In the past, I've written about mPhase Technologies (OTC: XDSL), an obscure penny stock that has been touting its technology on YouTube, and has hired Jonathan Lebed, who settled stock manipulation charges with the SEC as a teenager, to pump its stocks.

Oh, and the CEO, Ronald Durando, recently signed a consent decree with the SEC and agreed to forfeit $150 thousand in gains derived from an alleged pump-and-dump involving a now defunct company called PacketPort.

Given that series of red flags, why have investors given mPhase, a company with a long history of big losses, a market valuation of nearly $25 million? At least part of it probably stems from the companies much-hyped research it is conducting at Bell Labs.

Honest and ethical management is a sine qua non of a good stock, and investors should always be on the lookout for red flags that might raise questions about that.

So the fact that MPhase Technologies (OTC BB: XDSL) CEO Ronald Durando just settled charges with the SEC related to an alleged pump and dump scheme involving shares of a company called PacketPort might raise some questions for investors. According to the SEC's litigation release, Durando was ordered to disgorge $150,000 as part of the settlement.

What's even more disconcerting is that there appear to be points of similarity between Durando's conduct at PacketPort and the way the MPhase has been run. Back in February, I wrote about MPhase's PR campaign that consisted of posting videos on YouTube touting its stock. Mr. Durando and MPhase also have ties with Jonathan Lebed, a notorious penny stock promoter who settled charges of stock manipulation with the SEC at the tender age of 15. From an email that Mr. Lebed sent to subscribers to his newsletter:

My firm Lebed Biz LLC has been compensated by XDSL 400,000 restricted shares for a one-year investor relations contract. XDSL has agreed to register these shares in their next registration statement. We were previously compensated by XDSL a total of 450,000 restricted shares, $55,000 cash, and 175,000 warrants to purchase shares at $0.35 for past investor relations contracts which have since expired. We already sold all of the previously compensated restricted shares but still hold all of our warrants. Never invest into a stock we discuss unless you can afford to lose your entire investment. For our full disclaimer go to: www.lebed.biz/disclaimer.htm

To date, MPhase's primary product appears to the the press release. The company had sales of just $154 thousand in 2007.

It's hard to know what to make of this but, if it goes anywhere, it's pretty exciting news. EEStor has filed a patent for a new invention that will bring "technologies for replacement of electrochemical batteries." Such a product could make plug-in cars more viable, and possibly play a big role in eliminating America's dependence on foreign oil.

Zenn Motor Co. has bought the rights to the battery, and expects to be selling low-speed cars with the battery sometime this year. The fact that EEStor has been so reclusive -- declining an interview with the Associated Press -- makes it look more legit. This isn't some penny stock promotion putting out press releases and YouTube videos like XDSL was not so long ago. EEStor also has the backing of a firm that invested in companies like Google and Amazon.com in the early stages.

Many industry experts remain skeptical -- which is reasonable, given how revolutionary the product is if it does indeed work.

The ramifications of the end of electrochemical car batteries are huge. It could have political as well as economic significance, and there are sure to be investment plays to come with it. But it's too early in the process right now, and there are tons of things that could go wrong.

But the EEStor story is definitely something to keep an eye on.

Last week, YouTube removed numerous videos from Comedy Central after the parent company of the network, Viacom Inc.(NYSE:VIA), sent Google a stack of 100,000 takedown notices. With South Park and Family Guy content now missing from YouTube, the site is now being used for a more sinister purpose: promoting penny stocks.

In the past few weeks, I have received numerous emails touting the stock of Mphase Tech (OTCBB: XDSL), which claims to be in possession of a nanotech battery. The company then made history by putting out this press release:

LITTLE FALLS, N.J.-(Business Wire)-February 16, 2007 - mPhase Technologies (OTC:XDSL) (www.mphasetech.com) will post a video demonstration of its Smart Nanobattery on the popular YouTube web site (http://www.youtube.com) today, Friday, February 16th at 5 p.m. Eastern time. The video will explain the technology behind its breakthrough development of a "smart" battery based on nanotechnology. Viewers may access the video at YouTube link http://www.youtube.com/watch?v=P8UwBP4yVgM.

A company that is promoting its high-tech developments to investors on YouTube might raise a few eyebrows by itself. It seems amateur. But then there's another red flag. One of my hobbies is finding the names of the executives of companies I receive spam emails about, and then typing the names into the SEC's litigation database and seeing what comes up. This bit of 15-second Due Dilligence can yield eye-opening results. So I typed in "Ronald Durando" and, what do you know. On November 16th of 2005, he was named as a defendant in a case with the headline "SEC Charges Individuals and Companies with Executing a Fraudulent Pump and Dump of PacketPort.com Stock."

Hmm:

The Complaint alleges that Ronald Durando, a 48-year-old resident of Nutley, New Jersey, privately acquired a majority stake in an insolvent public company, then called Linkon...Durando then paid IP Equity, Inc., a private California corporation that operated an Internet-based stock newsletter, and its principals, M. Christopher Agarwal and Theodore Kunzog, to publish false publicity and bogus recommendations about PacketPort.com in order to pump up the stock price. The share price more than quadrupled following the false publicity, rising from about $4.75 to a high of about $19.50.

The Complaint alleges that Durando, Dotoli, Jaffe, and IP Equity dumped PacketPort.com shares into the pumped-up market in an unregistered distribution, obtaining more than $9 million in illicit proceeds. Registered representative William Coons III was Durando's and IP Equity's broker and was the principal outlet for the fraudulent sales.

This is especially interesting because I've received E-mail from Jonathan Lebed (He's all grown up now...I subscribe to his newsletter for laughs.) touting XDSL with the following disclosure:

My firm Lebed Biz LLC has been compensated by XDSL 400,000 restricted shares for a one-year investor relations contract. XDSL has agreed to register these shares in their next registration statement. We were previously compensated by XDSL a total of 450,000 restricted shares, $55,000 cash, and 175,000 warrants to purchase shares at $0.35 for past investor relations contracts which have since expired. We already sold all of the previously compensated restricted shares but still hold all of our warrants. Never invest into a stock we discuss unless you can afford to lose your entire investment. For our full disclaimer go to: www.lebed.biz/disclaimer.htm

Of course, everyone is innocent until proven guilty. But how stupid do you have to be to invest in a company where the SEC has accused the CEO of involvement in a very similar looking scheme?