SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16616 / June 30, 2000
Court Enters Preliminary Injunction Against Fraudulent Internet A "Virtual Stock Exchange" and Continues Freeze of Assets
SECURITIES AND EXCHANGE COMMISSION v. SG LIMITED, d/b/a STOCKGENERATION et al. (United States District Court for the District of Massachusetts, C.A. No. 00 CV11141-JLT) (June 9, 2000)
On June 29, 2000, after a hearing, the United States District Court for the District of Massachusetts entered a Preliminary Injunction and Order for Other Relief in a case against SG Limited and SG Perfect Limited, based on allegations that SG Limited operated a massive pyramid scheme involving the offering of investments in a so-called "virtual company" over the Internet. The Court's Order, among other things, continues the previously ordered freeze of assets of SG and SG Perfect Limited until the case is completed. At the conclusion of the case, if defendant is found liable, the Commission has asked the court to order distribution of the frozen proceeds of the fraud to injured investors.
The Commission"s complaint, which was filed on June 9, alleges that SG Limited, based on the Caribbean island of Dominica, operates a website under the name "StockGeneration, promising investors a risk-free, guaranteed return of 10% per month, or 215% per year on a compounded basis. SG allegedly described itself as a "virtual stock exchange" offering investments in the stock of several "virtual companies," including one referred to as the "privileged company" whose shares "only rise" and generate the guaranteed 10% monthly return. The Commission alleged that the investment program, which raised hundreds of thousands, if not millions, of dollars was actually nothing more than a classic pyramid scheme. The Commission further alleged that investors did not receive the guaranteed return and have not even been able to recover their initial investments. According to the Commission's complaint, in fact, in recent weeks, SG informed investors that their purported guaranteed, risk-free investments had been reduced to only pennies on the dollar. The Commission alleges that, even while unable to meet its obligations to existing investors, SG continues to offer its investment program on the StockGeneration website, still promising a risk-free guaranteed 10% monthly return.
The Commission's complaint alleges that SG Limited has violated the general antifraud and securities registration provisions of the federal securities laws -- that is, Sections 5(a) and (c) and 17 (a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Commission's complaint also charged as a relief defendant an affiliated company, SG Perfect Limited, which was unjustly enriched through the receipt of over $1 million of the money raised from the StockGeneration scheme. On June 9, 2000, the U.S. District Court for the District of Massachusetts granted the Commission's motion for an ex parte order temporarily restraining the fraudulent activities, freezing the assets of SG and SG Perfect, Limited and the proceeds of the offering, requiring that the funds be returned to the U.S. under control of the Court, and imposing other equitable relief. After obtaining the emergency relief the Commission succeeded in freezing certain assets of the defendants overseas and in the United States. In addition to the emergency relief it obtained, the Commission is seeking an order permanently enjoining SG from violating the antifraud and registration provisions of the federal securities laws, requiring SG and SG Perfect to disgorge funds received through their violations of the securities laws, and imposing civil monetary penalties on SG.
The Commission acknowledges the assistance of the Economic Crime Division of the Central Criminal Police of Estonia.
Investors are advised to read the SEC's "Cyberspace" Alert before purchasing any investment promoted on the Internet. The free publication, which alerts investors to the telltale signs of online investment fraud, is available on the Investor Assistance and Complaints link of the SEC's Home Page on the World Wide Web www.sec.gov. It can also be obtained by calling 800-SEC-0330.
Investors are also encouraged to report suspicious Internet offerings (or other suspicious offerings) via e-mail to email@example.com. A user friendly form to assist you in making a report is available at the SEC Home Page www.sec.gov. Investors can also mail a report to the SEC's Enforcement Complaint Center, Mail Stop 8-4, 450 Fifth Street, N.W., Washington, D.C. 20549.
For further information, please see Litigation Release No. LR-16590 (June 15, 2000)