UNITED STATES OF AMERICA
| ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934|
The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), against Warren J. Soloski ("Soloski" or "Respondent").
In anticipation of the institution of these proceedings, 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 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, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Section 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 finds1 that:
Respondent is an attorney, licensed to practice within the state of California. Respondent's primary practice concerns the United States securities laws. Respondent is 62 years old and resides in California.
B. Other Relevant Entities
Pay Pop, Inc. was a Nevada corporation with its principal place of business in British Columbia, Canada ("Pay Pop"). Pay Pop purportedly owned Delecom Communications, a reseller of telecommunications services in British Columbia. Pay Pop was not registered under Section 12 of the Exchange Act. Pay Pop's stock was publicly traded on the NASD Over the Counter Bulletin Board between at least July 1998 and March 2000. In March 1999, Pay Pop had announced a 40-1 reverse stock split, leaving Pay Pop with approximately 1.4 million shares issued and outstanding.
1. Between February 1999 and September 1999, Respondent represented Pay Pop. During this time, Soloski advised Pay Pop on corporate and securities law issues and represented Pay Pop in negotiations to secure potential financing for Pay Pop.
2. As a result of Respondent's representation of Pay Pop, he was a temporary insider of Pay Pop. Moreover, Respondent owed a duty of confidentiality to Pay Pop.
3. On or about May 28, 1999, Soloski received a proposed term sheet from American Fronteer Capital, for a potential $8 million financing of Pay Pop. The fact that Pay Pop was in the process of securing an $8 million financing was material, as Pay Pop purportedly had only $13 million in assets at the time.
4. On the same day Respondent received the draft term sheet, he deposited a check for $1,878.55 in his brokerage account and ordered the purchase of 10,000 shares of Pay Pop, at $0.18 per share. Neither Soloski nor Pay Pop disclosed to the public that financing negotiations with American Fronteer were pending or the transaction was soon to close before Soloski purchased Pay Pop stock. Thus, Respondent made his purchase of Pay Pop stock based on material nonpublic information.
5. Several days after receiving the draft term sheet, Soloski flew to New York to meet with American Fronteer to finalize the financing.
6. At the meeting, American Fronteer informed Soloski that Pay Pop had 7.8 million shares issued and outstanding, rather than the 3.7 million shares that Pay Pop represented were outstanding in earlier negotiations. As a result, the financing deal did not close. Despite the fact that the deal had not closed, Pay Pop issued a June 28, 1999 press release falsely stating that it had closed the financing with American Fronteer for $8 million.
7. On June 8, 1999, Respondent confirmed through Pay Pop's transfer agent, CIBC Mellon Trust Co. ("CIBC Mellon"), that CIBC Mellon had issued, without his prior knowledge, 4 million additional shares of Pay Pop stock at the direction of Pay Pop. Upon learning of this issuance of stock, Respondent advised CIBC Mellon that the stock had been issued in violation of Section 5 of the Securities Act and directed CIBC Mellon to stop issuing any other stock without a legal opinion letter.
8. Despite his initial setback, Respondent continued to attempt to arrange an alternative form of financing for Pay Pop from American Fronteer. While discussions with American Fronteer were progressing, Respondent learned from CIBC Mellon that another 11 million shares of Pay Pop had been illegally issued without restrictive legends. Pay Pop now had approximately 19 million shares issued and outstanding.
9. As a result, on July 19, 1999, Respondent flew to Vancouver and met with managers of CIBC Mellon, in CIBC Mellon's offices. Respondent demanded to see a shareholder list and learned that the amount of Pay Pop stock issued and outstanding had grown from 3.7 million to approximately 19 million shares in a six-week period. Respondent advised CIBC Mellon that its actions violated United States securities laws. Respondent knew that the undisclosed illegal issuance of Pay Pop stock would preclude any future financing of Pay Pop and was, thus, material.
10. The next day, Respondent put in a trade order to sell his Pay Pop stock. Respondent executed the trade orders while in possession of the following material nonpublic information: (i) Pay Pop had 19 million shares issued and outstanding, approximately 15 million of which Soloski knew to be illegally issued; and (ii) Pay Pop failed to close the financing with American Fronteer notwithstanding the false press release on or about June 28, 1999 to the contrary. Soloski sold his 10,000 shares of Pay Pop for $956.41, avoiding losses of $922.14.
D. Legal Analysis
11. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit, among other things, the use of any manipulative or deceptive device or contrivance in connection with the purchase or sale of any securities. Similarly, Section 17(a) of the Securities Act prohibits the use of a fraudulent device in the offer or sale of securities. These provisions prohibit trading on the basis of material nonpublic information or the disclosure of such information to others who trade if the trades or disclosures are made in breach of a fiduciary duty or other duty of trust or confidence. United States v. O'Hagan, 521 U.S. 642, 651-52 (1997); Chiarella v. United States, 445 U.S. 222, 228-30 (1980); Robert Bruce Lohmann, Exchange Act Rel. No. 34-48092 (June 27, 2003).
12. Here, Soloski owed a duty of trust and confidence to Pay Pop and its shareholders due to his position as legal counsel to the company. As a result, Soloski had a duty not to trade while in possession of material nonpublic information he obtained from Pay Pop.
13. Soloski breached his duty of trust and confidence when he purchased, and then sold, Pay Pop stock based upon the material nonpublic information he obtained while serving as legal counsel for Pay Pop.
14. As a result of the conduct described above, Respondent violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
Based on the foregoing, the Commission finds that Soloski violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
In view of the foregoing, the Commission deems it appropriate to impose the sanction specified in Respondent's Offer.
Accordingly, it is hereby ORDERED that:
Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, that Respondent Soloski cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
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.
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