United States of America
Securities and Exchange Commission
Securities Act of 1933
Release No. 8076 / March 25, 2002
Securities Exchange Act of 1934
Release No. 45636 / March 25, 2002
File No. 3-10738
In the Matter of
Douglas E. Costa,
|ORDER INSTITUTING PROCEEDINGS PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER<|
The Securities and Exchange Commission ("Commission") deems it appropriate to institute cease-and-desist proceedings against Respondent Douglas E. Costa ("Respondent" or "Costa") pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
In anticipation of the institution of these proceedings, Costa has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying any of the findings contained herein, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which are admitted, Costa consents to the entry of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order").
Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Section 8A of the Securities Act and Section 21A of the Exchange Act be, and hereby are, instituted.
On the basis of this Order and Costa's Offer, the Commission finds that:
- Costa served as corporate counsel for First Florida Communications, Inc. ("FFCI") from October 1, 1998 through at least February 2001. Costa also served, from March 1, 1999 through at least February 2001, as FFCI's president and chief executive officer ("CEO").
Relevant Entity and Person
- FFCI was incorporated pursuant to Florida law in May 1996. FFCI common stock was listed on the OTC Bulletin Board ("OTCBB") on May 27, 1998 and was de-listed from the OTCBB on November 18, 1999. On October 26, 1999, FFCI filed with the Commission a Form 10SB-12G, which the Commission declared effective. FFCI subsequently filed a Form 10SB-12G/A on November 2, 1999.
- Paul Richard Bell, Sr. ("Bell") was the chairman of the board of FFCI from at least September 1998 through the present. From September 1998 through February 28, 1999, Bell also served as FFCI's president and CEO.
- In 1996, FFCI was incorporated for the purpose of operating a two-way radio license from a radio tower located in South Florida. In 1998, FFCI began acquiring assets in order to satisfy the minimum asset requirement for listing FFCI stock on NASDAQ. Beginning in 1998 and continuing through 1999, FFCI attempted to acquire American Wireless, Inc. ("AWI"), a privately held, Utah based, wireless cable operator, as a means of increasing FFCI's assets. In September 1998, FFCI and AWI agreed that FFCI would offer FFCI stock to AWI shareholders in exchange for their AWI stock.
FFCI's Internet Web Pages
- From at least December 1998 through June 23, 1999, FFCI maintained an internet website at www.firstflorida.onbay.com ("FFCI web pages"). From at least December 1998 through June 11, 1999, FFCI's web pages displayed a balance sheet showing that FFCI had assets valued at $52,198,500.
Costa's Meeting with Prospective Investors
- On April 26, 1999, Costa sent AWI shareholders a letter on FFCI letterhead inviting them to attend a May 8, 1999 meeting at which the AWI shareholders would be given "a final opportunity" to exchange their AWI stock for FFCI stock. On May 8, 1999, Bell, in his capacity as FFCI's chairman, and Costa, in his capacity as FFCI's president, CEO and corporate counsel, conducted a meeting attended by AWI shareholders. At the meeting, Bell told the AWI shareholders that FFCI had been appraised at a value of $50 million.
- Approximately 20 AWI shareholders executed stock powers transferring their shares of AWI common stock to FFCI, in exchange for shares of FFCI common stock, at or after the May 8 meeting.
Costa Knew or Should Have Known that FFCI's Web Pages Misstated FFCI's Assets
- In or before December 1998, Costa was told by FFCI's chief financial officer ("CFO") that FFCI's assets were in the $4-6 million value range and that the assets' value would have to be written down due to the long term inactivity of certain FFCI equipment. FFCI's audited financial statement, dated April 29, 1999, for the period from FFCI's inception in 1996 through December 31, 1998, presented FFCI's total asset value as $4,204,594.
- Costa knew or should have known that FFCI maintained web pages and that FFCI's web pages overstated FFCI's total asset value. In February or March 1999, FFCI's CFO suggested to Costa that FFCI post its audited financial statement on its web pages, once the audit was completed. Costa also was party to a conversation in which Bell assured a prospective investor that Bell and Costa reviewed FFCI's web pages for accuracy. Further, Costa read a March 8, 1999 newspaper article which discussed the existence of FFCI's web page, identified the web address for FFCI's web pages, and referenced the $52 million asset valuation appearing in the balance sheet posted on FFCI's web pages.
- Although Costa knew or should have known the true value of FFCI's assets, Costa made no attempt to revise or delete the false and misleading balance sheet displayed on FFCI's web pages.
Costa Knew or Should Have Known that FFCI Overstated the Value of Its Assets in the Meeting with AWI Shareholders
- Costa arranged and attended the May 8, 1999 meeting with AWI shareholders to encourage the AWI shareholders to exchange their AWI stock for FFCI stock. Costa was present during Bell's statement to the AWI shareholders that FFCI had a value of $50 million and Costa knew or should have known that the statement was false and misleading. Costa did not then, or at any time thereafter, inform the AWI shareholders of the falsehood.
Costa Caused FFCI's Violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder
- As a result of the conduct described above, Costa caused FFCI to violate Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, the Commission may enter an order against any person who causes a violation of, among other things, the antifraud provisions of the federal securities laws. A person causes a violation if the violation occurs "due to an act or omission the person knew or should have known would contribute to such violation."
On the basis of the foregoing, the Commission deems it appropriate to accept Costa's Offer and accordingly,
IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Respondent Costa cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
By the Commission.
Jonathan G. Katz