UNITED STATES OF AMERICA
In the Matter of
|ORDER INSTITUTING ADMINISTRATIVE AND CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, IMPOSING REMEDIAL SANCTIONS AND ORDERING RESPONDENT TO CEASE AND DESIST PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, AND SECTIONS 15(b) AND 21C OF THE SECURITIES EXCHANGE ACT OF 1934|
The Securities and Exchange Commission (Commission) deems it appropriate and in the public interest that administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (Securities Act) and Sections 15(b) and 21C of the Securities Exchange Act of 1934 (Exchange Act) against Arthur Ritchie (Respondent or Ritchie).
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (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 to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Making Findings, Imposing Remedial Sanctions, and Ordering Respondent to Cease and Desist, Pursuant to Section 8A of the Securities Act of 1933 and Sections 15(b) and 21C of the Securities Exchange Act of 1934 (Order), as set forth below.
On the basis of this Order and Respondent's Offer, the Commission finds 1 that:
1. Arthur Ritchie, age 42, resides in North Royalton, Ohio. Ritchie is an airline pilot. From at least June 1999 to September 2000, Ritchie offered and sold investments in AlphaCom, Inc.'s (AlphaCom) anticipated public offering of stock and was Rowe interview and affidavit; Duncan interview and affidavit; Plank statement and affidavit. a distributor of its products. Ritchie has never been registered as a broker or dealer with the Commission.
2. AlphaCom, Inc. is a Nevada corporation formed in December 1997 Exh. 66 (charter).with its principal place of business in Akron, Ohio. On July 23, 1999, AlphaCom filed an SB-2 registration statement under the Securities Act concerning its self-underwritten offering of 2,800,000 shares of common stock. After several amended registration statements were filed, AlphaCom's registration statement was declared effective on June 30, 2000. Exh. 38 AlphaCom is a Section 15(d) reporting company.
3. From at least September 1997 until at least October 2000, AlphaCom raised $8.9 million through the unregistered offer and sale of securities and registered offer and sale of common stock. From at least June 1999 to September 2000, Ritchie raised approximately $200,000 in AlphaCom's anticipated public offering of stock Rowe interview and affidavit; Duncan interview and affidavit; Plank statement and affidavit.. In offering AlphaCom's securities to investors, Ritchie misrepresented that: (1) AlphaCom owned the exclusive rights to an Internet-related technology called Network Utilities (NU) software; and (2) AlphaCom owned the exclusive rights to another Internet-related technology called Very Minimal Shift Keying (VMSK). In fact, AlphaCom never owned the exclusive rights to either NU or VMSK.
4. From approximately June 1999 through September 2000, Ritchie offered and sold shares in AlphaCom's anticipated public offering. Many of the shares were sold before June 30, 2000, the effective date of the public offering.
5. In offering AlphaCom shares, Ritchie instructed potential investors by email to send him undated checks and subscription agreements to invest in AlphaCom. With AlphaCom's approval, Ritchie also instructed some out-of-state investors to sign a form Power of Attorney, authorizing them to sign updated versions of the subscription agreement on behalf of investors. Ritchie collected checks, subscription agreements and Powers of Attorney from investors and held them for AlphaCom until June 30, 2000. In July 2000, he delivered the checks to AlphaCom for deposit.
6. Ritchie did not provide the AlphaCom prospectus to investors in AlphaCom. AlphaCom did not begin to deliver its prospectus to investors until September 2000.
7. In the offer and sale of AlphaCom common stock, Ritchie told investors that AlphaCom owned the exclusive rights to NU. NU is a type of data compression software that could be used to increase Internet data speeds.
8. Contrary to Ritchie's representation, Snyder Tr., 3/24/02, at 15.AlphaCom never owned the exclusive rights to NU. Olurind Lafe (Lafe) invented and patented NU. AlphaCom had a joint venture agreement with Lafe's company that obligated AlphaCom to contribute $1,000,000 and Lafe to contribute an exclusive license of NU to the joint venture. Additionally, the agreement obligated AlphaCom to contribute a valid license of VMSK to the venture. However, AlphaCom and Lafe's company never formed the joint venture contemplated by the agreement. AlphaCom only paid $320,000 of the required $1,000,000 and did not provide a license of VMSK. In January 1999, Lafe notified AlphaCom in writing that he rescinded the joint venture agreement.
9. Ritchie was reckless in making representations about AlphaCom's ownership of NU. Ritchie's representations were based solely on the oral statements of AlphaCom's president. He never sought any documentation from AlphaCom of its purported ownership of NU. He also knew Lafe was the inventor of NU, but did not seek any information from him regarding AlphaCom's asserted ownership.
10. In the offer and sale of AlphaCom stock, Ritchie also represented to investors that AlphaCom owned the exclusive rights to VMSK. VMSK is a technology that could be used to increase the speed of Internet access for wireless modems and increase the number of wireless modem and cellular users per cellular tower.
11. Contrary to Ritchie's representation, AlphaCom never owned the exclusive rights to VMSKAC000941 (e-mail, dated 11/10/00, from Walker to Clifton, produced by Ritchie "AlphaCom does not own these [VMSK] patents nor have they ever owned them."); Exh. 31 (forwarded e-mail from Walker, 11/18/00, disclaiming AC ownership of VMSK; "The patents will be open to the world"). Rather, Harold Walker (Walker) invented and patented VMSK. In December 1999, AlphaCom entered into an agreement (VMSK Agreement) with Walker to buy VMSK. The VMSK Agreement required AlphaCom to complete an initial public offering on or before April 2000 and pay $3 million to Walker within 90 days of the offering. At AlphaCom's request, Walker extended the deadline for the public offering to August 2000. In October 2000, AlphaCom failed to fulfill its obligations under the contract, having paid Walker only $500,000 of the required $3 million. Accordingly, Walker notified AlphaCom that he was terminating the agreement.
12. Ritchie was reckless in making representations to investors about AlphaCom's ownership of VMSK. His representations were based solely on the oral statements of AlphaCom's president. Ritchie never sought any documentation from AlphaCom to support the assertion of its president. Further, Ritchie did not pursue confirmation of AlphaCom's ownership of VMSK from Walker, who he knew was the inventor of VMSK.
13. As a result of the conduct described above, Ritchie willfully violated Section 17(a) of the Securities Act and Sections 10(b) and 15(c)(1) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in the offer or sale of securities, in connection with the purchase or sale of securities, and by a broker or dealer in effecting a transaction in, or inducing or attempting to induce the purchase or sale of, securities.
14. As a result of the conduct described above, Ritchie willfully violated Section 15(a)(1) of the Exchange Act which prohibits a broker or dealer from using the mails or any other means or instrumentality of interstate commerce to effect a transaction in, or to induce or attempt to induce the purchase or sale of, a security, without being registered in accordance with Section 15(b) of the Exchange Act.
15. As a result of the conduct described above, Ritchie willfully violated Sections 5(a) and 5(c) of the Securities Act which prohibit any person from using the mails or any means or instrumentality of interstate commerce to sell a security when a registration statement is not in effect for that security, or to offer to sell or offer to buy through the use or medium of any prospectus or otherwise any security when a registration statement has not been filed as to such security.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondent's Offer.
ACCORDINGLY, IT IS HEREBY ORDERED:
A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Arthur Ritchie shall cease and desist from committing or causing any violation and any future violation of Sections 5(a), 5(c) and 17(a) of the Securities Act and Sections 10(b), 15(a)(1) and 15(c) of the Exchange Act and Rule 10b-5 thereunder.
B. Pursuant to Section 15(b) of the Exchange Act, Arthur Ritchie be, and hereby is, barred from association with any broker or dealer.
By the Commission:
Jonathan G. Katz
|1||The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.|
|Home | Previous Page||