UNITED STATES OF AMERICA
In the Matter of
| ORDER INSTITUTING|
FINDINGS, AND IMPOSING A
The Commission deems it appropriate that proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") to determine whether PriorityAccess, Inc. ("Priority"), Endpoint Technologies, Inc ("Endpoint") and Roger D. Shearer ("Shearer") violated or caused violations of Sections 5(a) and 5(c) of the Securities Act.
In anticipation of the institution of these proceedings, Priority, Endpoint and Shearer have submitted an Offer of Settlement that the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and prior to a hearing and without admitting or denying the findings set forth herein, Priority, Endpoint and Shearer consent to the entry of this Order Instituting Proceedings, Making Findings and Imposing a Cease-and-Desist Order ("Order"). The Commission has determined that it is appropriate to accept the Offer of Settlement from Priority, Endpoint and Shearer, and accordingly is issuing this Order.
Based on the foregoing, the Commission finds that:
1. PriorityAccess, Inc. is a Delaware corporation located in Albany, New York. Priority is a development stage company that provides and manages equity investments in emerging companies. Priority has never filed a registration statement with the Commission or with any state.
2. Endpoint Technologies, Inc. is a Delaware corporation located in Albany, New York. It is a development stage company that seeks to invest in emerging technologies. Endpoint has never filed a registration statement with the Commission or with any state.
3. Roger D. Shearer is a resident of Latham, New York, and is the President of Priority and Endpoint. Shearer has never been registered with the Commission in any capacity.
B. Priority and Endpoint Offerings
On January 21, 2000, Priority commenced a $1 million private offering of its common stock in order to raise capital for the company. Priority raised approximately $990,000 from 149 investors. On October 12, 2000, Endpoint commenced a $1 million private offering of its common stock in order to raise capital for the company. Endpoint raised approximately $467,000 from 58 investors.
During each stock offering, Priority and Endpoint solicited potential investors through the use of bulk e-mail messages, i.e. "spams," sent by a third-party contractor. Approximately 2 million e-mails were sent in connection with the Endpoint offering. The e-mails contained hyper-links to websites that further described Priority and Endpoint. Visitors to the websites were invited to complete an on-line form to obtain additional information about the companies. Based on the responses to the online forms, Priority and Endpoint representatives provided prospective investors with a password to view the securities offering documents on-line. The e-mail solicitations generated 897 leads and 3 investors for the Priority offering and 164 leads and 6 investors for the Endpoint offering.
The recipients of these e-mails did not have any pre-existing substantive relationship with Priority or Endpoint. Further, neither Priority nor Endpoint qualified prospective investors to determine their accredited investor status before granting password access to the on-line offering materials, or accepting funds for the purchase of securities.
C. Legal Analysis
Sections 5(a) and 5(c) of the Securities Act make it unlawful for any person to sell or offer to sell securities by making use of means or instruments of transportation or communication in interstate commerce unless a registration statement for the securities has been filed with the Commission. Priority, Endpoint and Shearer violated Sections 5(a) and 5(c) of the Securities Act because the stock they offered and sold over the Internet was not registered with the Commission and was not exempt from registration.
The registration exemptions set forth in Section 4(2) of the Securities Act and Rules 505 and 506 of Regulation D were not applicable to the Priority and Endpoint offerings of common stock because each company used general solicitation and general advertising in connection with its respective offering.1 As set forth above, Priority, Endpoint and Shearer (1) through a third party contractor caused the mass distribution of e-mail messages to individuals who did not have a pre-existing substantive relationship with Priority or Endpoint; (2) failed to verify whether those receiving the e-mails and those given password access to the offering materials, were accredited investors; (3) failed to gather written information from potential investors in order to form a reasonable basis for believing such investors to be accredited; and (4) allowed these potential investors to purchase securities in the offerings that had been posted on password-protected website before making a determination that such potential investors were accredited.
The registration exemption in Rule 504 of Regulation D was also inapplicable to both offerings because Priority and Endpoint did not limit the offerings to accredited investors, did not register the offerings with any state, and used general solicitation and general advertising in connection with the offerings.2 As a result, the Priority and Endpoint Internet offerings were not exempt from registration, and Priority, Endpoint and Shearer violated Sections 5(a) and 5(c) of the Securities Act.
Based on the above, the Commission finds that Priority, Endpoint and Shearer violated Sections 5(a) and 5(c) of the Securities Act.
Accordingly, IT IS HEREBY ORDERED that Priority, Endpoint and Shearer cease and desist from committing or causing any violations of, and committing or causing any future violations of, Sections 5(a) and 5(c) of the Securities Act.
By the Commission.
Jonathan G. Katz
|1||Rule 502(c) expressly prohibits the use of general solicitation or general advertising in offerings conducted pursuant to Rules 505 and 506 of Regulation D.|
|2||Rule 504 previously allowed a general solicitation for offerings made for less than one million dollars. However, effective April 7, 1999, the Commission adopted revisions to Rule 504 which now limit general solicitations and general advertising in the use of a Rule 504 exemption "to transactions (1) registered under state law requiring public filing and delivery of a disclosure document to investors before sale, or (2) exempted under state law permitting general solicitation and advertising so long as sales are made only to accredited investors."|
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