United States of America
In the Matter of
|ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING AND IMPOSING A CEASE-AND-DESIST ORDER|
The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") against IntellectExchange.com, Inc. ("IntellectExchange" or "Respondent").
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") that 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 to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Cease-And-Desist Proceedings, Making Findings And Imposing A Cease-And-Desist Order (the "Order"), as set forth below.
On the basis of this Order and Respondent's Offer, the Commission finds that:
1. IntellectExchange is a Delaware corporation located in Bedford, Massachusetts. IntellectExchange operates an Internet-based service that matches persons with expertise in a particular field of study with customers seeking to retain or consult with persons with expertise in that particular field of study.
2. Pre-IPO Financial Group, LLC ("Pre-IPO") is a Nevada limited liability company that was headquartered in Los Angeles, California. Pre-IPO was formed in February 2000 and ceased operations in late 2001. The State of Nevada revoked Pre-IPO's status as a limited liability company in March 2002.
3. In June 2000, IntellectExchange offered to sell 7,500,000 shares of its Series B Convertible Preferred Stock ("Preferred Stock") at a price of $0.70 per share through a private placement. In February 2001, IntellectExchange offered to sell 750,000 shares of its Common Stock at $0.80 per share through a private placement. There was no registration statement in effect or filed with the Commission for either offering.
4. IntellectExchange utilized Private Placement Memoranda ("PPMs") dated June 15, 2000 and February 15, 2001 in the offer and sale of its Preferred Stock and Common Stock. The PPMs state that "the [preferred or common] stock offered hereby has not been registered under the Securities Act of 1933 or various state securities laws, and may not be resold without registration or the availability of exemptions."
5. On or about July 31, 2000, IntellectExchange and Pre-IPO entered into a written agreement ("the July 31 Agreement"), which was provided by the CFO of another company that had previously used the services of Pre-IPO, pursuant to which Pre-IPO agreed "to introduce [IntellectExchange] to potential investors and help to raise capital" for IntellectExchange on a best efforts basis.
6. On or about August 18, 2000, Pre-IPO submitted a Subscription Agreement and Investor Questionnaire to IntellectExchange, pursuant to which Pre-IPO contracted to purchase shares of Preferred Stock from IntellectExchange at the price of $0.70 per share and warranted that it was an accredited investor. The Subscription Agreement provided that Pre-IPO's interest in the shares of IntellectExchange was "not assignable" and that "the assignment and transfer of the securities purchased hereby shall be made only in accordance with all applicable laws, including the [Securities Act]."
7. On or about January 8, 2001, IntellectExchange and Pre-IPO entered into a written agreement ("the Revised Agreement"), which was backdated effective as of August 3, 2000, pursuant to which Pre-IPO agreed "to introduce [IntellectExchange] to potential investors and help to raise capital" for IntellectExchange. The Revised Agreement provided, inter alia, that Pre-IPO should follow rules and regulations under the securities laws.
8. From August 2000 through July 2001 (the "relevant period"), Pre-IPO purchased approximately $1,831,928 of Preferred Stock and Common Stock from IntellectExchange. IntellectExchange issued stock certificates in Pre-IPO's name for all of the shares purchased by Pre-IPO. None of the stock certificates issued by Intellect Exchange to Pre-IPO indicated that the stock was restricted.
9. During the relevant period, Pre-IPO purchased lead lists of prospective investors from lead brokers. Through its unlicensed salespeople, Pre-IPO solicited prospective investors by telephone and sent them offering materials through the mails. Pre-IPO sold all of the shares it purchased from IntellectExchange to almost 100 investors for total proceeds of approximately $3,742,216. Investors resided throughout the United States.
10. Several weeks after entering into the July 31 Agreement, and during the relevant period, the Chairman of IntellectExchange (the "Chairman") had discussions with several individuals who claimed to be shareholders of IntellectExchange, none of whom had purchased their shares directly from IntellectExchange. The Chairman assumed, correctly, that these people had purchased their IntellectExchange shares from Pre-IPO.
11. Several weeks after entering into the July 31 Agreement, and during the relevant period, the Chairman had a discussion with an employee of Pre-IPO wherein he was told that Pre-IPO was offering IntellectExchange's Preferred Stock at $1.35 per share, almost twice the price at which IntellectExchange had sold its Preferred Stock to Pre-IPO.
12. On or about December 14, 2000, the Chairman received a letter from Pre-IPO wherein Pre-IPO reiterated its commitment to "bring in" $500,000 by January 31, 2001.
13. At no time during the relevant period did IntellectExchange take any affirmative steps to terminate or otherwise modify Pre-IPO's conduct with respect to Pre-IPO's offer and sale of IntellectExchange stock. Specifically, at no time during the relevant period did IntellectExchange: (1) notify Pre-IPO that it was precluded from reselling IntellectExchange stock; (2) question Pre-IPO about or otherwise attempt to monitor Pre-IPO's efforts to resell IntellectExchange stock; (3) attempt to ascertain whether Pre-IPO was only selling to accredited investors; or (4) bring the fact that Pre-IPO was reselling IntellectExchange stock to the attention of its counsel, or otherwise seek legal advice as to its duties and responsibilities arising therefrom.
14. Sections 5(a) and 5(c) of the Securities Act make it unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell or offer to sell securities, unless a registration statement is in effect or has been filed with the Commission or an exemption from registration applies. Scienter is not an element of a Section 5 violation. Swenson v. Engelstad, 626 F.2d 421, 424 (5th Cir. 1980) ["The Securities Act of 1933 imposes strict liability on offerors and sellers of unregistered securities."] With respect to the shares of IntellectExchange that were offered and sold by Pre-IPO and IntellectExchange, IntellectExchange violated Sections 5(a) and 5(c) of the Securities Act, which make it unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to sell or offer to sell securities, unless a registration statement is in effect or has been filed with the Commission or an exemption from registration applies.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in IntellectExchange's Offer.
ACCORDINGLY, IT IS HEREBY ORDERED:
Pursuant to Section 8A of the Securities Act, that IntellectExchange cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act.
By the Commission:
Jonathan G. Katz
|Home | Previous Page||