Arash Aziz-Golshani lived and breathed stocks. Only one year out of the University of California at Los Angeles, Aziz-Golshani had a business selling leather coats on the Internet from his Beverly Hills, Calif., home. But his passion was the market. A sophisticated daytrader with numerous accounts, the 23-year-old was something of a pied piper for pals in the Persian community, tipping them off on stocks about to move.

He wasn't clairvoyant; he simply posted false messages on financial sites, manipulating the prices of the shares. Friends - some of whom were still UCLA students - stood by in awe, watching the magician perform.

Aziz-Golshani was not the first to use the Net to pump up stocks, nor will he be the last. But he was particularly good at it, moving the shares of a dozen companies before his final hurrah. His story provides a particularly cogent lesson in how easy it is to maneuver stocks via the Internet - and how easy it is to get caught.

This account of events was pieced together from court documents, interviews with investigators at the FBI, the Justice Department, the U.S. Attorney's office and the Securities and Exchange Commission, as well as from victims and witnesses of the crime. It involves lies and betrayals among friends and lovers, and ethical dilemmas for university officials. The cast of characters includes a confidant who became an informant and wore a concealed wire, a girlfriend whose securities account was hijacked to help bankroll the fraud and a librarian who helped crack the case.

MARKET MOVERS

According to conventional wisdom, it's easy to keep your identity hidden on the Internet. Anonymous e-mail addresses or public computers make disseminating false information online a cinch, and it can be done much more quickly and effectively than over the phone. Whether it's the posting of a fraudulent press release (as in the recent Emulex Corp. case) or a rash of phony tips on message boards, the methods are stunningly effective and the results are nearly always the same: riches for the crooks and losses for investors.

Such tricks have led to a spate of Internet securities crimes, but they are not as foolproof as perpetrators think. Christopher Painter, head of the Department of Justice's Internet crime task force, insists that instead of offering anonymity, cyberspace activities leave electronic trails as unique as burglar's fingerprints. By adding high-tech methods to established investigative techniques, securities officials have brought more than 180 Internet-related enforcement actions since 1995. More than 60 cases have been filed this year alone.

"Every day there's a new crime out there," says Manny Abscalom, a former assistant U.S. attorney in Los Angeles now with L.A. law firm Latham & Watkins, who worked on the Aziz-Golshani case. He notes the law has not kept up with the criminals in these types of cases. "We had to use telephone laws," he adds, to pinpoint the source.

Just consider the Emulex case: On Aug. 25, a fake press release went out over newswire service Internet Wire, warning of a dire earnings statement for the California communications equipment company. It took federal investigators only six days to arrest Mark S. Jakob and charge him with securities fraud for purportedly posting the release. However, untold harm was done to investors who read the fake information and sold their stock. The manipulation took US$2.2 billion in value out of the company's market cap, while Jakob allegedly made $171,000 in profits.

"Neither number really tells the story," says John R. Stark, head of the SEC's Internet fraud unit. "Who knows what decisions people made that day based on the hoax."

BIG MEN ON CAMPUS

On most days, the 27 computer workstations in the blond-wood-paneled reading room of UCLA's Louise M. Darling Biomedical Library are occupied, with other students ready to pounce. Aziz-Golshani must have known that when he opted to use this, one of the busier of the school's 13 libraries, as his base of operations.

Surrounded by students, Aziz-Golshani created 47 different Yahoo Inc. usernames (many inspired by prescription drugs), and with his accomplices sent more than 400 messages to various financial message boards.

For more than a month, Aziz-Golshani had been advising friends to buy stock in NEI Webworld, a Texas company in bankruptcy, whose shares traded on the Nasdaq for only pennies. Starting Friday, Nov. 12, 1999, he invited several friends to the biomedical library to plant the seeds of fraud.

"The way they carried it out seems simple," says Luis R. Mejia, the assistant chief litigation counsel for the SEC who worked on the case. "But it was very devious."

Aziz-Golshani targeted a number of different stocks with various messages, but NEI was his real prey. Investors reading the messages, he figured, were most likely to buy the low-cost NEI because there was little to lose on the 13 cent stock. Soon message boards on Yahoo, FreeRealTime.com and Raging Bull, among others, hinted that NEI was going to be involved in a reverse merger and that smart buyers should snap the shares up.

"Has anyone heard of LGC Wireless? Major customers include AT&T, Sprint and Nokia. They are to buy out NEIP stock listing," one message said. "Look for a massive move to $5 to $10. ... This stock will be a fast mover!"

Many messages were signed using the username "Ticlopidine," a prescription drug that helps lessen the chance of strokes. Hootan Melamed, a sidekick of Aziz-Golshani and a pharmacy student at Western University of Health Sciences in Pomona, Calif., came up with other usernames - from "Vasopressin," an antidiuretic hormone used to treat diabetes, to "Heparin," which inhibits blood clotting.

Come Monday morning, Nov. 15, NEI opened to a wave of buying. No longer 13 cents a share, the stock was at $8 - a 6,000 percent increase. Half an hour later, it almost doubled to more than $15. Aziz-Golshani's scheme had worked, probably better than hehad imagined. The young men who carried out the ploy sold their stocks at the peak, realizing profits of $364,000.

YOU PLAY, YOU PAY

When there was no announcement of a reverse merger, the stock fell back to earth. But the damage was done. Some message-board readers who had purchased the stock expecting to pay a few hundred dollars now owed thousands. Soon their brokers were on the phone, threatening to liquidate their accounts unless they came up with the cash. Many still owe the brokerages money.

In one affidavit, a Hutchinson, Kan., investor said he placed an order to buy 5,000 shares of NEI based on its market price of around 13 cents. But by the time his order was executed by TD Waterhouse Monday at $8 a share, the trade cost him $40,000.

"When I checked my order's status ... I was flabbergasted," he told regulators. "I never imagined that such a price jump was possible." The man said he lost his IRA savings and now owns 5,000 "virtually worthless" shares of NEI.

The National Association of Securities Dealers, which monitors trading on the Nasdaq, was first to spot an unusual amount of trading in NEI and tipped off the SEC. The agency soon determined that NEI had no ongoing business operations and was not in any merger talks.

Now they had to find the culprits. Searching the Web's financial message boards, regulators were soon able to determine the extent of the spamming and pinpoint the username Ticlopidine. In addition, they obtained the Internet Protocol address (the equivalent of a telephone number) of the computer that sent it. What's more, 39 other Yahoo accounts that touted NEI stock were created in a two-hour time frame on Nov. 12, investigators found.

Other information that spelled trouble for those who had sent the e-mail messages: On the Monday the trades were made, Aziz-Golshani and his three friends accounted for 97 percent of the activity in the stock.

The SEC also learned from Raging Bull that a message from "TheSeeker" about the stock was from a fixed IP address - the same address as Aziz-Golshani's home.

In response to a subpoena, Yahoo provided another IP address, and using the "whois" database on Arin.net, the site for the American Registry for Internet Numbers, it discovered this address was assigned to UCLA. The trail led to the Darling Biomedical Library.

Terry Ryan, an associate librarian for information technology at UCLA, isn't used to playing the role of detective. Complaints usually involve rude comments on e-mail posts or, at worst, online stalkings. But when she received a subpoena from federal agents, she soon found herself deep in an ethical dilemma.

"We have a long history of privacy," says Ryan, a soft-spoken person who has worked at UCLA for 15 years and collects murder mysteries and children's books at home. "We don't release book-circulation details. We release information only in response to formal law-enforcement documentation."

The university does not require those who use their computers to identify themselves. Its workstation logs, which record a history of where each user clicks, are generated automatically, but the library erases those caches daily.

The information UCLA had was limited. Using computer information from Internet service providers and a map of the computers in the reading room, along with the times the suspicious e-mails were sent, the FBI narrowed the list of possible users. They then compared the times with the exits of students filmed on a library security camera. Matching these two pieces of evidence, agents identified the likely suspects - Aziz-Golshani, Melamed, Allen Derzakharian and Arash Danny Molayem. Now they needed some hard proof.

CLOSING THE NET

About a week after the stock maneuvers, Molayem said he was confronted by the three other men involved while getting a haircut at a Supercuts salon in Westwood, near UCLA. Aziz-Golshani repeatedly told Molayem that he should say nothing to the authorities and told him that whoever "ratted out" the others would regret it.

On the same day, Molayem gave Aziz-Golshani a ride to his home. During the drive, Aziz-Golshani turned the radio up to mask their conversation and told Molayem to shut up, that the FBI didn't know anything - though they had talked with Melamed and Derzakharian.

As it turned out, the FBI paid visits to each of the traders. Molayem, a student at UCLA, apparently cooperated from the beginning. He told agents he often received stock tips from Aziz-Golshani and that his friend told him on Nov. 12 that he and Melamed were "going to do" NEI. Molayem pitched in Sunday, Nov. 14, at the biomedical library, spending about 45 minutes helping Aziz-Golshani copy messages about NEI and posting them on financial bulletin boards.

The FBI wired Molayem with a hidden microphone and had him meet Aziz-Golshani in a series of encounters in which the two talked about what they had done. Molayem also identified the other men on the library's surveillance tapes. (Although he unloaded his stock, Molayem allegedly sold too late to make a profit. Molayem's attorney did not return telephone calls requesting comment.)Derzakharian, a 26-year-old classmate of Melamed in Western University's pharmacy program, said in an interview that he didn't know anything was wrong until FBI agents visited his home a week after the trading. He simply agreed to open a securities account jointly with Melamed with $7,000 of his own money. "[Melamed was] just a classmate," he noted. "He had an idea and I had the money. He told me we could go in 50-50 and he would reimburse any losses. ... I was told I would double my money."

His $7,000 account is currently worth $226,000 because of the NEI trades. In a plea, he neither admitted nor denied guilt in a civil securities charge, but agreed never to violate securities laws and to give up all the profits in his trading account.

For his part, Melamed admitted his guilt in the criminal securities-fraud case. He could receive up to five years in prison and fines of double his gross gains.

Melamed's sentencing was recently postponed so that he could finish the school semester. It will be up to California's pharmacy licensing board whether the felony plea will impact his becoming licensed as a pharmacist. His attorney, Mark Werksman, declined to comment on the case or to make his client available.

And then there's Aziz-Golshani. The mastermind has pleaded guilty to criminal securities fraud in the NEI case. Additional civil counts have been filed against him for fraud involving a dozen other stocks.

His attorney, Michael J. Missal, says his client is trying to get his life back together while he awaits sentencing. "He recognizes this was a mistake," adds Missal. "He's not an evil person."

It wasn't just the four men whose lives were altered by the events. Another victim was Mitra Rastegar, Melamed's classmate and girlfriend.

Through Rastegar's securities account and without her authorization, Melamed purchased 20,000 shares of NEI at $8 a share. She claims she received a call from him telling her she was "screwed" and to not talk to anyone. TD Waterhouse liquidated nearly $8,000 in Rastegar's account and is demanding payment for the $160,000 cost of the shares.

Rastegar declined to talk about the case on the record but has asked the court if she can speak at Melamed's sentencing hearing. She is no longer his girlfriend.