Michael Lewis

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One day some social historian will look back with wonder on the havoc wreaked by the Internet. The events on Wall Street alone will offer him material for an entire chapter. Buried in the footnotes to that chapter will be the wry little anecdote about the first child to manipulate the stock market. The two great forces that propel mankind forward—anecdote and accident—are not historically respectable, so that's all this story will get: a footnote. It deserves much more than that.

On September 21, 2000, the U.S. Securities and Exchange Commission settled its case against Jonathan Lebed. The SEC's press release explained that fifteen-year-old Jonathan—the first minor ever charged with stock market fraud—had used the Internet to promote stocks from his bedroom in Cedar Grove, New Jersey. Armed only with accounts at AOL and E-Trade, the kid had bought stock, then, using "multiple fictitious names," posted hundreds of messages on Yahoo Finance message boards recommending that stock to others. He'd done this eleven times between September 1999 and February 2000, the SEC said, each time triggering chaos in the stock market. In advance of the chaos he'd left sell orders in the marketplace, in case his shares rose in price. Each time they did. The average daily trading volume of the small companies he dealt in was about 60,000 shares; on the days he posted his messages volume soared to more than a million shares. More to the point, he'd made money. Between September 1999 and February 2000 his smallest one-day gain was $12,000. His biggest was $74,000. Now the kid had agreed to hand over his illicit gains, plus interest, which came to $285,000.

When I first read the newspaper reports I didn't understand them. It wasn't just that I didn't understand what the kid had done wrong. I didn't even understand what he had done. And if the first news stories about Jonathan Lebed raised questions—What did it mean to use a "fictitious name" on the Internet, where every name is fictitious? Who were these people who traded stocks naïvely based on what they read on the Internet?—they were trivial next to the questions raised a few days later, when a reporter asked Jonathan Lebed's lawyer if the SEC had taken all of the profits. They hadn't. There had been many more than the eleven trades described in the SEC's press release, the lawyer said. The kid's take from six months of trading had been nearly $800,000. Initially the SEC had demanded he give it all up, then backed off when the kid put up a fight. As a result, Jonathan Lebed was still sitting on half a million dollars, which he'd made in less than six months of trading.

At length, I phoned the Philadelphia office of the SEC, where I reached one of the investigators who had brought Jonathan Lebed to book. I was maybe the fiftieth journalist he'd spoken with that day, and apparently a lot of the others had had trouble grasping the finer points of securities law. At any rate, by the time I asked him to explain to me what, exactly, was wrong with broadcasting one's private opinion of a stock on the Internet, he was in no mood.

"Tell me about the kid," I said.

"He's a little jerk."

"How so?"

"He is exactly what you or I hope our kids never turn out to be."

"Have you met him?"

"No. I don't need to."