UNITED STATES OF AMERICA
In the Matter of
Research Investment Group, Inc., Scott H. Wilding, SmallCap Solutions, Inc., Complete Financial and Operations, LLC and Tyler T. Fleming
ORDER MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AS TO SMALLCAP SOLUTIONS, INC., COMPLETE FINANCIAL AND OPERATIONS, LLC ANDTYLER T. FLEMING
On October 23, 2003, the Securities and Exchange Commission ("Commission") instituted public administrative and cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") against SmallCap Solutions, Inc. ("SmallCap Solutions"), Complete Financial and Operations, LLC ("Complete Financial") and Tyler T. Fleming ("Fleming") (collectively "Respondents") to determine whether they violated Sections 5(a) and 5(c) of the Securities Act and, if so, what sanctions, if any, were appropriate.
In response to the institution of these proceedings, Respondents have submitted an Offer of Settlement ("Offer"), 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 as to the jurisdiction of the Commission over them and the subject matter of the proceeding, which are admitted, Respondents consent to the entry of the findings and sanctions set forth below.
On the basis of this Order and Respondents' Offer, the Commission finds1 that:
1. This matter involves a common abuse found among certain small publicly held companies. In recent years, many such companies have hired stock promoters to tout their shares on stock-picking websites and through mass-mailed e-mail messages (commonly known as "spam"). The promoter is often compensated in the form of purportedly unrestricted shares of the company's common stock, which the promoter sells after its touting has attracted investor interest in the company.
2. Under the federal securities laws, a public company cannot distribute unrestricted stock to public investors without first registering the offering with the Commission or having a valid exemption from registration for the transaction. Registration requires a company to provide important information about its finances and business to potential investors, and allows the Commission to review the company's disclosures. In an attempt to circumvent those registration requirements, certain issuers have sought alternate sources of purportedly "free trading" company stock in order to compensate the stock promoters. In such arrangements, the issuers and promoters are nonetheless participating in an unregistered offering of securities to the public in violation of the federal securities laws, as described below.
3. Fleming, 33, of Las Vegas, Nevada, promoted small cap companies from 2000 through 2002 on his website, WallStreetWest.com, and through an electronic newsletter, Wall Street West Newswire. Fleming conducted his stock promotion business through two corporate entities he controls, SmallCap Solutions and Complete Financial.
4. SmallCap Solutions is a Nevada corporation used by Fleming to conduct his stock promotion business. Fleming is SmallCap Solution's sole officer and director.
5. Complete Financial is a Colorado company also used by Fleming in his stock promotion business. Complete Financial registered the trade name WallStreetWest.com, LLC with the state of Colorado. Fleming is the sole member of Complete Financial.
6. Research Capital, LLC ("Research Capital") is a Florida venture capital company that seeks to invest in genomics-based biotechnology companies.
7. Research Investment Group, Inc. ("RIG"), a Florida corporation, promotes small cap companies by hiring others to mass distribute e mail messages and faxes touting its corporate clients.
8. Scott H. Wilding ("Wilding"), 42, of Pembroke Pines, Florida, is the sole officer and director of RIG.
9. In or around November 2001, Research Capital hired RIG to promote an issuer, whose common stock was traded on the OTC Bulletin Board (the "Issuer").
10. Research Capital was affiliated with the Issuer. Research Capital's principals owned approximately 18% of the Issuer's outstanding shares, and Research Capital agreed to provide the Issuer with $1 million in working capital and to establish a public relations campaign for the Issuer. The Issuer had no significant revenue-generating activity and was nearly completely funded by, and dependent on, Research Capital.
11. Research Capital and RIG entered into an agreement under which RIG would establish a promotional campaign for the Issuer in exchange for an option to purchase up to 4,000,000 purportedly unrestricted shares of the Issuer from Research Capital and its principals at $0.025 per share. At the time, the Issuer's stock was trading at approximately $0.075 per share.
12. Shortly thereafter, RIG's sole officer and director, Wilding, exercised a portion of this option and purchased 3,300,000 shares of the Issuer. The shares, which came from Research Capital's principals, were deposited into Wilding's personal brokerage account.
13. RIG's Wilding subcontracted with Fleming and his company, SmallCap Solutions, to perform a portion of the promotional work in exchange for 150,000 purportedly unrestricted shares of the Issuer. One of Research Capital's principals transferred 150,000 of his shares of the Issuer to SmallCap Solutions on December 27, 2001. The shares were deposited into SmallCap Solutions' brokerage account. Fleming, as the sole officer and director of SmallCap Solutions, was the sole signatory on the company's brokerage account.
14. SmallCap Solutions posted a profile of the Issuer on the SmallCap Solutions website on or about January 5, 2002. That website was operated by SmallCap Solution's President, Fleming, under the business name Complete Financial. Within several days, daily trading volume of the Issuer's shares rose over 600% above the volume in the preceding month.
15. Between January and April 2002, Fleming sold the shares of the Issuer that SmallCap Solutions had received from the Research Capital principal on the open market for $6,005.
16. No registration statement was filed with the Commission or was in effect as to the Issuer's shares sold by SmallCap Solutions. Because SmallCap Solutions had obtained the shares from persons directly or indirectly controlling or controlled by the Issuer, or under direct or indirect common control with the Issuer, with a view to distributing the stock to the public, the stock was not exempt from registration. As a result, the securities were restricted and could not be sold to the public within a year after they were acquired by the promoters. The transactions constituted an illegal distribution of securities, and the Respondents violated Sections 5(a) and 5(c) of the Securities Act.
17. In April 2001, another issuer, whose common stock was traded on the OTC Bulletin Board (the "Second Issuer"), hired Fleming and his company, SmallCap Solutions, to promote it in exchange for 30,000 of its unrestricted shares.
18. Fleming knew that an issuer cannot issue unrestricted shares directly without registering the transaction. The Second Issuer's president directed a shareholder to transfer 30,000 shares to SmallCap Solutions to pay for the promotional campaign. The Second Issuer reimbursed the shareholder with 60,000 restricted shares of the company.
19. Upon receiving the Second Issuer's stock certificates from the shareholder, SmallCap Solutions' Fleming deposited them into SmallCap Solutions' brokerage account. As the sole officer and director of SmallCap Solutions, Fleming was the only signatory on this account.
20. SmallCap Solutions posted its first tout of the Second Issuer on its WallStreetWest.com website on April 3, 2001. Three days later, the Second Issuer's stock price rose 18 percent, from $1.0625 to $1.25, on volume that was 255 percent higher than the average daily trading volume over the preceding six months.
21. From July through September 2001, SmallCap Solutions sold the shares it had received for the promotional campaign on the open market for $15,955.
22. No registration statement was filed with the Commission or was in effect as to the Second Issuer's shares sold by SmallCap Solutions. Because SmallCap Solutions obtained the stock from a person directly or indirectly controlling or controlled by the Second Issuer, or under direct or indirect common control with the Second Issuer, with a view to distributing the stock to the public, the stock was not exempt from registration. As a result, the securities were restricted and could not be sold to the public within a year after they were acquired by SmallCap Solutions. The transactions constituted an illegal distribution of securities, and the Respondents SmallCap Solutions and Fleming violated Sections 5(a) and 5(c) of the Securities Act.
23. As a result of the conduct described above, Respondents violated Sections 5(a) and 5(c) of the Securities Act, which prohibit the offer or sale of securities through the mails or in interstate commerce, unless a registration statement has been filed or is in effect as to such securities.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondents' Offer.
Accordingly, it is hereby ORDERED that:
A. Respondents cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act.
B. IT IS FURTHERED ORDERED that Respondents shall, within 10 days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $24,721.05 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Mail Stop 0 3, Alexandria, Virginia 22312; and (D) submitted under cover of a letter that identifies SmallCap Solutions, Inc., Complete Financial and Operations, LLC and Tyler T. Fleming as Respondents in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Helane L. Morrison, District Administrator, Securities and Exchange Commission, San Francisco District Office, 44 Montgomery Street, Suite 1100, San Francisco, California 94104 4691.
For the Commission, by its Secretary, pursuant to delegated authority.
Jonathan G. Katz
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