Securities Act of 1933
Release No. 8310 / October 23, 2003
Administrative Proceeding
File No. 3-11312
In the Matter of First Capital International, Inc., Respondents. |
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ORDER INSTITUTING PUBLIC CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") against First Capital International, Inc. ("First Capital"), Alexander Genin ("Genin") and Edwin M. Koziol ("Koziol") (collectively "Respondents").
II.
In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement (the "Offers") 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 them and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public Cease-and-Desist Proceedings, Making Findings and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 ("Order"), as set forth below.
III.
On the basis of this Order and Respondents' Offers, the Commission finds1 that:
FACTUAL SUMMARY
1. This matter involves a common abuse found among certain small publicly held companies. In recent years, many such companies have hired stock promoters to tout their shares on stock-picking websites and through mass-mailed e-mail messages (commonly known as "spam"). The promoter is often compensated in the form of purportedly unrestricted shares of the company's common stock, which the promoter sells after its touting has attracted investor interest in the company.
2. Under the federal securities laws, a public company cannot distribute unrestricted stock to public investors without first registering the offering with the Commission or having a valid exemption from registration for the transaction. Registration requires a company to provide important information about its finances and business to potential investors, and allows the Commission to review the company's disclosures. In an attempt to circumvent those registration requirements, certain issuers have sought alternate sources of purportedly "free trading" company stock in order to compensate the stock promoters. In such arrangements, the issuers and promoters are nonetheless participating in an unregistered offering of securities to the public in violation of the federal securities laws, as described below.
RESPONDENTS
3. First Capital, a Delaware corporation based in Houston, Texas, is involved in the production of equipment and software for home automation. The company's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 and is quoted on the OTC Bulletin Board under the symbol FCAI.
4. Genin, 51, is a resident of Houston, Texas, and is President of First Capital.
5. Koziol, 49, of Orlando, Florida, promoted small cap companies from 1999 through 2002 through a company called Stock News Media Corporation ("Stock News Media"), which operated a website, OTCNetStocks.com. At the time, Koziol, a former stockbroker, was President of Stock News Media. Subsequent to the relevant period, Stock News Media discontinued business and was dissolved.
OTHER RELEVANT PERSONS
6. OTC Live, Inc. ("OTC Live") is a New York corporation that promotes small cap companies on its website, OTCLive.com.
7. Mark A. Suleymanov ("Suleymanov"), 22, of Rego Park, New York, is the President and founder of OTC Live. Suleymanov also uses the surname "Suleman."
THE UNREGISTERED DISTRIBUTION OF FIRST CAPITAL SECURITIES
8. In June 2001, Genin, on behalf of First Capital, hired OTC Live to create an investor "awareness campaign" that would profile First Capital on OTC Live's website, as well as websites "affiliated" with OTC Live, and that would purportedly reach 340,000 potential investors. Suleymanov negotiated the deal with Genin.
9. That contract called for OTC Live to receive, among other compensation, purportedly unrestricted shares of First Capital stock. To pay for OTC Live's campaign, Genin transferred to OTC Live 20,000 First Capital shares from a brokerage account over which Genin held power of attorney.
10. Beginning on or around June 25, 2001, OTC Live began its promotional campaign by posting a research report recommending that investors purchase First Capital's stock. In the four days that followed, First Capital's stock price rose 92 percent, from $0.13 to $0.25 per share. During the same period, the average daily trading volume of the First Capital's stock increased 185 percent over the average daily trading volume during the six months preceding the start of OTC Live's promotion.
11. On July 23, 2001, shortly after receiving the shares from Genin, OTC Live began to sell the First Capital stock on the open market, ultimately netting approximately $3,285.
12. No registration statement was filed with the Commission or was in effect as to the First Capital shares sold by OTC Live. Because OTC Live had obtained the stock from a person directly or indirectly controlling or controlled by First Capital, or under direct or indirect common control with First Capital, with a view to distributing the stock to the public, the stock was not exempt from registration. As a result, the securities were restricted and could not be sold to the public within a year after they were acquired by OTC Live. Therefore, the securities transactions described above violated Sections 5(a) and 5(c) of the Securities Act.
13. In July 2001, Genin, on behalf of First Capital, hired another stock promoter, Stock News Media, to promote First Capital. On or about July 20, 2001, First Capital entered into a contract with Stock News Media, under which Stock News Media would undertake an advertising campaign for First Capital in exchange for cash or purportedly unrestricted shares of the company. Koziol, then President of Stock News Media, negotiated the arrangement with Genin.
14. To pay Stock News Media for the advertising campaign, Genin transferred to Stock News Media a total of 44,500 First Capital shares from a brokerage account over which Genin held power of attorney.
15. On or about July 23, 2001, Stock News Media began its promotion of First Capital by featuring an audio interview with Genin on the OTCNetStocks.com website along with links to First Capital's press releases.
16. On July 30, 2001, Stock News Media began to sell the First Capital shares it had received from Genin on the open market, ultimately netting approximately $7,235. During the period that Stock News Media was promoting First Capital, Koziol caused Stock News Media to transfer to himself approximately $3,300 in compensation.
17. No registration statement was filed with the Commission or was in effect as to the First Capital shares sold by Stock News Media. Because Stock News Media had obtained the stock from a person directly or indirectly controlling or controlled by First Capital, or under direct or indirect common control with First Capital, with a view to distributing the stock to the public, the stock was not exempt from registration. As a result, the securities were restricted and could not be sold to the public within a year after they were acquired by Stock News Media. Therefore, the securities transactions described above violated Sections 5(a) and 5(c) of the Securities Act.
VIOLATIONS
18. As a result of the conduct described above, Respondents violated Sections 5(a) and 5(c) of the Securities Act, which prohibit the offer or sale of securities through the mails or in interstate commerce, unless a registration statement has been filed or is in effect as to such securities.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondents' Offers.
Accordingly, it is hereby ORDERED that:
A. Respondents cease and desist from committing or causing any violations and any future violations of Section 5(a) and 5(c) of the Securities Act.
B. IT IS FURTHERED ORDERED that Respondent Koziol shall, within 10 days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $3,692.85 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 Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Mail Stop 0-3, Alexandria, Virginia 22312; and (D) submitted under cover of a letter that identifies Edwin M. Koziol as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Robert L. Mitchell, Assistant District Administrator, Securities and Exchange Commission, San Francisco District Office, 44 Montgomery Street, Suite 1100, San Francisco, California 94104-4691.
By the Commission.
Jonathan G. Katz
Secretary
Endnote
1 The findings herein are made pursuant to Respondents' Offers and are not binding on any other person or entity in this or any other proceeding.