Nineteen people have been charged with illegally
pocketing more than $8 million from secrets traded in online chat
rooms, an insider trading case that prosecutors say was the first
to use the Internet.
Richard Walker, director of enforcement for the Securities and
Exchange Commission, called the case "one of the most elaborate
insider trading schemes in history."
The Internet figured so prominently in the scheme that U.S.
Attorney Mary Jo White and the SEC noted that the case was the
first ever alleging that the Internet was used to pass inside
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,"
John Freeman, 34, of New York and James Cooper of Bowling Green,
Ky., pleaded guilty to conspiracy to the insider trading charges.
"I met an individual over the Internet who ... had access to
information. I look the information over a period of about 2 1/2 years
and traded on that information for profit," Cooper said Tuesday.
Freeman declined to comment after entering his plea.
At the core of the scheme, authorities said, was Freeman, a
part-time computer graphics worker who allegedly stole information
from two investment banks, Goldman Sachs & Co. and Credit Suisse
First Boston, for whom he was working.
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
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.
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 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
Authorities said 15 of the defendants had been arrested.