UNITED STATES OF AMERICA
In the Matter of
Rockport Healthcare Group, Inc.
ORDER INSTITUTING PUBLIC CEASE-
The Securities and Exchange Commission ("Commission") deems it appropriate to institute public cease-and-desist proceedings against Rockport Healthcare Group, Inc. ("Rockport"), Harry M. Neer ("Neer"), and Larry K. Hinson ("Hinson") (together the "Respondents") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
In anticipation of the institution of these administrative proceedings, Respondents have submitted an Offer of Settlement ("Offer"), which the Commission has accepted. Solely for the purpose of these proceedings and any other proceedings brought by and on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings herein, except that they admit the jurisdiction of the Commission over them and over the matters set forth herein, Respondents have consented to the entry of the findings and imposition of the cease-and-desist order ("Order") as set forth below.
On the basis of this Order and the Offer, the Commission finds1 that:
A. Rockport is a Delaware corporation with its principal place of business in Houston, Harris County, Texas. Rockport is a holding company with several subsidiary companies that provide services including medical health care networks for occupational illnesses and injuries, individual and group medical networks for accidents and illnesses, and retail medical access savings cards. At all relevant times, Rockport's stock was quoted on the Bulletin Board (a service of the Nasdaq Stock Market, Inc.).
B. Harry Neer, age 61, is a resident of Houston, Texas. He has been the chief executive officer, and a member of Rockport's board of directors since December 19, 1997. He has been involved in the health care industry for over 30 years, including managing major hospital systems from 1973 to 1992, consulting in the health care industry in 1970-73 and in 1994-97, was the president of a holding company for a large national preferred provider organization in 1992-94, and was materially involved in installing a workers' compensation network for the State of Tennessee employees in 1993. Neer had substantial experience in the health care industry, including aspects of the specific market niches in which Rockport is involved.
C. Larry K. Hinson, age 55, is a resident of Houston, Texas. He has been the chief financial officer and its corporate secretary and a member of Rockport's board of directors since December 17, 1997. He is a Certified Public Accountant, and has been involved in the health care and health insurance industry for 30 years. Hinson had substantial experience in the health care industry, including aspects of the specific market niches in which Rockport is involved.
D. As discussed below, between July 14 and August 27, 1999, Rockport, Neer and Hinson issued six press releases, and disseminated or reviewed promotional materials. Neer drafted the July 14, July 20, August 20 and August 27 press releases, and reviewed the August 10 press release prior to issuance. At a minimum, Hinson reviewed the July 14, July 20, August 10, and August 27 press releases. Neer and Hinson did not draft the August 2 press release, but became aware of its contents by no later than October 1999. Neer and Hinson reviewed the promotional materials discussed in Paragraphs E, F and G below. As discussed in more detail in Paragraphs E through K below, all of these materials contained false or misleading statements. At a minimum, Neer and Hinson acted recklessly with regard to making these statements.
E. On August 27, 1999, Rockport issued a press release stating that Rockport had "finalized a financing of $2,000,000," which would enable the company to increase its marketing and sales of its products, and work towards fulfilling its business plan. Similarly, a September 20, 1999 promotional report posted on an Internet website, www.investrend.com stated that the company had obtained a "recent financing of $2 million." Further, a November 1999 business plan prepared by Rockport's employees under the direction of Neer and Hinson, which was disseminated to prospective investors, stated that the company had "secured and will be funded 2 million [dollars] in equity." At a minimum, these statements were misleading. A registered broker-dealer had merely agreed on a best-efforts basis to locate a lender or underwriter for that amount of financing, and only $300,000 of the financing was ever received.
F. Rockport issued press releases on July 14 and August 2, 1999 stating that the company "expect[ed] to generate $4,000,000 in gross revenues" from its workers compensation subsidiary or division "in 1999," i.e., within less than six months of the dates of the press releases. Similarly, a September 20, 1999 promotional report posted on the www.investrend.com Internet website, which was reviewed by both Neer and Hinson, claimed that the same subsidiary would achieve revenues of $4.3 million during the current fiscal year, which ended on March 31, 2000, less than seven months after the date of the report. These statements were false or lacked a reasonable basis because it was expected that it would take the company twelve months (rather than six or seven months) from the date of full financing to achieve the predicted revenues. The press releases and promotional report did not disclose that the predicted revenues were contingent on Rockport's receipt of full financing, which was not assured for the reasons indicated in Paragraph E above.
G. An August 20, 1999 press release, Rockport's business plan, and another promotional document entitled "executive summary" further stated that Rockport expected to generate $12.7 million in revenues. These materials lacked a reasonable basis since they did not disclose that the predicted revenues were contingent on Rockport's receipt of full financing, which was not assured for the reasons indicated above.
H. The July 14, 1999 press release further stated that Rockport had already "exceeded" the indicated revenues projected for its workers compensation subsidiary, whereas the revenues generated to date were far less than that amount. In fact, Rockport reported only $293,193 in revenues for the entire 1999 fiscal year ended March 31, 2000.
I. The August 20, 1999, press release further stated that the company's revenues had "increased significantly" in light of client agreements and negotiations with other potential clients. This statement was misleading because although Rockport expected these clients to provide significant revenues in the future, the clients had not provided any revenues as of the date of the press release.
J. A July 20, 1999 press release stated that "an agreement had been signed" for Rockport to acquire a new provider network. This statement was misleading because no final agreement existed. As of that date, Rockport had merely signed a letter of intent that was subject to the satisfactory completion of due diligence. The final purchase agreement eventually was signed in September 1999.
K. An August 10, 1999 press release stated that one of Rockport's subsidiaries had an "agreement" with an unidentified taxicab company that would result in $126,000 in revenue to Rockport. In making this statement, Neer and Hinson relied on oral information given them by a consultant to Rockport. In fact, no such agreement had been signed or received from the taxicab company, and therefore there was no reasonable basis for the predicted revenues.
L. On November 17, 1999, a "research note" regarding Rockport was posted on the www.investrend.com website. The note stated, among other things, that "The Company's projections and time lines were based on the assumption that a $2,000,000 financing would have been closed two months earlier [than November 17, 1999]. This financing has yet to be finalized." This information was based on conversations between the author of the note and Neer. A March 1, 2000 www.investrend.com "update report" provided further details concerning problems with the financing. Neer and Hinson took no other action before August 9, 2000 to correct the statements contained in the press releases. On that date, Rockport filed a Form 10-QSB for the quarter ended June 30, 2000 which acknowledged certain inaccuracies in Rockport's previous press releases, including the revenue projections, $2 million financing and the agreement with the taxi company.
M. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, prohibit persons from, directly or indirectly, in connection with the purchase or sale of securities by use of any means or instrumentality of interstate commerce or of the mails, employing any device, scheme or artifice to defraud; making any untrue statements of a material fact or omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engaging in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the sellers and purchasers of securities.
N. Respondents violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the antifraud provisions of the Exchange Act, by issuing, drafting, reviewing and/or failing to correct the press releases and promotional materials described above.
In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Respondents.
Accordingly, it is ORDERED that, pursuant to Section 21C of the Exchange Act:
Respondents cease and desist from committing or causing any violation and any future violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
By the Commission.
Jonathan G. Katz
|1||The findings herein are made pursuant to the Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.|
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