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Prosecutors, SEC Charge - Printer Stock Manipulated

January 2000
LOS ANGELES—Federal prosecutors have charged two men with making about $370,000 in illicit stock gains by posting false stories on Internet bulletin boards about a Dallas-based printing services company. The bogus stories, posted over a two-day period in November, pushed the price of NEI Webworld from 13 cents to more than $15 per share, prosecutors contend.

The posts said NEI was about to be purchased by a San Jose, CA-based, privately held company, LGC Wireless.

NEI Webworld filed for bankruptcy protection in 1998 and is in Chapter 7 liquidation. It reported revenues of $4.162 million for the three months ending in June 1999, which appears to have been its final quarter of operations.

In August, the Nasdaq exchange rejected NEI's bid for a listing, citing previous losses. The firm wasn't charged with any wrongdoing.

Arash Aziz-Golshani, 23, an Iranian citizen who operates an Internet leather-jacket retailing business from his Beverly Hills, CA, home, and Hootan Melamed, 23, a pharmaceutical student at Western University of Health Sciences in Pomona, CA, were arrested and charged by the U.S. Attorney for the Central District of California with one count each of conspiracy to commit securities fraud. Both men are graduates of UCLA.

In a separate action, the Securities and Exchange Commission also filed civil fraud charges against Aziz-Golshani, Melamed and Allen Derzakharian of La Crescenta, CA. Derzakharian, another Iranian, is also a pharmaceutical student at the same school as Melamed. He was not charged in the criminal complaint. The SEC complaint seeks preliminary and permanent injunctions against the three, and wants the men to give up their stock gains and pay civil penalties. The SEC already has frozen the men's assets.

The three men allegedly used 50 aliases—including "Blue Algae," "Green Matter" and "Betty Johnson"—in posting the messages on bulletin boards operated by Yahoo!, Raging Bull and FreeRealTime.com, using computers at the biomedical library at UCLA.

One message in the forums said: "People who know of the deal are buying in, given the large volume the last few days." On Nov. 15, NEI stock opened at $8 and rose to more than $15 by mid-morning, before dropping back to 25 cents a share before the day ended. During the previous week, Golshani purchased 80,000 shares of NEI stock. Malamed bought 50,000 shares.

"These people have no connection to the company. They have no connection to a brokerage firm. These are a bunch of people who, individually, were able to use the Internet to price stocks," says Assistant U.S. District Attorney Christopher Painter.
 

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