UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16685/September 6, 2000
UNITED STATES SECURITIES AND EXCHANGE COMMISSION v. HEARTSOFT, INC., BENJAMIN SHELL AND JIMMY BUTLER, Civil Action No. 00-CV-0766-B (M), USDC (ND OK)
The Securities and Exchange Commission ("SEC") announced today that it filed suit in the United States District Court for the Northern District of Oklahoma against a publicly traded educational software firm and its only two officers and directors. The SEC's Complaint alleges that in early 1999 Heartsoft, Inc., Benjamin Shell, and Jimmy Butler perpetrated an Internet "pump and dump" scheme in which the defendants issued a series of fraudulent press releases that were simultaneously posted on Heartsoft's website. The releases included a myriad of false and misleading statements concerning the purported "adoption" and "endorsement" of Heartsoft's Thinkology software by two large school districts, foreign distribution agreements for the software, "strategic business ventures and alliances" with various Internet companies to market the software, and a licensing agreement to develop a "child safe" Internet web browser. This action is part of the fourth nationwide Internet fraud sweep conducted by the SEC since October 1998.
The Complaint alleges that only certain schools within the two school districts had purchased copies of Heartsoft's educational software and there were no agreements to distribute Thinkology to foreign countries. Moreover, the purported marketing alliances and business ventures were nothing more than Heartsoft's purchase of advertisement space in catalogs. Finally, Heartsoft never entered into a licensing agreement to develop a "child safe" Internet web browser.
The Complaint further alleges that the misleading press releases were, in fact, the only public information available to investors, because the company had not filed any of its required quarterly or annual reports with the SEC from May 1, 1997 until November 1999. As a result of Heartsoft's misleading promotional campaign, Heartsoft's stock price increased over 1500%. Shell and Butler "dumped" substantial amounts of their Heartsoft stock into the market, thereby profiting from their illegal conduct.
Simultaneous with the filing of the Complaint, Heartsoft, Shell and Butler consented, without admitting or denying the allegations of the Complaint, to the entry of an order of permanent injunction which: (1) enjoins Heartsoft from violating Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-1 and 13a-13 thereunder; and (2) enjoins Shell and Butler from violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting Heartsoft's violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder. Additionally, both Shell and Butler consented to the payment of disgorgement of all their illegal profits, plus prejudgment interest thereon, and civil money penalties in the amount of $50,000 each. Finally, Heartsoft has agreed to provide all public disclosures to outside counsel for review prior to release.
For tips on how to avoid Internet "pump-and-dump" stock manipulation schemes, visit http://www.sec.gov/investor/online/pump.htm . For more information about Internet fraud, visit http://www.sec.gov/divisions/enforce/internetenforce.htm . To report suspicious activity involving possible Internet fraud, visit http://www.sec.gov/complaint.shtml. For a description of other SEC enforcement actions involved in this Internet Market Manipulation Sweep, visit http://www.sec.gov/news/extra/intmm.htm.