United States of America
Securities and Exchange Commission
Securities Exchange Act of 1934
Release No. 44912 / October 5, 2001
File No. 3-10617
In the Matter of
THOMAS P. RAABE,
|ORDER INSTITUTING PROCEEDINGS|
MAKING FINDINGS AND IMPOSING
A CEASE-AND-DESIST ORDER
The Securities and Exchange Commission ("Commission") deems it appropriate to institute public cease-and-desist proceedings against Thomas P. Raabe ("Raabe") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").
Accordingly, IT IS HEREBY ORDERED that a proceeding pursuant to Section 21C of the Exchange Act be, and hereby is, instituted.
In anticipation of the institution of these public administrative proceedings, Raabe 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 in which the Commission is a party, and without admitting or denying the findings herein, except the finding in paragraph III.A, Raabe consents to the entry of this Order Instituting Proceedings, Making Findings and Imposing a Cease-and-Desist Order ("Order").
On the basis of this Order and Respondent's Offer, the Commission makes the following findings:1
- Arete Industries, Inc. ("Arete") is a publicly held Colorado corporation with its executive offices located in Boulder, Colorado.
- Raabe has since May 1998 been chairman of Arete's board of directors and its chief executive officer. During certain periods between 1993 to May 1998, Raabe acted as securities counsel to Arete.
- In November and December 1997, Raabe and Arete's management held discussions with a private sports apparel company, Next Level Sportsystems, Inc. ("Next Level"), concerning the possibility of Arete investing in Next Level, either directly or through or Planet Sports, Inc. ("Planet Sports"), a private company owned by Raabe. 2
- As a part of these discussions, on December 17, 1997, a consultant hired by Next Level provided Raabe and other members of Arete's management and with a copy of an internal business plan Next Level's president had prepared which stated that Next Level intended to sell no more than a 40% ownership interest in return for financing.
- During November and December 1997, representatives of Next Level had several discussions with personnel of J.C. Penney concerning the possible sale of Next Level sports apparel to J.C. Penney as a vendor. On the basis of these discussions, Next Level's December 1997 internal business plan stated that the company intended to sell its sports apparel to large retail stores including J.C. Penney, and projected that Next Level might achieve $10 million in revenues in 1998 and $61 million by 2002. Specifically, the business plan projected that sales to J.C. Penney would represent $5.3 million of the $10 million in projected total sales for 1998. However, at the time the business plan was prepared, Next Level had no order or commitment from J.C. Penney.
- On January 28, 1998, J.C. Penney issued a press release announcing weak sales for the 1997 Christmas season as well as downsizing plans. That month, Next Level also learned that the J.C. Penney buyer with whom Next Level had discussed possible sales had been transferred to a different division, and that a new buyer for the sports apparel division had not been hired.
- In late January and early February 1998, Arete and Next Level held further discussions concerning the possibility that Arete or Planet Sports would provide to Next Level some amount of capital in return for an equity ownership position in the company. However, as of February 6, 1998, the amount of equity ownership to be acquired by Arete in return for its proposed investment of capital had not been discussed.
- After the close of the market on February 6, 1998, Arete issued a press release which stated, in part, that Arete had signed a letter of intent to merge with Planet Sports, which in turn had reached a "preliminary agreement to acquire" Next Level. The press release further stated that Next Level expected to achieve over $10 million in sales in 1998 to "accounts including J.C. Penney and to department stores and . . . big-box sporting goods retailers." The press release also stated that Next Level projected sales "growing to in excess of $60 million by the year 2000." Raabe participated in preparing the release.
- At the time the press release was issued, Arete had no agreement to acquire Next Level. Further, at the time the press release was issued, neither J.C. Penney nor any other large retailer had submitted any order to Next Level.
- Shortly after the issuance of Arete's February 6, 1998 press release, in response to questions raised by J.C. Penney concerning the release, Next Level reiterated to Arete's management that Next Level did not have any agreement with J.C. Penney. Next Level's president also reiterated to Arete's management that Next Level would not sell a controlling interest in the company to Arete.
- On February 19, 1998, Arete issued a second press release that announced a proposed merger between Arete and Planet Sports. The release further stated that Planet Sports had "identified [Next Level] as its first strategic acquisition," and that "[p]reliminary negotiations and due diligence [we]re in progress with a view to a definitive agreement in the very near future." The press release further stated that Next Level was "marketing its . . . apparel to major retail department stores" and that "[f]inal negotiations are in progress [for Next Level] to become designated as a confirmed vendor for major retail department stores." Raabe participated in preparing the press release, which was reviewed and approved by Next Level's president.
- At the time this release was publicly disseminated, Raabe and other members of Arete's management were aware of Next Level's continued refusal to sell a controlling interest in the company. Further, as of February 19, 1998, Next Level had received no orders from J.C. Penney.
- Shortly after the issuance of Arete's February 19, 1998 press release, Next Level advised Raabe and other members of Arete's management that Next Level would not be sold under any circumstances and that Next Level would "probably" would not get an order from J.C. Penney. Arete failed to issue any corrective press release. On March 9, 1998, Next Level sent a letter to Arete terminating all negotiations. Arete publicly announced this termination in a press release dated March 10, 1998. Arete's March 10, 1998 release followed an inquiry from the staff of the Commission as to the basis for the releases issued by Arete in February.
- By reason of the foregoing, Raabe violated Section 10(b) of the Exchange Act [15 U.S.C. §§78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §§240.10b-5].
In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Raabe.
Accordingly, IT IS HEREBY ORDERED THAT Raabe cease and desist from committing or causing any violations and any future violations 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 and are not binding on any other person or entity in this or any other proceeding.
2 Next Level is a Pennsylvania corporation with offices in Holland, Pennsylvania. In 1997, Next Level pursued a business plan to sell sports apparel to major retailers.