Two Texas men have settled Securities and Exchange Commission charges that they perpetrated a massive e-mail spam campaign to drive up the demand for low-value stocks they owned.

Under the settlement, entered this week in two final judgments by Judge Kenneth Hoyt of the U.S District Court in Houston, Darrel T. Uselton and his uncle Jack E. Uselton will no longer be able to trade penny stocks, and Darrel Uselton will pay more than $2.8 million in disgorgement and prejudgment interest and a $1 million financial penalty. In July 2007, the SEC charged the Useltons for the high-tech scam that hijacked personal computers nationwide.

"This settlement holds the Useltons accountable for flooding the inboxes of American investors with hundreds of millions of spam e-mails touting these near-worthless penny stocks with baseless price projections and other grandiose claims," says Cheryl Scarboro, associate director of the SEC's Division of Enforcement.

The SEC's enforcement action stems from a spam e-mail that a staff attorney at the SEC received in August 2005. The e-mail had the subject line: "Experts are jumping all over this stock ..." and seemed to be a scam. Shortly thereafter, the attorney received several more e-mails.

In an ensuing investigation, the SEC identified the Useltons as the driving force behind the e-mails, determining that from May 2005 through December 2006, the Useltons generated proceeds of more than $4 million through a scheme in which they would obtain cheap stock from at least 13 penny stock companies. The duo would then, according to the SEC's complaint, sell those shares into an artificially active, and often-times rising, market that they created through manipulative trading, spam e-mails, direct mailers and Internet-based promotional activities.

By matching various spam e-mails against the Useltons' brokerage records and transfer agent records, the SEC determined that each of the market manipulations followed a similar pattern. Specifically, the Useltons and the companies they controlled received unrestricted shares from the penny stock companies for little or no money in return for purported financing or promotional activities.

The SEC says that the Useltons then transferred those unrestricted shares into brokerage accounts they controlled. They then encouraged many of the penny stock companies to issue positive press releases. At the same time, the Useltons orchestrated spam e-mail campaigns using technology that would enable them to essentially instruct millions of computers to distribute their e-mail so that it would appear as though the e-mail was coming from a person whom the recipient might have known. Each campaign, which featured a single company, lasted from between several days to several weeks. The scams lasted a total of 20 months.