Blogger Jerome Armstrong Settles Stock-Touting Suit with SEC

Thursday, August 09, 2007 at 10:32 AM

Influential liberal blogger Jerome Armstrong, the founder of MyDD and an originator of the netroots movement, has agreed to pay $29,000 in fines and penalties to settle a 2003 SEC suit accusing him of touting a stock on Internet message boards without disclosing his financial interest in the company.

The Commission's Complaint, filed on April 14, 2003, alleged that beginning on March 6, 2000, Armstrong touted the stock of BluePoint Linux Software Corporation ("BluePoint") by posting unsubstantiated, favorable buy recommendations on the Raging Bull internet site. Armstrong posted over eighty such recommendations during the first three weeks that the stock of BluePoint was publicly traded. According to the Complaint, Armstrong praised BluePoint's investment value and encouraged investors who were experiencing trouble having their orders filled to keep trying. The Complaint further alleged that the promoters of BluePoint were secretly transferring stock in three other companies to Armstrong at prices below the then current market for those three stocks and that Armstrong made at least $20,000 by selling the shares he received from the promoters of BluePoint.

Along with business partner Markos Moulitsas, Armstrong helped spark the netroots movement, an Internet-fueled effort to elect Democrats and counter conservative success in other media. Moulitsas credits him with the inspiration to created Daily Kos.

Although the settlement states that Armstrong neither admits nor denies the SEC allegations, he made an August 2003 court filing that acknowledged posting messages on Raging Bull about BluePoint while he had a financial relationship with company insiders Michael Markow and Francois Goelo.

Armstrong's message board postings related to Bluepoint are no longer online, but there are dozens of messages on the InvestorsHub site in which he promoted a related company before a merger, never revealing he was given 25,000 shares before the deal.

An SEC filing reveals that Armstrong received the shares in a reverse merger executed by the Chinese wireless startup AccessTel, which acquired a publicly traded online mall called Shopss.Com on Dec. 18, 2000. Markow's Global Guarantee Corporation received 1.5 million shares in the AccessTel merger.

From September 2000 to March 2002, Armstrong posted 95 messages using the account myDDdotcom on AccessTel's InvestorsHub board. He predicted great potential for its technology and a big increase in price, deriding skeptics as "bashers." None of his postings mention his relationship with the company, formed by executives who created Bluepoint.

On the day of the merger, Armstrong announced on InvestorsHub that he had just bought 250 shares of the company:

... i did DD call quite a bit this weekend, and am satisfied to continue holding, patient for their plan to become widely known. Today I just bought a whopping 250 shares in my son's (Jackson) educational IRA that I just set up for the toddler, hope it grows as much as he is.

Bluepoint laid off all employees in 2005 after a failed attempt to develop Linux software for the car industry. The company exists today as an empty shell hoping for a merger, stating in its 2006 annual report that its only remaining asset is $6 cash. More than 4.5 million shares of its stock are owned by the public, which reached a high of $21 during the period Armstrong was accused of touting and last sold for $0.04 cents.

AccessTel are currently worth one cent, down from around $1.25 at the time of the merger. The New Jersey company has left the wireless business and sells ladies pantyhose in Lebanon.

When allegations against Armstrong were first reported in June 2006, Moulitsas asked a private mailing list of liberal bloggers to ignore the story until it was settled:

Jerome can't talk about it now since the case is not fully closed. But once it is, he'll go on the offensive. That should be a couple of months off. ...

My request to you guys is that you ignore this for now. It would make my life easier if we can confine the story. Then, once Jerome can speak and defend himself, then I'll go on the offensive (which is when I would file any lawsuits) and anyone can pile on. If any of us blog on this right now, we fuel the story.

Under a December 2003 agreement reached with the SEC, Armstrong is prohibited from making any public statement denying the charges or suggesting the complaint is factually untrue.

Moulitsas has not made any statement regarding the settlement since news broke Wednesday. Armstrong told New York Times blogger Chris Suellentrop in an email, "It's good to see the matter finally end."

In April, Armstrong received the Paul and Sheila Wellstone Award for Political Organizing from the Twenty-First Century Democrats "for his visionary leadership in working to create the online netroots community, which has changed the face of politics forever in America by creating a mechanism for people to come together and demand accountability from their leaders."

The group has removed all references to Armstrong from its web site, including his photo and the announcement of his award, which was cached by Google July 20.

When Armstrong began MyDD.Com in 2001, the site's name stood for "My Due Diligence." In stock trading, due diligence refers to the care that should be taken to review all facts related to an investment prior to purchase.

Disclosure: In 2005, the author of this piece was a member of an ad network that included Daily Kos, a professional collaboration that crashed and burned.