Politech: FC: Time to pull the plug on the SEC's Net-snooping --Libertarian Party

[Declan McCullagh <declan () wired com>]

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=======================================
NEWS FROM THE LIBERTARIAN PARTY
2600 Virginia Avenue, NW, Suite 100
Washington DC 20037
World Wide Web: http://www.LP.org
=======================================
For release: March 30, 2000
=======================================
For additional information:
George Getz, Press Secretary
Phone: (202) 333-0008 Ext. 222
E-Mail: 76214.3676 () Compuserve com
=======================================

Let's pull the plug on the SEC's
automated Web snooping scheme

        WASHINGTON, DC -- A plan by the Securities and Exchange
Commission to scan the Internet for "suspicious" words and phrases --
and maintain a secret database of the results -- is an electronic
"stop-and-frisk" that will treat innocent Americans like financial
felons, the Libertarian Party warned today.

        "Under this plan, anything you say electronically can and will
be used against you in a government database," said Steve Dasbach, the
party's national director. "The SEC says it has 'zero tolerance' for
financial fraud, but this proposal proves that the commission has zero
tolerance for privacy, Constitutional protections, and the concept of
being innocent until proven guilty."

        This week, the SEC admitted that it was in the process of
creating a multi-million-dollar surveillance system that will
automatically scan websites, Internet message boards, and online forums
for language that could indicate financial or stock fraud.

        The SEC's automated web "crawler" would search for up to 40
words or phrases like "get rich quick" or "make money now," collect the
e-mail addresses and names of people posting such messages, and then
store that information in a database for possible investigation and
civil action.

        Such a surveillance scheme is allowable, argued SEC assistant
general counsel George C. Browne, because "the Constitution doesn't
give people the right to use the Internet to commit fraud."

        But, countered Dasbach, "The Constitution doesn't give the
federal government the right to scoop up information about individuals
without reasonable suspicion of wrongdoing, and dump that information
in a secret database without their knowledge or consent."

        Libertarians oppose the SEC scheme for several reasons, he
said:

        * It secretly monitors the lawful actions of millions of
innocent Americans in an effort to catch a few crooks.

        "A basic premise of American law is that you are innocent until
proven guilty," said Dasbach. "Under this SEC plan, you could be
monitored and investigated without any search warrant, suspicion of
wrongdoing, or criminal charges. For example, if you mention on an
Internet forum that you bought a government lottery ticket in an effort
to 'get rich quick,' you could be tagged by the SEC as a potential
swindler."

        * It may constitute an unconstitutional "search."

        "The law is murky on this topic, because the courts have not
decided exactly what the Internet is, or what constitutes a digital
search," admitted Dasbach. "Is it like a telephone, in which case the
SEC would need a warrant to spy on you? Or is it like a discussion in a
public square, in which case the SEC can eavesdrop at will? But given
the government's long history of violating civil rights and privacy,
Libertarians would argue that the Internet deserves the most robust
Fourth Amendment protection possible -- and the SEC's plan deserves
zero tolerance from the courts."

        * It may violate the federal government's own Privacy Act.

        "Under the Privacy Act, Americans have the legal right to
correct false information about themselves in a government database,"
noted Dasbach. "But under this SEC plan, you won't be informed that
information has been collected about you and put into the SEC's
investigative database. You could be in their files as a potential
financial felon -- and not even know it."

        For all these reasons, the SEC should scrap its automated
snooping scheme, said Dasbach.

        "SEC bureaucrats should pull the plug on this automated
webcrawler, and let it crawl off and die," he said. "Instead of spying
on innocent Americans who want to get rich quick, this high-tech
surveillance scheme should get canceled quick."

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> Date: Fri, 31 Mar 2000 09:30:50 -0500
> To: declan () well com
> From: Gabrielle Herderschee-Hunter <kokotiger () earthlink net>
> Subject: SEC CHARGES INTERNET MESSAGE BOARD POSTER      WITH SECURITIES
>  FRAUD
>
> Declan, you may have already seen this SEC news release, but just in case not.
> Gabrielle
>
>
>
> SEC CHARGES INTERNET MESSAGE BOARD POSTER
>      WITH SECURITIES FRAUD
>
>      The Securities and Exchange Commission today filed a complaint
>      charging Fred Moldofsky, a self-described day trader residing in
>      Houston, Texas, with securities fraud for posting a fake press release
>      related to Lucent Technologies, Inc. ("Lucent") on a Yahoo! Finance
>      message board.  The complaint alleges that Moldofski posted the fake
>      release, which purported to announce a quarterly earnings shortfall,
>      more than 20 times on March 22 and March 23, 2000.  The complaint
>      alleges that Moldofsky violated Section 10(b) of the Securities
>      Exchange Act of 1934, and Rule 10b-5 thereunder.
>
>      In a related action, Moldofsky was arrested on charges of securities
>      fraud contained in a  criminal complaint filed by the United States
>      Attorney for the Southern District of New York and the United States
>      Postal Inspection Service.  United States v. Moldofsky, 00 MAG 0622.
>      That complaint is based on the same conduct.
>
>      The Commission's complaint alleges the following:
>
>      ^Å  During the afternoon of March 22, Moldofsky posted several messages
>      using the alias "kahuna_and_the_brain" reporting rumors that Lucent
>      would not meet quarterly earnings projections.
>
>      ^Å  In the evening of March 22, Moldofsky posted a message using the
>      alias "hot_1ike_wasabe" with the headline "LUCENT RELEASES EARNINGS
>      WARNING!DAMN!"  The text of that message purported to be a copy of a
>      Lucent press release announcing that it would not meet analysts'
>      earnings estimates for the quarter ending March 31, 2000.  In fact,
>      Lucent had issued no such release.
>
>      ^Å  Beginning at 7:56 that evening and continuing through the end of
>      the morning on March 23, Moldofsky reposted that press release 20
>      times using the alias "F1oydian_us."  Moldofsky had created that alias
>      that day.  It was designed to resemble a screen name used by a
>      frequent commentator on the Lucent message board, who historically had
>      expressed a positive view of Lucent stock.  The reposted messages bore
>      a variety of lurid headlines emphasizing the disastrousness of the
>      news and/or the genuineness of the release.
>
>      ^Å  While he was posting and reposting the fraudulent press release,
>      Moldofsky posted additional messages using other screen names that
>      commented on the release or on the poster's conduct.
>
>      ^Å  Lucent stock closed on March 22 at $62.625, down $2.625 from the
>      opening price that day.  On March 23, Lucent opened at $62.125 and
>      traded as low a $60.375 before the fraudulent press release was
>      disavowed.
>
>      The complaint alleges that Moldofsky violated Section 10(b) of the
>      Securities Exchange Act of 1934, and Rule 10b-5 thereunder.  It seeks
>      an order permanently restraining and enjoining him from future
>      violations of those provisions, as well as civil penalties.
>
>      #     #     #
>
> Gabrielle Herderschee-Hunter
>
> 601 Indiana Avenue NW, Seventh Floor, Washington DC, 20004
> phone: 202-639- 0580,  fax: 202-639- 0587
> email: kokotiger () earthlink net
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