==========================================START OF PAGE 1====== UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7267 / February 26, 1996 SECURITIES EXCHANGE ACT OF 1934 Release No. 36886 / February 26, 1996 ADMINISTRATIVE PROCEEDING File No. 3-8963 ---------------------------------: In the Matter of : ORDER INSTITUTING PROCEEDINGS : PURSUANT TO SECTION 8A OF THE Continental Capital & Equity : SECURITIES ACT OF 1933 AND Corp. and John R. Manion, : SECTION 21C OF THE SECURITIES : EXCHANGE ACT OF 1934, MAKING Respondents. : FINDINGS, AND ORDERING : RESPONDENTS TO CEASE AND : DESIST _________________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that proceedings be, and they 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") to determine whether Continental Capital & Equity Corp. ("CCE") and John R. Manion ("Manion") violated Section 17(b) of the Securities Act and Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder. II. In anticipation of the institution of these proceedings, Respondents CCE and Manion have each submitted an Offer of Settlement 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 prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. Section 201.100 et seq., Respondents CCE and Manion, without admitting or denying the findings set forth herein, except that they admit the jurisdiction of the Commission over them and over the subject matter of these proceedings, consent to the issuance by the Commission of this Order Instituting Proceedings Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings and Ordering Respondents to Cease and Desist and to the entry of the findings and imposition of the sanctions set forth below. III. On the basis of this Order and Respondents' Offers of Settlement, the Commission makes the following findings: A. RESPONDENTS CCE is a Florida corporation, which maintains its principal place of business in Maitland, Florida. CCE prepares and distributes direct mail advertisements to potential investors on behalf of publicly held corporations. Manion, age 47, resides in Apopka, Florida. Manion is the president and sole owner of CCE. B. OTHER RELEVANT ENTITIES First National Entertainment Corp., f/k/a 1st National Film Corp., ("First National") is a Colorado corporation, which, at all relevant times, maintained its principal place of business in Austin, Texas. First National's common stock has been registered with the Commission pursuant to Section 12(g) of the Exchange Act since November 9, 1989, and has been listed on NASDAQ since July 1991.-[1]- Since late 1990, First National has engaged in the acquisition, development and marketing of animated films. At all relevant times, the company's primary asset was a feature- length, animated film entitled "Happily Ever After." First National released "Happily Ever After" in theaters on May 28, 1993.-[2]- ---------FOOTNOTES---------- -[1]- In the early fall of 1992, First National stock sold at an average price of approximately $5 per share on average daily volume of 15,000 to 20,000 shares. Between late October 1992 and the end of May 1993, trading in First National stock increased significantly, reaching a high of $9 13/16 on April 13, 1993, on volume of approximately 1.3 million shares. -[2]- On June 27, 1995, the Commission filed a complaint in the U.S. District Court for the Western District of Texas (Civil No. A 95CV 371 AA) alleging, among other things, that First National, certain of its executive officers and others had violated the anti-fraud provisions of the federal securities laws by, among other things, making (continued...) C. FACTS 1. CCE's Publications Between approximately November 1992 and April 1993, CCE and Manion wrote and distributed two advertising pieces about First National. The first of these publications was entitled "Inside Wall Street," and the second was entitled the "Corporate Profile." Both publications were essentially tout sheets for First National's stock. Manion drafted the publications based upon information provided to him by First National. First National reviewed and approved the text of the publications and authorized CCE to distribute them to prospective investors. "Inside Wall Street" was a four-page glossy brochure, which was designed to resemble an investment newsletter. The bulk of the brochure described the boom in the animated film industry and favorably compared First National to Walt Disney Studios. The brochure projected that First National's film "Happily Ever After" would gross $60 to $80 million at the box office and net an additional $35 to $42 million in video tape sales.-[3]- The final page of "Inside Wall Street" contained a disclaimer in small print that stated, in part: "Officers, directors or affiliates of the publisher may from time to time have a position in the securities mentioned herein, or receive compensation for dissemination of information on the company." The advertisement also contained a postage-paid reply card that interested persons could send to CCE and an "800" number they could call to obtain additional information about First National. CCE distributed "Inside Wall Street" in four bulk mailings to a total of approximately 400,000 prospective investors nationwide.-[4]- CCE coordinated investor responses to the ---------FOOTNOTES---------- -[2]-(...continued) false and misleading statements to the public concerning the revenues the company anticipated from the release of "Happily Ever After" and the financing the company had obtained to release the film. -[3]- After its release, "Happily Ever After" grossed approximately $4 million in box office receipts and $5.6 million in video tape revenues. -[4]- CCE made the bulk mailings in December 1992 and January, March and April 1993. CCE prepared new editions of "Inside Wall Street" for each bulk mailing that were substantially identical to the original. ==========================================START OF PAGE 3====== brochure through the reply cards and calls to the "800" number and forwarded the names and addresses of those who responded to First National and to brokerage firms identified to it by First National. In approximately December 1992 and January 1993, CCE wrote a second advertising piece called the "Corporate Profile" and distributed it to about 4,000 persons who had replied to the solicitation in "Inside Wall Street." The "Corporate Profile" reiterated much of the information in "Inside Wall Street," but also provided historical data about First National. The "Corporate Profile" contained a chart setting out First National's anticipated earnings from "Happily Ever After" and projecting an exponential increase in the value of the company's stock. The "Corporate Profile" contained a disclaimer identical in all material respects to that contained in "Inside Wall Street." Pursuant to written agreements between First National and CCE, First National made periodic payments to CCE for the publication and distribution of "Inside Wall Street" and the "Corporate Profile" in the form of First National stock. Between November 1992 and March 1993, First National issued approximately 148,500 shares of its stock to CCE pursuant to this agreement. Shortly after receiving the shares, CCE sold them in the open market for a total of approximately $781,000. 2. CCE's Acquisition of More Than 5% of First National's Stock and Its Filings on Schedule 13D In March 1993, First National and CCE entered into an arrangement to finance the release of "Happily Ever After." Pursuant to this arrangement, First National issued stock to CCE. CCE, in turn, sold the stock in the open market and used the proceeds to pay various expenses incurred by First National in connection with the release of its film.-[5]- Between March 9 and May 18, 1993, First National issued a total of approximately 1.8 million shares of its stock to CCE. CCE and Manion sold these shares in increments between March 9 and May 20, 1993, for a total of approximately $9.8 million. CCE filed two Schedules 13D, dated March 25 and April 7, 1993, with the Commission in connection with the stock it had acquired pursuant to its financing agreement with First National. ---------FOOTNOTES---------- -[5]- In March 1993, First National and CCE entered into a written contract in which First National granted to CCE options to purchase First National stock that were exercisable only upon payment in cash or upon presentation of paid invoices for media purchased. ==========================================START OF PAGE 4====== First National's counsel prepared, and Manion signed, both of these filings. Both filings were incomplete and inaccurate.-[6]- The first filing was comprised of a cover page and a single attached page containing the disclosures required by Items 5(c) through 7 of Schedule 13D. No disclosure was made of the information required by Items 1 through 5(b).-[7]- In the list of recent transactions required by Item 5(c) of the Schedule, CCE and Manion disclosed the purchase of two blocks of First National common stock that they had obtained in connection with the distribution of "Inside Wall Street." They failed to disclose, however, CCE's acquisition of an additional 600,000 shares, representing approximately 8.7% of the issued and outstanding shares, of First National common stock on March 9, 1993. CCE acquired these shares pursuant to its financing arrangement with First National and sold the bulk of the shares by March 25, 1993, the date of the filing. The second Schedule 13D filed by CCE on or about April 7, 1993, disclosed the acquisition and subsequent sale of First National stock acquired by CCE on March 9, 1993, pursuant to its agreement with First National. However, CCE and Manion falsely stated in the Schedule that CCE had purchased the First National stock "with services and expenses incurred" and failed to disclose the true nature of the arrangement between CCE and First National concerning the acquisition and disposition of First National securities. In addition, CCE and Manion did not disclose the acquisition of an additional 600,000 shares of First National stock on March 26, 1993, and the sale of the bulk of this stock by the date of the filing. Finally, CCE and Manion never amended CCE's Schedule 13D filings to reflect the acquisition of a total of approximately 600,000 shares of First National stock on April 13 and May 18, 1993, and the subsequent sale of these shares. D. LEGAL DISCUSSION 1. Violations of Section 17(b) of the Securities Act by CCE and Manion Section 17(b) of the Securities Act, in pertinent part, makes it unlawful for any person: ---------FOOTNOTES---------- -[6]- These filings were also late. CCE should have filed its Schedules 13D by March 19 and April 9, 1993, respectively. -[7]- Manion had no explanation for the missing page and could not provide the staff with a complete copy of the filing. ==========================================START OF PAGE 5====== to publish... or circulate any notice, circular, advertisement... or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer... without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof. This provision was "particularly designed to meet the evils of the `tipster sheet,' as well as articles in newspapers or periodicals that purport to give an unbiased opinion but which opinions in reality are bought or paid for." Committee on Interstate and Foreign Commerce. H.R. Rep. No. 85, 73d Cong., 1st Sess. (1933) 24. See SEC v. Wall Street Pub. Institute, Inc., 851 F.2d 365, 369 n.6 (D.C.Cir. 1988). CCE and Manion failed to disclose in either "Inside Wall Street" or the "Corporate Profile" that they had an agreement with First National pursuant to which they would receive First National stock for the publication and distribution of the advertisements and the amount of the compensation they were to receive. The only mention of any compensation agreement in either publication was contained in the disclaimer in each, which read: "[o]fficers, directors and affiliates of the publisher may from time to time have a position in the securities mentioned herein, or receive compensation for dissemination of information on the company." This disclaimer was misleading in that it failed to disclose the existence of a compensation agreement that had already been entered into, as opposed to one that might be entered into in the future. In the January, March and April 1993 editions of "Inside Wall Street," CCE and Manion failed to disclose not only the existence of similar compensation agreements, but also of the actual compensation they had received in connection with the publication of earlier editions. CCE's and Manion's failure to disclose the compensation agreements with First National and the compensation they were entitled to receive, or had already received, for the publication of "Inside Wall Street" and the "Corporate Profile" violated Section 17(b) of the Securities Act. 2. Violations of Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 by CCE and Manion Section 13(d) of the Exchange Act and Rule 13d-1 thereunder require any person who directly or indirectly acquires beneficial ownership of more than 5% of a class of equity securities of a public company to file a Schedule 13D with the Commission within 10 days of such acquisition. Rule 13d-2 further requires that, if any material change occurs in the facts set forth in Schedule, including, but not limited to, a material increase or decrease in ==========================================START OF PAGE 6====== the percentage of the class beneficially owned, such filing person shall promptly file an amendment to the Schedule disclosing such change. It is axiomatic that the information disclosed in a Schedule 13D must be true and accurate and that the Schedule not contain any false or misleading statements. See GAF v. Milstein, 453 F.2d 709 (2d Cir. 1971). Proof of scienter is not required to establish a violation of these reporting provisions. See SEC v. Savoy Industries, Inc., 587 F.2d 1149, 1167 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). Between approximately March 9 and April 12, 1993, CCE acquired and sold over 5% of First National common stock. On or about March 29 and April 13, 1993, CCE filed two Schedules 13D, signed by Manion, with the Commission concerning these transactions. Both of these filings were late, incomplete and inaccurate. The first filing failed to disclose the bulk of the information required by the Schedule and contained a list of transactions in First National stock that omitted the acquisition of an 8.7% block during the reporting period. The second filing failed to disclose the true nature of the agreement between CCE and First National concerning the acquisition and disposition of First National securities, and CCE's acquisition and sale of 600,000 shares of First National stock during the reporting period. Finally, between April 13 and May 18, 1993, CCE acquired an additional block of 600,000 shares of First National stock and failed to file an amendment to its Schedules 13D. As a result, CCE and Manion violated Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder. IV. Based on the foregoing, the Commission finds that CCE and Manion willfully violated Section 17(b) of the Securities Act and Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder. V. In view of the foregoing, the Commission deems it appropriate and in the public interest to accept the Respondents' Offers of Settlement and to impose the sanctions specified therein. Accordingly, the Commission HEREBY ORDERS that: A. John R. Manion and Continental Capital & Equity Corp. cease and desist from committing or causing any violation and any future violation of Section 17(b) of the Securities Act and Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder. ==========================================START OF PAGE 7====== By the Commission. Jonathan G. Katz Secretary ==========================================START OF PAGE 8======