old high school student - can mastermind a securities fraud over the Internet."
In its amended complaint, the SEC alleges that from at least Nov. 1, 2001, through approximately Dec. 15, 2001, Bartiromo, through IB2001, raised more than $1 million from more than 1,000 investors through the offer of purportedly "guaranteed" and "risk-free" investment programs in which IB2001 pooled investor funds to bet on sporting events. The scheme promised to repay investors between 125% to 2500% of their principal within specified periods ranging from three days to several weeks, depending on the program selected. The amended complaint alleges that in December 2001, Bartiromo transferred approximately $900,000 of investor funds to the casino account in Costa Rica.
"We filed this action on Dec. 13, 2001, shortly after discovering the fraudulent offering on web pages and while not knowing the identity of the fraudsters," said Wayne M. Carlin, director of the commission's Northeast Regional Office. "That same day, the court granted our request for expedited discovery. During the course of the last few weeks, we followed a trail that unveiled Bartiromo as the perpetrator and located $900,000 of ill-gotten gains."
The amended complaint was filed in the United States District Court for the Southern District of New York. The Court today issued a partial final judgment and order, on consent, which permanently enjoins Bartiromo and IB2001, directs Bartiromo and IB2001 to repatriate all assets outside the United States and deposit such assets into the Court's account, freezes Bartiromo's and IB2001's assets, directs Bartiromo and IB2001 to provide an accounting, and grants other relief.
The amended complaint named the following as defendants:
- IB2001 is an entity that until Monday, Dec. 3, 2001, operated a website, hosted by a server in New York City, and that until approximately Dec. 15, 2001, operated a bulletin board at the MSN Networks Communities website. On its web site and the MSN bulletin board, IB2001 has held itself out as "the #1 investment service in existence."
- Cole A. Bartiromo is 17 years old and resides with his parents in Mission Viejo, Calif. Bartiromo is responsible for, and controlled, the Investment Programs offered by Defendant IB2001.
- Defendants John and Jane Does 1-10 are unknown individuals or groups of individuals, in addition to Bartiromo, who are responsible for, or controlling, the Investment Programs offered by Defendant IB2001 and the IB2001 website or bulletin board.
- Since at least Nov. 1, 2001, through approximately Dec. 15, 2001, Bartiromo, through the IB2001 website and bulletin board, offered four Investment Programs: (a) the "125% 3 Day Ongoing Program," through which IB2001 promised a supposed 125% return after a three-day investment; (b) the "250% 1 Week Ongoing Program," through which IB2001 guaranteed a supposed 250% return after one-week; (c) the "1250% 1 Month Program," through which IB2001 guaranteed a supposed 1250% return after a one-month investment; and (d) the "2500% Christmas Miracle Program" through which IB2001 guaranteed a supposed 2500% return beginning Dec. 26, 2001, on funds invested between Nov. 10, 2001, and Dec. 15, 2001.
- Bartiromo, through the IB2001 website and bulletin board, represented to investors that the investments in, and returns from, the four Investment Programs were "safe" and "guaranteed." Bartiromo further represented that IB2001 generated profits for the Investment Programs by pooling investors' money and placing "safe bets" with three online sportsbooks.
- These representations were materially false and misleading. Among other things, gambling by its very nature requires the undertaking of risk, and Bartiromo and IB2001 could not provide risk-free exorbitant returns on investments in the Investment Programs by betting on sporting events. In addition, it is economically not feasible for an issuer of fixed-instruments to provide exorbitant short-term financial returns, in an open-ended offering, which are "risk-free."
For more information, see Litigation Release #17272 (Dec. 13, 2001). Also, for additional information on online securities fraud, read the SEC's website brochure "Internet Fraud: How to Avoid Internet Investment Scams": http://www.sec.gov/investor/pubs/cyberfraud.htm
