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— San Diego is known for both big and small stock-market scams. Peregrine Systems is a big half-a-billion-dollar scam -- right up there with Enron, WorldCom, et al. But San Diego is also called Pump-and-Dumpsville because it has spawned so many pump-and-dump scams, in which small-time rascals manipulate small-capitalization stocks to fleece small investors. The similarities between a big scam like Peregrine and a small pump-and-dump are eye-opening. So are the differences: the small-time wrongdoers are punished quickly. That's not true with the big fellows.

Late last month, the U.S. attorney's office in Los Angeles unsealed a criminal grand-jury indictment against stock promoters charged with pumping up (artificially inflating) a San Diego stock via Internet hype, then dumping it (selling off shares) for fast profits. In an earlier civil case, the Securities and Exchange Commission, calling it "a classic pump-and-dump scheme," had penalized most of the perpetrators and enjoined them from future stock manipulations.

The stock was New Energy Corp., now named Neco Energy. The stock currently sells for a nickel -- a far cry from the $10 it reached in January of 2002 after the pump-up. Marshall Algird Zolp, a Panamanian whom the Securities and Exchange Commission identifies as "a recidivist securities violator and fugitive," has pleaded guilty to criminal charges and will be sentenced June 27, according to the Los Angeles U.S. attorney's office. He was helped in the caper by Geneva Financial Ltd., a purported bank he owns in the Caribbean tax and secrecy haven of Nevis. Zolp has been nailed on four previous occasions by the securities commission. He has several aliases.

San Diegan Tor Ewald and his stepfather Ernest Paul Lampert were indicted last year, but the case had been sealed until recently. Maintaining that they are not guilty, they go to trial September 6. Lampert, a fugitive hiding in Mexico, was arrested in San Diego last December. He, too, is in custody. Ewald is out on bond and, as far as I can determine, is still an officer of Neco. (It is hard to find reliable information on Neco because it trades on the pink sheets -- thinly traded stocks that don't meet listing requirements of major exchanges -- and does not file financial reports. I haven't been able to rouse the company by phone.)

According to the criminal complaint, Zolp, Ewald, and Lampert pumped up New Energy stock by getting a supposedly independent research organization to post a bullish review on an Internet website. It falsely claimed that New Energy had more than $50 million in orders for solar generators; that the company had a "virtual lock" on its market; that it was a partner with the Los Angeles Department of Water and Power; and that it had a $92 million contract with Coca-Cola bottlers in Mexico. Moreover, the trio allegedly helped create and approve a press release falsely claiming that New Energy had signed a ten-year contract with the nation's third-largest agricultural packaging concern, Teixeira Farms. The alleged perpetrators even invented a quote by the company's president.

Ewald is charged with lying under oath to conceal the participation of his fugitive stepfather Lampert. According to Ellyn Lindsay, the prosecutor, Lampert had gone to prison in the early 1990s for fraudulently selling energy investments in the Bay Area. "He had walked away from a ten-year prison sentence after serving only a couple of months," she says. Lampert is charged with essentially running New Energy from Mexico and also participating in the false news release. I asked her how she knew Lampert ran the company. "Everybody said so," she says, but won't comment further because the evidence is not in the public record. Did Lampert write that news release? "Whether he wrote it or was just aware of it, he was part of having it issued," she says.

From December 18, 2001, to January 9, 2002, the stock rose from $4.75 to $10. Zolp sold 42,000 of his 800,000 shares during the period, raking in around $400,000, according to the federal government. Some of the money wound up in a bank account controlled by Lampert while he was a fugitive in Mexico.

So, the alleged rogues really didn't sell that many shares and didn't pick up much money. Contrast that with Peregrine: from April 1999 to February 2002, corporate sales were artificially inflated by half a billion dollars, according to investors who have filed civil suits to recover some of their losses. During the fraud period, the stock zoomed from $17 to $79.50, as the company boasted on the Internet of wonderful sales increases and product successes. Officers and directors bailed out of $580 million of stock during that period, even though the company's lawyer warned them not to do so because they had material information that ordinary investors did not have. Beginning at the stock's public offering in 1997, the stock soared from a split-adjusted $2.75 to $79.50, and chairman John Moores sold more than $650 million of stock, almost all he controlled. Other officers and directors jettisoned their shares, too.

Some officers and outside service providers have been charged criminally in the Peregrine scam. But so-called outside directors, who sold by far the most stock, have not been charged, and judges in civil suits are giving them every benefit of the doubt and then some. Alas, the old American standard of justice applies: the more money plucked from investors, the easier it is for the pluckers to escape liability.

In late March and early April, two San Diego judges hearing Peregrine civil suits issued astonishing rulings -- astonishing even for San Diego courts. Superior-court judge Joan M. Lewis, hearing a case brought by the litigation trustee appointed by the Peregrine bankruptcy court, ruled that investor claims on insider trading would have to be heard under Delaware law, not California law, because the company is incorporated in Delaware.

Since 1968, California has had tougher laws than other states and the nation on insider trading: corporate insiders can't dump stock if they have material information that the public does not have. The key is that a company based elsewhere must conform to California law. The litigation trustee's suit pointed out (as do other civil suits against Peregrine officers and directors) that the board members were told repeatedly that the company was not doing well, despite its claims to the contrary; it was secretly using an unusual accounting method to meet Wall Street's quarterly expectations; its auditor was nervous about accounting irregularities; regulators were cracking down on practices employed by Peregrine, and the like. Yet, insiders dumped their shares. Under Delaware law, the plaintiffs would have to prove that the directors had an intent to deceive, manipulate, or defraud -- a higher bar to jump over than showing that they sold their stock having negative nonpublic information.

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