UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7599 / October 27, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9767 : In the Matter of : ORDER INSTITUTING PUBLIC : ADMINISTRATIVE PROCEEDINGS : PURSUANT TO SECTION 8A OF Eugene B. Martineau, : THE SECURITIES ACT OF 1933, : MAKING FINDINGS, AND : IMPOSING A CEASE-AND-DESIST : ORDER : Respondent. : ______________________________: . The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") against Eugene B. Martineau (hereinafter "Martineau" or "Respondent"). . In anticipation of the institution of these administrative proceedings, the Respondent has submitted an Offer of Settlement (hereinafter the "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 set forth herein, Respondent consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 8A of the Securities Act of 1933, Making Findings, and Imposing A Cease-and-Desist Order (hereinafter the "Order"). . On the basis of this Order and the Respondent's Offer, the Commission makes the following findings: . Summary This matter involves the touting of a company's stock by Martineau on the Internet without making any disclosure that he expected to receive compensation in the form of stock provided indirectly from the company. Martineau's actions constituted violations of Section 17(b) of the Securities Act. Between December 1996 and the end of May 1997, Martineau made more than 60 postings on an Internet "bulletin board" maintained by the Silicon Investor concerning a company which had securities which traded on the OTC Bulletin Board ("the Bulletin Board Issuer"). Martineau initiated the first posting about the Bulletin Board Issuer on December 11, 1996, and, in the more than 60 postings that followed, spoke glowingly about the favorable prospects for its stock, urging readers to purchase the stock or to hold onto the shares they owned. Giving the impression that he was simply an investor in the Bulletin Board Issuer who wanted to share his views with others, Martineau did not disclose that he had a 24-month option to buy 5,000 shares of the issuer's stock at $1.50 per share that were to be provided indirectly by the Bulletin Board Issuer. . Respondent Martineau, age 55, lives and works in New York City. Operating under his company name, EBM, Inc., Martineau has for the past few years sold computer software for a few companies and attempted to secure clients for a company that operates an Internet web site designed to provide securities brokers and dealers with the names of possible investors ("the Internet Web Site Provider"). . Facts 1. Martineau's Touting Activities On December 11, 1996, Martineau established a folder on the Silicon Investor "bulletin board" on the Internet promoting the stock of the Bulletin Board Issuer. At the time, the Bulletin Board Issuer's stock was trading at $ 15/16 per share. For the next six months, through May 29, 1997, Martineau made more than 60 postings touting the company and urging readers to buy its shares and to hold onto those shares they had already bought. After a relatively steady rise in price, reaching a high of $9 per share on February 4, 1997, the Bulletin Board Issuer's stock price ultimately fell to $2 per share on May 27, 1997, two days before Martineau's last posting. 2. Martineau's Agreement to be Compensated During the vast majority of the six-month time period in which Martineau was touting the Bulletin Board Issuer's stock, Martineau had an understanding, which he never disclosed, that promised him compensation in the form of an option to buy shares of the Bulletin Board Issuer that were to be provided indirectly by the company. Martineau's compensation was to come to him indirectly from the Bulletin Board Issuer. The issuer entered into an agreement as of November 3, 1996, to provide compensation, in the form of company stock, to an investor relations firm for certain services. On December 20, 1996, the investor relations firm then entered into an agreement, drafted by Martineau, with the Internet Web Site Provider for which Martineau had done work in the past. That agreement stated that the Internet Web Site Provider would receive, for six months of its services, "a 24 month option to buy 10,000 shares of (the Bulletin Board Issuer's)common stock at $1.50/share." In December 1996 Martineau entered into an understanding with the Internet Web Site Provider, pursuant to which the latter agreed that the two would split 50/50 the 10,000 options in the Bulletin Board Issuer. Subsequently in January 1997, the understanding was memorialized and stated that the options would be provided in exchange both for the provision of Internet services to the Bulletin Board Issuer by the Internet Web Site Provider and for "establishing and maintaining investor information folders on Silicone (sic) Investor (tech talks), and on AOL's Motley Fool, which I (Martineau) will be responsible for." To date, the option to purchase the shares has not been formally transferred to Martineau nor has he exercised any such option. D. Violations Section 17(b) of the Securities Act 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, or 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, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and amount thereof. In return for promoting the securities of the Bulletin Board Issuer for six months, Martineau expected to receive compensation indirectly from the company. Martineau, however, never disclosed that he expected to receive such compensation, nor the amount thereof, when he posted messages on the Silicon Investor promoting the Bulletin Board Issuer. Accordingly, Martineau violated Section 17(b) of the Securities Act. . Based on the foregoing, the Commission deems it appropriate to accept the Respondent's Offer and to impose a Cease-and-Desist Order as specified in the Offer. Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act, that Martineau cease and desist from committing or causing any violation, and any future violations, of Section 17(b) of the Securities Act. By the Commission. _____________________________ Jonathan G. Katz Secretary