(MONEY Magazine) – Last fall the Securities and Exchange Commission made 15-year-old Jonathan Lebed a teen celebrity.

During the previous two years Lebed, an enterprising kid from Cedar Grove, N.J., had bought stock in several small, thinly traded companies. Then he flooded Internet message boards with hundreds of anonymous notes along the lines of "This stock will explode next week." Thinking they were seeing a groundswell of interest in a cheap issue, suckers bought, and when they did, Lebed sold at a profit. The SEC sued him last September. In settling the case Lebed, as the saying goes, "admitted no wrongdoing" but did agree to give the SEC about $300,000. A good deal, considering that the feds, for reasons still unclear, let him keep roughly $500,000 in allegedly ill-gotten gains.

As the first minor to be sued for stock manipulation, Lebed made headlines around the world. He even attracted a few apologists, who argued that what he had done was no worse than the legal stock touting that Wall Street analysts perpetrate every day. Lebed's father told reporters, "I'm proud of my son." The kid himself said, "Everyone does it."

Not quite. What went unreported at the time was that Lebed had first come to the attention of regulators back in the spring of 1998, when they suspected him of being an online mouthpiece for a convicted swindler. Beginning in January of that year, Lebed, then 13, was online almost daily, talking up two penny stocks connected with Ira Monas, a Long Island, N.Y. con artist whose run-ins with the law go back to 1981. Lebed defended Monas against critics and posted financial projections that he said Monas had given him, some of which turned out to be false.

There's no evidence that Lebed knew he was dealing with a felon. He declined to be interviewed, and his lawyer has consistently maintained he had no part in any criminal wrongdoing. The SEC never accused him of any crime stemming from his association with Monas. Contacted in jail, where he is completing a sentence for an unrelated scam, Monas declined comment except to say he never paid or otherwise conspired with Lebed. But in light of information that MONEY has uncovered, Lebed's protestations of persecution ring hollow.

Last fall the SEC didn't look very smart. With plenty of big-time adult fraudsters running around the Net, it had chosen to make a small-potatoes case against a teenager--and then bungled it. But as Lebed's voluminous posts from 1998 and his sworn testimony before regulators that year now make clear, if anybody ever stood up and dared the SEC to come and get him, it was the would-be boy stock wizard from Cedar Grove.

MEET "JONATHAN HAROLD LEBED SR." Jonathan Lebed might have spent his pubescence doing something worthwhile, like collecting comics or chasing girls, if CNBC hadn't convinced him that he was a stock-picking prodigy. In 1997, Jonathan was in the eighth grade. With two classmates he entered a student investing contest sponsored by CNBC and MCI. The team, the "Triple Threat," invested an imaginary $10,000 in the first round of the contest and turned it into $240,000, ultimately winning fourth place overall. Late in the year, Lebed asked his mother for a subscription to the popular investment message service Silicon Investor. As she later told the SEC, "I said let him try it, and it just got out of hand. I think he met this Ira on the Silicon Investor."

He did. At just about the same time Lebed got his Silicon Investor membership, a new "thread," or discussion area, appeared on the site, dedicated to a small temporary-staffing company called Firamada (FAMH). President: Ira Monas.

Firamada was--and is--a penny stock traded on an electronic market called the Over the Counter Bulletin Board. The stocks listed there are too small and speculative for the Nasdaq or the New York Stock Exchange. Many aren't required to file the same public SEC disclosure statements as big companies. Generally, the financial press doesn't cover them, and neither do reputable analysts. A lot of them are simply scams.

All of which makes them perfect for discussion boards like SI, where anonymous posters can say anything they want, no matter how stupid, misinformed or fraudulent. Begun by someone who posted as CO or occasionally Cheryl in November 1997, the posts on the FAMH thread, which by now number close to 30,000, read like the transcript of a cocktail party at which all the guests are strangers. Everyone is polite at first. Soon drinks are served. Before long there is trouble.

Lebed (who later told the SEC that he'd first heard of this deservedly obscure stock in a chat room for day-traders) made his debut on the FAMH thread on Jan. 6, 1998--with the stock around 37[cents]--posting, under his own name: "Hello everybody.... I own a fair amount of FAMH with an average price of $0.33. Well now, I am finally even and I can't wait until tomorrow or basicly [sic] any day this entire month. I am pretty sure we will hit $1 in the coming weeks and $5 sometime this year."

That was about the high-water mark of polite conversation on the thread. Soon things degenerated into a screaming match between a handful of rabid bulls and a like number of acerbic bears, with a more or less befuddled crowd in the middle. The thread was among the busiest on SI. There was confusion about numerous proposed and actual mergers, posts by people claiming to be Firamada management and tedious personal feuds between posters. Through it all, Lebed was the mascot of the bulls, indulged and encouraged if not always taken seriously.

His breathless speculation about how high FAMH could go--within a few weeks he was forecasting that it would be listed on the American Stock Exchange or the Nasdaq and would hit $35 within a year--soon got on the nerves of the skeptics. A leading bear who posted as Tinker Tape once sniped, "Would you please stop the hype, leadhed."

Still, the general mood on the thread in the first few weeks of 1998 was optimistic. The stock price had been rising steadily from a low of about 12[cents] in August, driven mainly by encouraging press releases from the company's New York offices.

Meanwhile, like a kid trying to get a drink with a fake ID, Lebed worked hard to look grown-up. When the urge to brag about his success in the CNBC contest got the better of him on Jan. 7, he signed his post "Jonathan Harold Lebed Sr." (His father's name is Gregory.) It read: "Everybody watch CNBC tonight at 4:50 p.m. They will do a segment on this student team called DDA Investors. Well tomorrow they will be doing that same thing at the same time with my son's student team, The Triple Threat.... I am trying to get him to mention FAMH in some way shape or form. And if you watched CNBC at 4:50 PM. Monday you would of saw [sic] him in a picture holding a sign the [sic] read FAMH."

DUE DILIGENCE? Firamada started out in 1995 as a small Texas-based temporary-staffing company run by an immigrant from Pakistan named Arif Adam. (Firamada is his first and last names spelled backward.) As an investment, it had been a dog since being listed on the OTC Bulletin Board early in 1997. The stock had briefly gone as high as $1.25 but had generally skulked in the weeds at around 12[cents]. By the time Jonathan Lebed became a cheerleader for FAMH, though, things were looking up: "Business Wire--November 24, 1997--Firamada Inc. announced today that a contract has been signed with Morton Downey Jr.'s Invest America, a syndicated talk show.... January 7, 1998--...Firamada Inc. has recently announced the signing of a letter of intent to acquire the assets of Myriad Employment Services, Inc., an employee leasing firm based in Long Beach, California, for cash and stock.... February 25, 1998--Firamada Inc. today announced its board of directors has unanimously authorized corporate management to initiate a buyback of up to 4 million shares...." All that appeared over the name of Firamada's New York-based president, Ira Monas.

In his subsequent deposition in a shareholder lawsuit, Adam said that he found Ira Monas in the spring of 1997 via a help- wanted ad in the New York Times. Plaintiffs lawyer Cleve Powell asked, "[W]hat did his resume show was his background?"

"His background was mortgage. He did--he had--his background vaguely said that he had a mortgage portfolio that he sold and was looking for a new career...."

"[D]id you investigate his references?"

"Yes I did.... All the references checked out."

None of them, apparently, were detectives or assistant district attorneys from Nassau County. Since at least 1981 they had known Monas in connection with a variety of swindles on Long Island. In October 1993, for instance, Monas pleaded guilty and was sentenced to two to four years in state prison for cheating prospective exhibitors in an investment show out of $20,000. And in January 1997, just before he got the Firamada job, Monas later admitted, he had paid for $12,000 worth of clothing, briefcases and other luxury items from a leather store with three forged certified checks.

Adam hired Monas, he later testified, for $140,000 a year, later raised to $220,000, to run the financial side of the business, which included heightening the company's public profile to attract investors. Monas also got stock. In March 1998, for instance, with the company's stock price around 65[cents], Adam granted Monas options to buy 500,000 shares at 18[cents] apiece. Adam, who did not respond to MONEY's requests for an interview, got 2.5 million options at 18[cents] and 5 million at 10[cents].

"A GREAT YEAR FOR FIRAMADA" Monas used weekly conference calls with investors and appearances on radio shows like Ed Taxin's Financial Hour to get out the word, but his main publicity tool was the press release, and his most avid audience was the FAMH crowd on Silicon Investor. The releases that most captured their attention concerned Firamada's balance sheet for 1997. In November, a company press release had forecast earnings per share of 12[cents] through the third quarter. Detailed numbers were not immediately forthcoming, and in early 1998 the company tantalized shareholders with press releases saying that the complete 1997 balance sheet was being audited and would be released to the public soon.

On Jan. 15, Lebed wrote, "I am just waiting for the audited financials which will be out next month and if they show a good profit from last year we may double in that one day. Lately they have been acquiring a lot of other companys [sic] at great prices and if Ira makes them profitable which they are they may make $1 per share next year!"

February came and went with no financials. On March 3, a press release appeared, declaring that the audit was done and would shortly be public. In the meantime, the statement continued, "Firamada is pleased to report to its shareholders the final audited EPS for 1997 is $.1085 per share.... President Ira Monas...said, '1997 was a great year for Firamada but 1998 promises to be even more productive and profitable.' "

The stock ran up to nearly 70[cents] a share, up 600% from its low in late 1997. The earnings weren't quite as good as previously advertised, but they were good enough. Some skeptics and worrywarts wondered where the rest of the numbers were. Not Lebed. He opened his own website tip service (with the help, he posted on Silicon Investor, of a day-trader he'd met in Las Vegas) called Penny Wise Stock Picks; the stock he flogged the hardest there was Firamada. And while other posters on the FAMH thread claimed to be in contact with Monas, nobody did so more frequently than Lebed.

Late in March, though, the stock started to slide on increasing volume. In April, there was talk on SI that Monas, a hero to the bulls, was ill. FAMH bears started complaining about an apparent increase in the number of shares outstanding. The bulls, however, professed continued confidence, and they seemed to be vindicated by a May 8 press release that purported to include the company's 1997 balance sheet. It claimed total assets of $5,929,947 and cash on hand of $2,815,273 against total liabilities of $515,249 and was accompanied by rosy pro forma projections for the next six years.

Then, on May 20, the company put out a press release in which CEO Adam suddenly named a new president, adding that "he was saddened by the resignation of Ira Monas due to ill health." In the ensuing confusion, the stock's fall turned into a rout. "This is a nightmare," wrote one SI poster. "Somebody wake me up."

Even Lebed backed off: "I have learned that some of what I posted earlier was complete bull shit!... I apologize if I may have misled anybody in anyway [sic]." He soon joined in the Monas-bashing that swept the FAMH thread on Silicon Investor, calling him "a liar" and a "NY hustler."

Things got even murkier on July 17, when the company released a statement saying, "Firamada has determined that the 1997 numbers used in the May 8th release cannot be substantiated at this time." That statement, the company pointed out, "was issued by the former president of the company."

And where was the former president in question? Monas' sudden disappearance from the Firamada fold may have had something to do with his health. It certainly had something to do with the fact that on May 18, 1998 he was arrested in New York on charges stemming from the bogus certified checks he had passed back in January 1997. In addition to the leather goods, he had also paid for more than $50,000 worth of computer equipment with forged certified checks and checks drawn on closed accounts.

GOING WHERE IRA GOES Firamada investors didn't know that at the time, of course. What they did know was that Monas was gone and so was their money. Opinion on the FAMH thread was divided among those who blamed Monas, those who blamed Adam and those who hoped, vainly as it turned out, that everything would work out somehow. Numerous SI posters announced that they were taking their complaints and suspicions to the SEC. None of that seemed to bother Lebed, at least not for long.

In May he declared on SI that Monas "lied to us." But on June 8 he wrote that he had faxed Monas a number of questions about Firamada:

"Q: Explain the FAMH situation and why you left the company. Do you still own any shares?

A: The CEO [Arif Adam] is out of control, and issued shares to himself! I have no more shares."

That was enough of an explanation for Lebed. He then began to talk up the stock of Havana Republic (HVAR), another OTC company, this one a Florida-based cigar retailer whose public relations were being handled by a firm called Milan Capital Group--whose managing director was Ira Monas.

This didn't sit well with many of those who had been burned on FAMH. On June 8, Tod C addressed Lebed on the FAMH thread: "I think Ira paid you to hype FAMH.... How many times did you say, I talked to Ira?... You did such a job with FAMH, you decided to continue with other stocks." Lebed denied that, claimed he had only broken even on FAMH and added, "I bought HVAR because I liked where the company was going. When I found out that Ira signed with HVAR I liked the company 10X better. Because where Ira goes profits are to be made."

Lebed liked HVAR so much he started a thread dedicated to it on Silicon Investor. Like the FAMH thread, it had its share of acrimony. On July 17, when Firamada disavowed Monas' May earnings press release, Monas bashers were quick to spread the news to the HVAR thread. Lebed commented, "Arif Adam lied to Ira Monas and tried to cover up their real financial situation.... [T]hese are issues with FAMH not HVAR."

The next day, July 18, responding to posts in which Lebed had projected earnings per share of 15[cents] to 22[cents] for Havana Republic, Frederick Forte, who later became a plaintiff in a lawsuit against Firamada, warned Lebed, "You better be able to back up everything you say. 'Ira told me' can no longer be used as an excuse for your irresponsible drivel. You're a mouthpiece for an unscrupulous, stock promoting liar, and apparently you are trading on inside information which, in the SEC's eyes, is illegal."

Lebed wrote, "I would like to apologize for making comments about Arif Adam, when I only heard Ira's side of the story and not his." Henceforth, he said, he'd confine himself to his website, now known as Stock-Dogs.com. Soon, though, he was back on SI. On Aug. 4, with HVAR at about 13[cents], he wrote, "[T]he price is starting to move up on small volume. Do you people who have been waiting on the sidelines now feel that this is the cheapest possible that you will ever be able to possibly pay? I sure do."

For FAMH veterans it was deja vu all over again. On Oct. 16, Havana Republic declared a loss of $757,520, or 14[cents] per share, for the year ended June 30--not the profit Lebed had projected.

And Oct. 16, by some happy accident, was the same day that Firamada released what it said were its real financials for 1997. The company said that it had cash assets of less than $150,000 and liabilities (mostly unpaid taxes) of more than $1.5 million, and that its shareholders had suffered a loss of 7[cents] a share. And, the company admitted, the number of shares outstanding had almost quadrupled since 1997.

A poster who signed as Warthog pretty much summed it up for FAMH investors in a post addressed to Monas: "FAMH has released audited financials for 1997 which you and Lebed and Arif Adam claimed to be 10.85 cents earnings per share numerous times.... You f--king liar."

Once again, as he had before when FAMH's shares crashed, Lebed seemed to disown his hero Monas, although in rather mild terms. On Oct. 17, Lebed posted, "I have decided that I will ignore his comments for now because much of it has a chance of just being hype." And once again Monas was out of a job. On Oct. 22, Monas' Milan Capital announced that it had amicably decided to part ways with Havana Republic "due to disagreements as to the direction the company should take to increase shareholder value."

The next week, on Wednesday, Oct. 28, Lebed, his mother and her boss, Harold Burk, presented themselves in the SEC's New York City offices. Over the summer, regulators had called Lebed's parents more than once to raise concerns about his website and his trading. This time they had sent him a subpoena.

"HE SEEMED LEGITIMATE" After swearing Jonathan in and explaining the uses of the Fifth Amendment and his right to a lawyer, SEC senior trial counsel Dorothy Heyl, accompanied by three other SEC lawyers, asked why the 14-year-old's father wasn't there. According to an SEC transcript of the interview, Lebed's mother replied, "[T]his whole thing has upset my husband a lot.... [H]e really did not want anything to do with it."

Heyl asked about Lebed's trading habits and the fact that, since Ameritrade had suspended his online privileges, his mother had been making trades for him. What Heyl mainly wanted to know about, though, was Havana Republic and Ira Monas. Heyl asked, "Do you have any reason to believe what Ira Monas told you about the company was reliable?"

"Well, I knew him from before," Lebed replied, "from other companies such as Firamada, just the one company and I heard a lot about him. I thought that...if he would tell me about other companies that [I] would be able to trust him."

"Why did you trust him based on what he told you about Firamada? I'm not following that."

"...[H]e seemed legitimate about what he was saying and he seemed like he knew what he was talking about.... Since there's a lot of people on the Internet for Firamada, he was just a well-known person."

"He was well-known, but was he trusted over the Internet?"

"Yes, he was always trusted by everybody on the Internet." Heyl then reminded him of the attacks on Monas by people who had lost money in FAMH. "Which did you believe, that bashing or Ira Monas?" she asked.

"Ira Monas."

"Why is that?"

"Because from talking to him, he seemed more legitimate and explained to me about what happened...."

Later Heyl asked, "Did you stop trusting him at a certain point?"

"Yes."

"When is that?"

"Well, when things like he promised did not happen, I started to get just--I started to catch on and recently when Firamada put out their financials, a loss of 7[cents], and Ira was saying a while ago that they'd be making close to 11[cents] and that's one of the reasons why I was interested in the company and it turned out to be not true."

"So when did the Firamada financials come out?"

"Friday. Last Friday."

"What about the Havana earnings, were they less than what Ira projected, the ones that came out a couple weeks ago?"

"Yes, they came out the same day as Firamada's earnings...."

"You were expecting Havana to start to do well pretty soon. Right?"

"Yes."

"And Havana is not doing well, right? It had losses, right?"

"...[S]ince [Monas] left the company he put a message on the board that [one] store--I forgot exactly what he said, but what he was meaning is that it would take five years to start making money."

"Is that different from what he told you before?"

"Yes."

But Heyl pointed out to Lebed that even as they were speaking, his website contained a sales projection of $1 million a year for another Havana Republic store that Lebed said had come from Monas. Lebed also said the number had been disavowed by company president Steve Schatzman in a phone call. (Schatzman did not return MONEY's calls seeking comment.)

"Don't you think it might be a good idea [to take it down] because you got false information here on this now?"

"Possibly."

"It wouldn't be possibly. You said the president told you it's not true."

"No--"

"You got it from Ira Monas?"

"Yes."

"You now have reason to not trust him. Right?"

"Yes."

"The president has told you that he doesn't know where that number came from. Ira Monas is not working there, but the number is still here in your website. I guess what I'm trying to suggest is this is a highly regulated area, securities, so people have to be really careful about what they're saying about securities...."

"I'll need to have that changed because I didn't put this page together," Lebed answered. "I didn't think of that."

THE SEC'S "DEEP CONCERN" If the SEC lawyers were unlikely to pin any medals on Lebed for forthrightness, they did, however, have to admit that they didn't have enough to bring a case against him. His mother's boss, Harold Burk, said Lebed had lost money on HVAR and asked Heyl for some specific dos and don'ts to guide the young investor. Burk said, "[I]t's obvious he's in way over his head and he's in--people are using him, that's an obvious thing.... I think that's fair that you basically kind of give him a little talk as to what the expectations are, what he's doing wrong and clearly spell that out...."

Burk added, "What we are going to ask him, what I think [his mother] Connie and he has agreed to, is he's going to get out of the stock recommendation business and the Silicon Investor business and communicating in that way."

Heyl replied, "We have been saying on and off the record, we're not going to give legal advice. We do wish to give our deep concern for the situation here, where unscrupulous people are perhaps using him in a way that he's not aware of."

But if Heyl was trying to scare Lebed--or warn him--she failed. A year later, he had closed his website but was again touting stocks on message boards aggressively. He seemed to have learned a few tricks to avoid the scrutiny of the SEC, at least for a while: Stay away from controversial people, don't post under your own name, don't stay too long in one stock.

When the SEC got around to suing him last September, the agency listed only 11 of the 27 trades it had investigated--HVAR was one of the stocks named, FAMH was not--and required him to cough up less than half of the profits he had made. SEC enforcement chief Richard Walker told MONEY, "We concluded that to settle this case with this youngster we would only charge him with trades in instances where the wrongdoing was most clear-cut." Lebed's lawyer, Kevin Marino, told the press that the $300,000 figure was just a number that he and the SEC agreed on to make the case go away.

A few weeks after the settlement with the SEC, the U.S. Attorney in Newark announced that he was investigating the case and considering criminal charges. (Because of Lebed's age, any trial would be held before a judge in secret. If convicted, he could face time in a juvenile detention facility.)

As for Monas, he began serving a two- to four-year setence in a New York State prison in October 1999, having pleaded guilty to the multiple bad checks he'd passed in 1997. The same month, Firamada and Adam settled, for an undisclosed sum, a shareholder lawsuit filed in the spring of 1999. The suit, against the company, Monas and Adam, alleged that management had pumped up Firamada's stock price with bogus press releases at the same time that they were minting new shares for themselves and others. Under oath, Adam blamed everything on Monas. Monas offered no defense and was never examined under oath. Last March the judge in the case entered a default judgment against him.

At the time Monas had been behind bars for about six months. But he was keeping busy. According to an SEC suit filed early last year, he hatched a plot in late 1999 to use a small Florida brokerage to sell fake shares of hot IPOs. That scheme netted about $9 million. Monas asserted his Fifth Amendment right against self-incrimination, but in November a federal judge in New York held Monas and two other men liable for the scam. (Among the assets listed by a court-appointed receiver as belonging to Monas' Milan Capital: about 750,000 shares of basically worthless Havana Republic stock.)

Monas expects to be paroled from prison in mid-February. He'll be a free man, but maybe not for long. The U.S. Attorney's office for the Southern District of New York is now considering bringing criminal charges against him. Like Jonathan Lebed, he'll probably spend the rest of the winter wondering if he's about to find himself on the receiving end of a federal indictment.