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Cyber share chat lands pair in hot water

By Michele Simpson

Friday 5th May 2000

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A New Zealander accused of using internet chat rooms to inflate share prices has been charged with fraud in Australia and the US.

Wayne Loughnan (38) and Australian Stephen Hourmouzis (24) both face civil fraud charges filed in the US this week by the Securities and Exchange Commission, alleging the pair sent email from Australia to US addresses and claimed they were analysts who knew about US-listed company Rentech.

Their emails over a three-day period last May claimed Denver-based Rentech, which licensed a system for turning natural gas into liquids, was poised to release new patented technology that would boost the stock price by 900%. As a result share trading rose 1600% and both men sold about 65,000 shares in Rentech - profiting by more than $28,000. They promoted the stock through websites Yahoo!, Raging Bull and Insidetheweb.com.

Technology law specialist Craig Horrocks from Clendon Feeney said the case highlighted New Zealand's lax legislation for internet fraud. He said the international perception of New Zealand's internet was the "wild west" with no rules or regulations.

He said New Zealand Stock Exchange-listed companies had an obligation to correct misinformation flooding chat channels and share table websites.

"We have got to grow up a bit. People see this issue as freedom from regulation. If the market is receiving a lot of rubbish then [companies] have got to make sure they make a response as they are the beneficiaries," Mr Horrocks said.

Two weeks ago the NZSE asked Fletcher Challenge group chief executive Michael Andrews to explain why Fletcher Forests stock had risen 14c to 80c in two days. Chat channels had been abuzz with postings from someone claiming to be in the know saying Norwegian company Norske Skog, which bought Fletcher Paper, was buying the Forests stock as well.

In a Securities Commission report released publicly this week it states the government department does not have the resources or procedures to test for substantial market abuse. "The presence of a more formalised and rigorous referral system will provide the first real opportunity.

"If our surveillance programme detects significant levels of abusive practices detrimental to the operation of the market the commission will consider recommending appropriate law reform," the report says.

Market manipulation is covered in legislation by most large countries such as the US and the UK. The Securities Commission admitted it did not cover market manipulation, such as exploiting share chat channels, through law and that its only avenues were through the Crimes Act and the Fair Trading Act. The Securities Commission report highlighted Australia's electronic surveillance system for insider trading and market manipulation - which detects unusual movements both across the market and by one or more broking firms.

Stagging shares and remaining undetected is not difficult to do through the internet if precautions are taken. Sending from a hotmail address using a cyber cafe or using anonymiser technology to remove an email header can easily be done here without detection.

Loughnan and Hourmouzis did not use their true identity when emailing and posting their claims, nor did they say they were selling Rentech shares. The SEC civil suit against the pair intends to bar them from future securities law violations and to have them give up profits allegedly made from their share sales in Rentech. The Australian Securities and Investment Commission has also filed its own criminal case against the pair.

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