Internet at center of insider trading scheme, authorities say Copyright ) 2000 Nando Media Copyright ) 2000 Associated Press

By LARRY NEUMEISTER

NEW YORK (March 15, 2000 8:43 a.m. EST http://www.nandotimes.com) - Internet chat rooms were the breeding ground of an insider trading scheme that delivered more than $8 million in profits and resulted in criminal charges to 19 people who illegally traded on stock tips, authorities say.

Two of the main organizers pleaded guilty Tuesday to conspiracy to commit insider trading and other charges.

The Internet figured so prominently in the scheme that U.S. Attorney Mary Jo White and the Securities and Exchange Commission noted that the case was the first ever alleging that the Internet was used to spread Wall Street secrets.

Richard Walker, SEC director of enforcement, called the case "one of the most elaborate insider trading schemes in history."

FBI Assistant Director Lewis Schiliro said the defendants made the mistake of thinking they were anonymous in cyberspace.

"Those who rely on the myth of anonymity in using the Internet to pursue their criminal activity should understand that law enforcement has the ability to pierce the veil they hide behind," he said.

John J. Freeman, 34, of Brooklyn, and James Cooper, of Bowling Green, Ky., pleaded guilty to conspiracy to commit insider trading.

"I met an individual over the Internet who ... had access to information. I looked at the information over a period of about 2 1/2 years and traded on that information for profit," Cooper said.

Freeman declined to comment after entering his plea.

Authorities said he was at the core of the scheme. A part-time computer graphics worker, he allegedly stole information while working temporarily at two investment banks, Goldman Sachs & Co. and Credit Suisse First Boston.

The criminal complaint accused Freeman of starting the scheme in mid-1997 after he lost money investing in a helmet manufacturer.

Freeman went online and found other disgruntled investors of the company in America Online chat rooms, prosecutors said. Before long, he was speaking with Cooper, an insurance agent, and Benton Erskine, a West Virginia day trader and computer supply store owner.

Freeman allegedly offered to pass inside information on clients of Goldman Sachs and Credit Suisse First Boston to Cooper and Erskine in exchange for a percentage of any profits they earned by acting on it. Prosecutors said Freeman did not have money to invest himself and thought the market was too risky.

During the next 2 1/2 years, Freeman passed inside information to Cooper and Erskine, communicating almost solely through online chats and instant messages, authorities said.

Prosecutors said Freeman obtained the inside information as he helped the companies create graphs, flow charts, spread sheets and other materials related to their clients' mergers and acquisitions.

Prosecutors said Freeman earned between $70,000 and $100,000 in kickbacks while Cooper made $227,000 and Erskine $273,000.

Sentencing for Freeman and Cooper was set for Sept. 15, when the defendants could face up to 10 years in prison and $1 million in fines.

Authorities said 15 of the defendants had been arrested.

http://www.nandotimes.com/technology/story/0,1643,500180765-500238551-501182654-0,00.html

-- Jen Bunker (jen@bunkergroup.com), March 15, 2000