SECURITIES ACT OF 1933
Release No. 7783 / December 10, 1999
SECURITIES EXCHANGE ACT OF 1934
Release No. 42220 / December 10, 1999
File No. 3-10114
|In the Matter of
RICHARD J. MICHAEL,
|ORDER INSTITUTING PUBLIC
PURSUANT TO SECTION 8A OF THE
SECURITIES ACT OF 1933 AND
SECTIONS 15(b)(6), 19(h) AND 21C
OF THE SECURITIES EXCHANGE ACT
OF 1934, MAKING FINDINGS AND
IMPOSING REMEDIAL SANCTIONS
The Securities and Exchange Commission ("Commission") deems it appropriate in the public interest and for the protection of investors that a public administrative cease-and-desist proceeding be, and hereby is, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Sections 15(b)(6), 19(h) and 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Respondent Richard J. Michael ("Michael").
In anticipation of the institution of these administrative proceedings, the Respondent has submitted an Offer of Settlement (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, Respondent consents to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b)(6), 19(h) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (the "Order").
On the basis of this Order and the Respondent's Offer, the Commission makes the following findings:1
This matter involves violations by Richard J. Michael of Section 5 of the Securities Act and Section 15(a)(1) of the Exchange Act. From October 1994 through the end of 1995, Stratcomm Media Ltd. ("Stratcomm") and Corporate Relations Group, Inc. ("CRG") conducted an unregistered, non-exempt distribution of Stratcomm common stock. Michael solicited United States residents to buy Stratcomm stock. Stratcomm and CRG paid Michael commissions based upon the sales of common stock he generated. Michael thereby acted as a broker but he failed to register as such with the Commission. He also violated the registration provisions of the Securities Act by selling unregistered Stratcomm stock to the public.
Richard J. Michael was a consultant to Stratcomm and CRG from early 1994 through the March 1995.
C. Other Relevant Entities
1. Stratcomm Media Ltd. is a Vancouver, British Columbia company with principal offices in Winter Park, Florida, and the parent company of CRG and several other subsidiaries. Stratcomm has never registered with the Commission as a broker or dealer. Stratcomm common stock traded on the NASD OTC Bulletin Board until October 5, 1994, when trading was halted. On July 26, 1998, Stratcomm's common stock resumed trading on the Bulletin Board.
2. Corporate Relations Group, Inc. is a public relations firm located in Winter Park, Florida and a wholly-owned subsidiary of Stratcomm. CRG has never registered with the Commission as a broker or dealer. During the relevant time, CRG provided public relations services for its clients through various financial publications and through its sales personnel, whose primary function was to interest brokers in soliciting their clients to purchase the stocks CRG was promoting.
Stratcomm and CRG engaged in a substantial unregistered distribution of Stratcomm common stock from the fall of 1994 through the end of 1995, selling more than 1,000,000 shares of common stock and collecting proceeds of roughly $1,000,000. The companies, through Respondent and other sales personnel, solicited U.S. residents to purchase Stratcomm stock. Stratcomm and CRG paid Respondent, who was not a registered person, commissions based upon the sales of common stock he generated.
To sell the stock, Respondent and other Stratcomm and CRG sales personnel solicited investors, telling them the stock was unrestricted and free-trading. Investors, in turn, sent their money directly to Stratcomm. Stratcomm, however, had no free-trading stock to deliver to the investors. Thus, it bought restricted stock from several existing shareholders, caused the transfer agent to lift the restrictive legends, and delivered that stock to the investors. Stratcomm did not file a registration statement with respect to the securities it sold to the public.
Respondent Michael sold more than 310,000 shares of Stratcomm common stock to roughly three dozen people and collected commissions of $36,082.41.
Sections 5(a) and (c) of the Securities Act prohibit any person from directly or indirectly offering to sell or selling securities unless a registration statement is in effect or has been filed as to the securities, or an exemption from registration is available. Scienter is not required to establish a violation of Section 5. Stokes v. Lokken, 644 F.2d 779, 784 (8th Cir. 1981). A "seller" under Section 5 includes the owner of the securities being sold and anyone who personally solicits purchases from investors or offers from prospective buyers.
Respondent willfully violated2, and committed or caused violations of, Section 5 by directly or indirectly selling Stratcomm common stock at a time when no registration statement was in effect or had been filed and when no exemption was available.
Section 15(a)(1) of the Exchange Act essentially makes it illegal for a "broker" to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any security unless such broker is registered with the Commission. Scienter is not an element of the violation. SEC v. National Executive Planners, Ltd., 503 F. Supp. 1066, 1073 (M.D.N.C. 1980). Section 3(a)(4) of the Exchange Act defines "broker" as "any person engaged in the business of effecting transactions in securities for the account of others, but does not include a bank." A person may be found to be acting as a broker if he participates in securities transactions "at key points in the chain of distribution." Massachusetts Financial Services, Inc. v. Securities Investor Protection Corp., 411 F. Supp. 411, 415 (D. Mass.), aff'd, 545 F.2d 754 (1st Cir. 1976), cert. denied, 431 U.S. 904 (1977). Among the activities that indicate a person may be a broker are: solicitation of investors to purchase securities; involvement in negotiations between the issuer and the investor; and receipt of transaction-related compensation. See, e.g., SEC v. Hansen, [1984 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 91,426 (S.D.N.Y. 1984).
Respondent willfully violated, and committed or caused violations of, Section 15(a)(1) by effecting transactions in, or inducing or attempting to induce the purchase or sale of, Stratcomm common stock as a broker without having been registered with the Commission as such. During the relevant time, Michael actively solicited investors, was involved in negotiations between the issuer and investors, and received commissions for sales of Stratcomm stock.
Based on the foregoing, the Commission deems it appropriate in the public interest and for the protection of investors to accept the Respondent's Offer and to impose the remedial relief specified in the Offer.
Accordingly, IT IS ORDERED, pursuant to Section 8A of the Securities Act, that Respondent Richard J. Michael cease and desist from committing or causing any violation, and any future violation, of Section 5 of the Securities Act.
Accordingly, IT IS ORDERED, pursuant to Section 21C of the Exchange Act, that Respondent Richard J. Michael cease and desist from committing or causing any violation, and any future violation, of Section 15(a)(1) of the Exchange Act.
IT IS FURTHER ORDERED that Respondent Richard J. Michael shall, within thirty (30) days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $52,594.48 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 Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop O-3, Alexandria, Virginia 22312; and (D) submitted under cover letter that identifies Richard J. Michael as a Respondent in these proceedings and the file number of these proceedings, a copy of which shall be sent to Thomas Newkirk, Division of Enforcement, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549-0801.
IT IS FURTHER ORDERED that Respondent Richard J. Michael shall, within thirty (30) days of the entry of this Order, pay a civil money penalty in the amount of $5,000 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 Comptroller, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop O-3, Alexandria, Virginia 22312; and (D) submitted under cover letter that identifies Richard J. Michael as a Respondent in these proceedings and the file number of these proceedings, a copy of which shall be sent to Thomas Newkirk, Division of Enforcement, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549-0801.
By the Commission.
Jonathan G. Katz
|1||The findings herein are made pursuant to the Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.|
|2||In applying the term "willful" in Commission administrative proceedings instituted pursuant to Sections 15(b), 15B, 15C, 17A and 19(h) of the Securities Exchange Act, Section 9 of the Investment Company Act, and Section 203 of the Investment Advisers Act, the Commission evaluates on a case-by-case basis whether the respondent knew or reasonably should have known under the particular facts and circumstances that his conduct was improper. In this case, as in all Commission administrative proceedings charging a willful violation under these statutory provisions, the Commission applies this standard to persons -- specifically, securities industry professionals -- who are directly subject to Commission jurisdiction and who have a responsibility to understand their duties to the investing public and to comply with the applicable rules and regulations which govern their behavior.|