UNITED STATES OF AMERICA
|In the Matter of |
Arnold C. Takemoto
ORDER INSTITUTING PUBLIC CEASE-
The Securities and Exchange Commission ("Commission") deems it appropriate to institute public cease-and-desist proceedings against CancerOption.com, Inc. ("CancerOption") and Arnold C. Takemoto (together the "Respondents") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
In anticipation of the institution of these administrative 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 that they admit the jurisdiction of the Commission over them and over the matters set forth herein, Respondents have consented to the entry of the findings and the imposition of the cease-and-desist order ("Order") as set forth below.
On the basis of this Order and the Offer submitted by Respondents, the Commission finds1 that:
A. CancerOption is a Florida corporation with operations in Phoenix, Arizona, and Vancouver, British Columbia. CancerOption operates an Internet website focusing on alternative treatments for cancer and sells cancer-related nutritional supplements. In October 1999, CancerOption filed a Form 10-SB registration statement with the Commission that was withdrawn on March 3, 2000. CancerOption has not filed reports with the Commission pursuant to Section 13(a) of the Exchange Act. At all relevant times, CancerOption stock was quoted on the Bulletin Board (a service of the Nasdaq Stock Market, Inc.).
B. Takemoto, age 56, a resident of Scottsdale, Arizona has been chairman, chief executive officer, and director of CancerOption since March 22, 1999. Takemoto exercised, and continues to exercise, control over all aspects of CancerOption's business.
C. In August 1999, two analysts issued highly favorable research reports based on false revenue and stock price projections for the company. Both analysts recommended the purchase of CancerOption stock. One report projected CancerOption would earn revenues based on Internet sales alone of: $5 million in 2000; $10 million in 2001; $30 million in 2002; and $120 million in 2003. The report also stated that CancerOption's share price would climb from $4 per share in 1999 to $22 per share in 2000. The second report projected CancerOption would earn revenues based on Internet sales of: $550,000 for July through December, 1999; $4.3 million for 2000; $9,675,000 in 2001; $33,862,500 in 2002; and $101,587,500 in 2003. The report also stated that CancerOption could trade at a short-term target price of $15.50 per share and a 24 month target price of $30.00 per share.
D. The projections contained in both analyst reports were false and without reasonable basis. When Takemoto read the reports he believed the projections were inflated. The projections had no basis in prior sales revenues since CancerOption had just entered the business of Internet sales of cancer-related nutritional supplements in August 1999 and had no sources of revenue prior to that time. Moreover, CancerOption's website experienced substantial technical difficulties in 1999 and was not fully functional until February 2000, substantially impairing the company's ability to earn revenue from Internet sales. CancerOption failed to disclose these adverse facts which seriously undermined the accuracy of the projections. In fact,CancerOption only earned approximately $6,000 in revenue in 1999, a fraction of which was from Internet sales.
E. Respondents gave the analysts the false information contained in the reports both directly and indirectly through an investor relations firm hired by the company. CancerOption placed the reports on its website, where they appeared from August 1999 through January 2000. Takemoto was responsible for all content that appeared on CancerOption's website. Takemoto failed to correct or remove the false projections when he became aware that they were placed on the website, notwithstanding his knowledge that the projections were false.
F. In an August 6, 1999 press release, CancerOption characterized one of the analysts as the "first independent analyst to begin coverage of CancerOption.com and to release an investment opinion." CancerOption's characterization of the analyst as independent was false. Respondents, directly and indirectly through CancerOption's investor relations firm, paid 5000 shares of CancerOption stock for the report. Takemoto reviewed and approved all press releases issued by the company.
G. On August 3, 1999, before CancerOption issued press releases announcing the analyst reports and placed the reports on CancerOption's website, CancerOption stock traded at $3.56 per share on volume of 3,900 shares. On August 26, 1999, after CancerOption announced the analyst reports and placed them on the company's website, the price of CancerOption stock increased to $4.25 per share on volume of 232,700 shares.
H. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, prohibit persons from, directly or indirectly, in connection with the purchase or sale of securities by use of any means or instrumentality of interstate commerce or of the mails, employing any device, scheme or artifice to defraud; making any untrue statement of a material fact or omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaging in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the sellers and purchasers of CancerOption securities. Respondents violated the antifraud provisions of the Exchange Act by posting on the CancerOption website analyst reports with false revenue and stock price projections for CancerOption and issuing a press release characterizing a paid analyst as an independent analyst.
In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Respondents.
Accordingly, IT IS ORDERED that, pursuant to Section 21C of the Exchange Act:
Respondents cease and desist from committing or causing any violations and any future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
By the Commission.
Jonathan G. Katz
1 The findings herein are made pursuant to the Offer of Settlement of Respondents and are not binding on any other person or entity in this or any other proceeding.
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