Tutornet.com Group, Inc. and Euburn R.A. Forde
U.S. Securities and Exchange Commission
Litigation Release No. 16667 / August 29, 2000
SEC v. Tutornet.com Group, Inc. and Euburn R.A. Forde, Civil Action No. 00-1472-A (U.S.D.C. E.D.Va, Alexandria Division)
On August 29, 2000 the Securities and Exchange Commission filed a complaint in the United States District Court for the Eastern District of Virginia, Alexandria Division, against Tutornet.com Group, Inc. ("Tutornet"), of Chantilly, Virginia, and Euburn R.A. Forde ("Forde"), the president, chief executive officer and chairman of the board of Tutornet.
The Commission's complaint alleges that Tutornet and Forde made false and misleading statements, and omitted to state material information, in a Form 8-K filed with the Commission on May 18, 2000, and in a January 2000 letter to shareholders ("Shareholder Letter") published on Tutornet's website, in an effort to lull current and prospective investors into a false sense of security in the face of Tutornet's precarious financial condition. The Complaint also alleges that Tutornet's Form 10-Q filed with the Commission on August 21, 2000 was deficient because it failed to include a statement of cash flow. The Commission also filed with the Complaint a motion for a Preliminary Injunction against Tutornet and Forde.
The Complaint alleges that Tutornet's Form 8-K, signed by Forde, made misleading statements and failed to disclose material information concerning Tutornet's relationship with America Online, Inc. ("AOL"). Specifically, the Complaint alleges that Tutornet stated in the Form 8-K that it was in the process of "co-branding" with AOL, which would result in a revenue sharing arrangement with AOL that would provide the financially troubled Tutornet with access to over 18 million AOL subscribers, and the potential to generate annual revenues of $324 million. The Complaint alleges that this statement was false when made in the Form 8-K which was filed with the Commission on May 18, 2000 because, in April 2000, AOL terminated its contractual relationship with Tutornet based upon Tutornet's failure to make certain payments under the terms of the contract. The Complaint also alleges that Tutornet failed to disclose the termination of the contract. The Complaint further alleges that Tutornet failed to issue any corrective statement concerning Tutornet's earlier characterizations of the AOL contract in the Shareholder Letter which first appeared on Tutornet's website in January 2000, which were rendered inaccurate by the termination of the contract in April 2000.
The Complaint also alleges that Tutornet and Forde made false and misleading statements in the Form 8-K concerning a prospective $30 million investment in Tutornet by Princeton Investments, Ltd. ("Princeton"), purportedly a Bahamian company. Specifically, the Complaint alleges that Tutornet stated in the Form 8-K that it was in the process of obtaining a $30 million investment from Princeton, which Tutornet claimed may remove an imminent threat to its liquidity. The Complaint alleges that Tutornet had no reasonable basis for making this statement and failed to disclose material facts that significantly undermined the legitimacy of the statement. In this regard, the Complaint alleges that there was virtually no due diligence undertaken by Princeton, and Tutornet knew virtually nothing about Princeton's financial wherewithal to support a $30 million investment. The Complaint alleges that there is no evidence the investment has ever been made.
The Complaint alleges that Tutornet made false statements and failed to disclose material information concerning its relationship with the United States Department of Housing and Urban Development ("HUD"). Specifically, the Complaint alleges that Tutornet falsely stated in the Shareholder Letter that HUD planned to "roll out" Tutornet's services to more than 1000 housing sites across the country upon the successful completion of a pilot program. While the statement concerning the pilot program was true, the Complaint alleges that the statement concerning the "roll out" of Tutornet's services was false. The Complaint also alleges that Tutornet failed to disclose that it was providing its services in the pilot program free of charge.
Finally, the Complaint alleges that Tutornet's Form 10-Q filing with the Commission on August 21, 2000 was deficient because it did not contain a statement of cash flow, as required by Commission rules. The Complaint alleges that the absence of the statement of cash flow is "troubling" in light of Tutornet's statement in the Form 10-Q expressing management's doubt about Tutornet's ability to continue as a going concern beyond the next 60 days. The Complaint further alleges that Tutornet and Forde failed to avail themselves of an opportunity to correct previous material misstatements and to disclose previous material omissions in the Form 8-K and Shareholder Letter regarding: (i) Tutornet's contractual relationship with AOL; (ii) the prospective investment of capital by Princeton; and (iii) Tutornet's relationship with HUD.
The Complaint alleges that Tutornet and Forde violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder; that Tutornet violated Section13(a) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder; and that Forde aided and abetted Tutornet's violations of Section13(a) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder. The Commission's Complaint seeks civil injunctions against both Tutornet and Forde and the imposition of civil penalties against them.