UNITED STATES OF AMERICA
|In the Matter of
|ORDER INSTITUTING PUBLIC
PURSUANT TO SECTION 8A OF THE
SECURITIES ACT OF 1933 MAKING
FINDINGS AND ISSUING A CEASE-
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") be, and they hereby are, instituted against Universalscience.com, Inc. ("Universalscience") and Rene Perez ("Perez"). Accordingly, IT IS HEREBY ORDERED that said proceedings be, and hereby are, instituted.
In anticipation of the institution of these administrative proceedings, respondents Universalscience and Perez have submitted Offers of Settlement ("Offers"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings herein, except that they admit the jurisdiction of the Commission over them and over the subject matter of these proceedings, Universalscience and Perez consent to the issuance by the Commission of this Order Instituting Public Administrative Proceedings Pursuant to Section 8A of the Securities Act, Making Findings and Issuing a Cease-and-Desist Order (the "Order").
On the basis of this Order and of the Offers of Settlement of Universalscience and Perez, the Commission makes the following findings:
Universalscience is a Florida corporation which was incorporated on November 2, 1999. Universalscience describes itself on its website as the leading consumer community on the Internet and offers a program in which subscribers are paid to "surf" the net.
Perez, age 26 and a resident of Miami, Florida, is listed on the Articles of Incorporation as the President and Chief Executive Officer of Universalscience. The other nine officers and directors which are listed on the Articles of Incorporation of Universalscience are all related to Perez. Perez is the majority stockholder. Perez resigned his position with the U. S. Postal Service in January of 1999 and now spends approximately half his working time on Universalscience. The rest of his working time is spent assisting his father as an electrician. Perez is responsible for the content of the Universalscience web site.
B. Universalscience's Stock Offerings
Although Universalscience was not officially incorporated until November of 1999, Perez created a Universalscience website which initially appeared on the Internet on May 2, 1999. Universalscience represented on its web site that the company would give away 100 shares of "free" stock to each of the first 10,000 applicants who signed up to be Universalscience "members." Additionally, each of these applicants would then be eligible to purchase an additional 1,000 shares at $1.00 per share. The Universalscience web site further stated that these new "members" would have the right of first refusal for shares in a future initial public offering of Universalscience. Eventually, over 4,000 individuals signed up for the "free" stock offering. Universalscience received no proceeds from its $1.00 per share offering.
Universalscience has not registered any of these securities with the Commission, nor has it filed a Form D claiming an exemption from registration. In addition, Universalscience has not registered the securities in any state, nor has it delivered the requisite disclosure documents. Moreover, Universalscience did not limit its stock offerings to only accredited investors.
Perez and Universalscience disseminated the "free" stock and offered to sell members additional stock via the Internet to attract visitors to the web site and to generate interest in Universalscience and Universalscience's planned future public offering.
Section 5(a) of the Securities Act prohibits the sale of securities or the delivery of securities after a sale through jurisdictional means unless a registration statement is in effect as to the securities or the transactions are exempt from registration. Section 5(c) of the Securities Act, in part, prohibits the use of jurisdictional means to offer to sell securities unless a registration statement has been filed.
Section 2(a)(3) of the Securities Act defines "sale" or "sell" to "include every contract of sale or disposition of a security or interest in a security, for value." The lack of monetary consideration for the shares does not mean that there was not a sale or offer for sale for purposes of Section 5. See, e.g., Capital General Corporation, 54 SEC Docket 1714, 1728-29 (July 23, 1993) (Capital General's "gifting" of securities constituted a sale because it was a disposition for value, the "value" arising "by virtue of the creation of a public market for the issuer's securities.") See also SEC v. Harwyn Industries Corp., 326 F. Supp. 943 (S.D.N.Y. 1971). Thus, a gift of stock is a "sale" within the meaning of the Securities Act when the purpose of the "gift" is to advance the donor's economic objectives rather than to make a gift for simple reasons of generosity. Universalscience and Perez benefited from the "free" stock distribution because it attracted additional people to the web site. The "free" stock distribution also enhanced Perez's objectives of increasing traffic to the Universalscience web site in order to increase potential advertising revenues. In addition to publicizing the Universalscience "program," the "free" stock give away generated interest in the planned direct public offering; such increased interest obviously would benefit Universalscience and Perez.
Universalscience made use of the jurisdictional means for the offer and sale of these securities because the stock offerings were made over the Internet, an instrument of interstate commerce. American Library Ass'n v. Pataki, 969 F. Supp. 160, 173 (S.D.N.Y. 1997).
The Commission instituted four cease-and-desist proceedings relating to the issuance of "free" stock on July 21, 1999. In each of these proceedings, the Commission found that the issuance of "free" stock constituted violations of Sections 5(a) and 5(c) of the Securities Act. In the Matter of Wowauction.com Inc. and Steven Michael Gaddis, Securities Act Release No. 7702 (July 21, 1999); In the Matter of Joe Loofbourrow, Securities Act Release No. 7700 (July 21, 1999); In the Matter of Web Works Marketing.com, Inc. and Trace D. Cornell, Securities Act Release No. 7703 (July 21, 1999); In the Matter of Theodore Sotirakis, Securities Act Release No. 7701 (July 21, 1999). Similarly, this matter involves the offer of "free" unregistered stock in violation of Sections 5(a) and (c) of the Securities Act.
In addition, the Universalscience offer of shares at $1 per share also violated the Securities Act. Although Perez testified that Universalscience received no monetary consideration from the sale of Universalscience shares, Universalscience was offering to sell shares over the Internet, an instrument of interstate commerce, without a registration statement having been filed. Such an offer of unregistered shares over the Internet clearly constituted a violation of Section 5(c) of the Securities Act.
There is no exemption from the registration requirements of Section 5 available to Universalscience. Because Universalscience offered stock over the Internet, Universalscience engaged in a general solicitation and Section 4(2) and the exemptions under Rules 505 and 506 of Regulation D are inapplicable. Nor is Rule 504 available, which exempts certain offerings that do not exceed an aggregate annual amount of $1 million. Rule 504 limits the circumstances where general solicitation is permitted to transactions (1) registered under state law requiring public filing and delivery of a disclosure document to investors before sale, or (2) exempted under state law permitting general solicitation and advertising so long as sales are made only to accredited investors. 17 C.F.R. §230.504 (1999). Universalscience has not satisfied either of these criteria. It offered and sold securities nationwide over the Internet without making any of the requisite state filings or disclosures and it did not limit sales to accredited investors. Moreover, the offering of 1,000 shares of stock to the first 10,000 applicants at one dollar per share exceeded the $1 million limit in Rule 504.
Accordingly, the respondents' offer and sale of these securities violate Sections 5(a) and 5(c) of the Securities Act.
Based on the foregoing, the Commission finds that Universalscience and Perez committed violations of Sections 5(a) and 5(c) of the Securities Act, and that Perez caused Universalscience's violations.
In view of the foregoing, the Commission deems it appropriate to accept the Respondents' Offers of Settlement.
ACCORDINGLY, IT IS ORDERED, pursuant to Section 8A of the Securities Act of 1933, that Universalscience.com, Inc. cease and desist from committing, and that Perez cease and desist from committing or causing, any violation and any future violation of Sections 5(a) and 5(c) of the Securities Act.
By the Commission.
Jonathan G. Katz
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