UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7601 / October 27, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9768 ______________________________ : In the Matter of : ORDER INSTITUTING PUBLIC : ADMINISTRATIVE PROCEEDINGS David A. Wood, Jr. and : PURSUANT TO SECTION 8A OF ICS Communications, Inc., : THE SECURITIES ACT OF 1933, : MAKING FINDINGS AND ORDERING Respondents. : RESPONDENTS TO CEASE AND DESIST ______________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate that proceedings be, and they hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act"), to determine whether David A. Wood, Jr. ("Wood") and ICS Communications, Inc. ("ICS") violated Section 17(b) of the Securities Act. II. In anticipation of the institution of these proceedings, Respondents Wood and ICS have together submitted an Offer of Settlement 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, Respondents Wood and ICS, without admitting or denying the findings set forth herein, except that they admit the jurisdiction of the Commission over them and over the subject matter of these proceedings, consent to the issuance by the Commission of this Order Instituting Public Administrative Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings and Ordering Respondents to Cease and Desist (the "Order"), and to the entry of the findings set forth below. III. On the basis of this Order and Respondents' Offers of Settlement, the Commission makes the following findings:[1] A. SUMMARY This matter involves violations of Section 17(b) of the Securities Act by ICS Communications, Inc. and its president, David A. Wood, Jr. Since April 1997, Wood has been responsible for the "(d)evelopment, implementation and maintenance of (an) investor relations and market awareness program" for a certain issuer (the "company") under a series of consulting agreements.[2] Under these agreements, Wood published a series of messages over the internet on an electronic bulletin board service. He also paid others to publish information about the company. In consideration for these and other services under the agreements, the company paid Wood and ICS $10,000 and at least 610,000 shares of its common stock. Wood and ICS violated Section 17(b) of the Securities Act by publishing, giving publicity to, or circulating various communications that described the company's stock without fully disclosing their receipt of this consideration. B. RESPONDENTS ICS Communications, Inc. is a North Carolina corporation, which maintains its principal place of business in Charlotte, North Carolina. David A. Wood, Jr., age 47, resides in Charlotte, North Carolina. Wood is the sole owner and president of ICS, and ICS is Wood's sole source of income. Wood is not currently registered with the Commission or the NASD in any capacity, but from 1992 to 1995, he worked as a registered representative for four registered broker-dealer firms. C. COMMUNICATIONS DESCRIBING THE COMPANY'S STOCK Wood's services under the consulting agreements included the distribution of various kinds of communications about the company and its stock through various means. These communications included the following: **FOOTNOTES** [1]: The findings herein are made pursuant to Respondents' Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. [2]: The consulting agreements are dated April 15, 1997; October 15, 1997; and June 9, 1998. Two agreements are between the company and Wood; the third is between the company and "David A. Wood Jr., D.b.a. ICS Communications, Inc." 2 1. Messages on Silicon Investor Wood started a discussion about the company by posting a message on the Silicon Investor web site[3] on June 6, 1997, which stated in its entirety: --------------------------------------------------------------- | Started By: DAVID A. WOOD JR. | | Date: Jun 6 1997 11:07 AM ET | | | | (The company) is stock to watch @ $.56 per share, it | | won't stay here long! The company has had an increase | | in earnings for the last 8 consecutive Qtrs!! | --------------------------------------------------------------- By August 1998, this discussion consisted of more than 260 messages responding to Wood's initial posting. Between June 1997 and March 1998, Wood posted 10 more messages in addition to the first one. Some of these messages simply provided Wood's telephone number or a link that automatically connects interested users to the company's web site. Other messages contained substantive information describing the company and its stock. For example, Wood posted a message dated June 17, 1997, which stated in part: (The company) is a great opportunity for anyone looking to the next 3 to 6 mos. . . . the company is aggressively expanding its national sales force along with its public awareness program. Look for (the company) to appreciate in price over the short term and enjoy a strong steady growth pattern over the next 5 years. Definitely a stock to take seriously at it (sic) current price $.87, strong managemnt (sic), and a very successful niche market!!! Target price $2.50 to $3.00 Wood did not disclose in any of his messages any information about the consideration that he and ICS were receiving from the company under the consulting agreements.[4] 2. Reports and Corporate Profiles In April 1997, ICS entered into a partnership agreement with another firm under which the other firm provided "(the) copy (for) advertisements, press releases, (and) printed materials . . . as mutually agreed upon between partners and (the company)." ICS agreed to pay this firm $5,000 and 80,000 shares of the stock it received from the company for its services under the partnership agreement. This firm prepared three "research" reports and a corporate profile about the company and its stock. These documents contained, among other things, a financial overview of the company, an interview with the company's CEO, and, ultimately, a "buy" recommendation for the company's stock. Wood arranged to have an internet site set up for the company, and to have the reports and the profile posted on the site. Wood reviewed and approved these reports and the profile before they were published. The reports published under the partnership agreement contained identical disclosures that stated in relevant part that: (the firm) may from time to time either through the corporation or officers hold positions in (the company) equity, and is paid a fee for its promotional relations activities by (the company). The corporate profile contained the following disclosure: ICS and (the firm) may from (time) to time either through their corporations or officers hold positions in (the company) equity and is paid a fee for promotional relations activities by (the company). The reports and the corporate profile did not disclose the amount of the consideration the company paid Wood and ICS or any other details about their compensation. 3. Advertising Campaign ICS's partner firm also developed a series of advertisements about the Company that were published in Investors' Business Daily on May 16th, May 19th and May 21, 1997. Wood reviewed and approved a final copy of the ads before they were published. The advertisements did not disclose any information about the consideration that Wood and ICS were receiving from the company under the consulting agreements. 4. Broker Bulletin E-Mail In June 1998, ICS paid 80,000 shares of company securities to a research firm to draft a one-page report entitled "Broker Bulletin" describing the company and its securities, and setting forth reasons to invest in the company. Wood paid another company to send, on or about June 26, 1998, an electronic mail, or "e-mail" message containing the text of the Broker Bulletin report to as many as 100,000 internet e-mail **FOOTNOTES** [3]: The Silicon Investor site is located on the world-wide web at www.siliconinvestor.com. The site includes an electronic bulletin board service where users can, among other things, discuss securities by posting messages. Other users can view these messages and respond to them. The discussions are organized by topic. The topic typically is an issuer, as it is here. [4]: In late August 1998, shortly after the Division of Enforcement first contacted him, Wood instructed Silicon Investor to add the following statement to his initial message about the Company: "Dave Wood acts as and is compensated by [the company] for Investor Relations services." In September 1998, Wood changed his initial message entirely to state, in relevant part, that "Dave Wood acts as Investor Relations and Business Consultant to [the company] and was compensated 650,000 shares of common stock through period April 1997 to June 1998." 3 addresses. The version sent by e-mail omitted any information about the consideration Wood and ICS received from the company.[5] D. LEGAL DISCUSSION Section 17(b) of the Securities Act, in pertinent part, makes it unlawful for any person: to publish, give publicity to, or circulate any notice, circular, advertisement, newspaper, article, letter, investment service, or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer . . . without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof. This provision was "particularly designed to meet the evils of the `tipster sheet' as well as articles in newspapers or periodicals that purport to give any unbiased opinion but which opinions in reality are bought or paid for." Committee on Interstate and Foreign Commerce. H.R. Rep. No. 85, 73d Cong., 1st Sess. (1933) 24. See also SEC v. Wall Street Publishing Institute, Inc., 851 F.2d 365, 369 n. 6 (D.C. Cir. 1988) (quoting House Report). As set forth above, Wood and ICS published, gave publicity to, or circulated a variety of communications that described the company's securities "for a consideration received or to be received, directly or indirectly, from" the company. Wood and ICS violated Section 17(b) because they did so "without fully disclosing the receipt . . . of such consideration and the amount thereof." See, e.g., U.S. v. Amick, 439 F.2d 351, 364-65 (7th Cir.), cert. denied, 404 U.S. 823 (1971); SEC v. Huttoe, et al., Civ. Action No. 96-02543 (D.D.C. Sept. 14, 1998)(Lit. Rel. No. 15906, Sept. 24, 1998). Some of the communications contained inadequate disclosures of consideration that Wood and ICS received from the company in that, for example, they did not state the amount of the compensation. Others contained no disclosure at all. On March 5, 1998 and June 12, 1998, the company filed with the Commission its consulting agreements with Wood as exhibits to registration statements on Form S-8. These were not sufficient disclosures under Section 17(b). There is no indication in any of the communications described above that details about the company's payments to Wood and ICS could be obtained from these filings. Many of the communications were made before the company made these filings. Many of the communications made after the filing, such as the Broker Bulletin sent by e-mail, gave no indication that Wood and ICS were involved in publishing them. It thus would not have been apparent that the persons making these communications were receiving compensation under the consulting agreements on file with the Commission. [6] IV. Based on the foregoing, the Commission finds that David A. Wood, Jr. and ICS Communications, Inc. committed or caused violations of Section 17(b) of the Securities Act. V. In view of the foregoing, the Commission deems it appropriate to accept the Respondents' Offers of Settlement and to impose the sanctions specified therein. Accordingly, IT IS ORDERED, pursuant to Section 8A of the Securities Act of 1933, that David A. Wood, Jr. and ICS Communications, Inc. cease and desist from committing or causing any violation and any future violation of Section 17(b) of the Securities Act. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [5]: The Broker Bulletin as originally drafted contained the following disclosure: "This publication is an advertisement on behalf of ICS Communications, Inc. . . . ICS has retained [the research firm] and its investor relations counsel and have paid [the research firm] and its affiliates for such promotional services, including the publication of this advertorial [sic]." [6]: Filing an agreement under which compensation is received does not necessarily satisfy separate obligations under the securities laws to disclose the compensation. See In the Matter of W.R. Grace & Co., Exchange Act Rel. No. 39156 (September 30, 1997) (issuer's disclosure of executive's retirement benefits was insufficient even where the executive's retirement agreement was filed with the Commission). 4