UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16700 / September 14, 2000
SECURITIES AND EXCHANGE COMMISSION V. 1stBuy.com, Inc., and Roger D. Pringle, Civil Action No. A-00-ca-599sf (USDC/WDTX/Austin)
SEC FILES LAWSUIT AGAINST AUSTIN, TEXAS
INTERNET RETAILER IN "PRE-IPO" STOCK SCHEME
The Securities and Exchange Commission announced that on September 14, 2000, it filed a civil lawsuit against 1stBuy.com, Inc. (1stBuy) and its founder and CFO, Roger D. Pringle. The SEC’s action pertains to an Internet stock offering conducted by 1stBuy during 1999 and early 2000 in which the company raised approximately $3.8 million from 1,200 investors nationwide. The stock offering was conducted pursuant to Regulation A, or the "small issues" exemption, of the Securities Act of 1933. The SEC’s complaint alleges that 1stBuy and Pringle played off the recent Internet IPO frenzy by referring to the offering as a "pre-IPO," and inducing investments through false and misleading statements about the timing of a purported IPO, the projected value of its stock and the ability of the company to generate stockholder returns. The SEC’s complaint further alleges that the 1stBuy offering failed to meet the delivery and timing requirements of Regulation A in violation of the registration provisions of the Securities Act.
The defendants are:
The SEC alleges that in statements made on 1stBuy’s website and in unsolicited e-mail messages, known as "spams," the defendants described 1stBuy’s offering as a "pre-IPO" offering and claimed that an IPO price range of $12 - $18 had already been set. The defendants further projected that a $5,000 investment would grow 1,200% in just one year and an additional 21,000% over the following three years. The defendants also represented that after the conclusion of its small business offering, 1stBuy would have a market capitalization of over $28 million and would easily meet the listing requirements of the NASDAQ small capitalization market.
In reality, the SEC claims, 1stBuy was rejected by the one brokerage firm it approached about underwriting an IPO; the projected returns had no basis in fact; the company failed to meet NASDAQ listing requirements; and the $28 million market capitalization figure was based on arbitrary and unsupported share price figure.
The SEC also alleges that 1stBuy did not comply with the Regulation A small issues exemption, which permits public offers and sales of securities up to $5 million during any 12-month period by companies meeting certain eligibility requirements. When selling stock under the small issues exemption on the Internet, a company must provide an investor with direct access to a final offering circular with financial information about the company. Used correctly, this exemption allows small businesses to sell stock without full registration, making the process easier and less costly.
1stBuy, the SEC alleges, offered stock after the 12-month period permitted by Regulation A. More importantly, the defendants offered 1stBuy stock without simultaneously providing investors with a copy of the company’s offering circular. Rather than allowing potential investors direct access to the company’s offering circular, which contained audited financial information and numerous risks disclosures about the company, 1stBuy required Internet investors to navigate through a series of website links before viewing the offering circular. While navigating 1stBuy’s website, potential investors were repeatedly exposed to the false claims concerning the company’s financial future, prospects for an IPO, NASDAQ listing and the potential for shares to increase in value.
The SEC filed the civil action after 1stBuy failed to remedy problems identified by SEC staff as part of an "early intervention" conference in December 1999.
1stBuy and Pringle, without admitting or denying any of the allegations of the SEC’s complaint, simultaneously agreed to settle the charges that they violated the fraud and registration provisions of the federal securities laws. Under terms of the settlement, 1stBuy and Pringle will be permanently enjoined from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, the proposed judgment orders Pringle to pay a civil penalty of $25,000.
The SEC has recently observed a number of securities offerings made over the Internet, or by Internet companies, which claim to involve "pre-IPOs" or to offer "pre-IPO" stock. Often, the offering will include claims about the imminency of an IPO and predicted value of the stock after the IPO, and make references to successful IPOs by legitimate Internet companies. In some instances, these claims may be false or misleading and the issuer may be attempting to exploit investors who scour the Internet looking for e-businesses in which to invest. The SEC has recently charged three Internet companies with fraud for making false IPO claims. See New World Web Vision.com (Lit Rel. No. 16498, March 31, 2000); Y2K Highway, Inc. (Lit Rel. No. 16556, May 16, 2000); Stadtt Media, L.L.C. (Lit Rel. No. 16626, July 13, 2000). Investors are strongly encouraged to investigate thoroughly claims such as these before making an investment.
To help investors learn what steps to take, the SEC also released today a new online brochure on pre-IPO fraud. "Risky Business: Pre-IPO Investing" advises investors about the consequences of investing at the pre-IPO stage and provides key questions investors should ask. The brochure is available at http://www.sec.gov/investor/pubs/preipo.htm". Investors are also advised to read the SEC’s brochure entitled "Internet Fraud: How to Avoid Internet Investment Scams" before purchasing any investment promoted on the Internet. The free publication, which alerts investors to the telltale signs of online investment fraud, is available at http://www.sec.gov/investor/pubs/cyberfraud.htm . It can also be obtained by calling 800-SEC-0330.
Investors are 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 SEC’s Enforcement Complaint Center, Mail Stop 8-4, 450 Fifth Street, N.W., Washington, D.C. 20549.