U.S. Securities and Exchange Commission
Litigation Release No.. 18181 / June 9, 2003
Securities and Exchange Commission v. SG Limited et al., (United States District Court for the District of Massachusetts, No. 00-11141-GAO)
SEC Settles With Internet "Virtual Stock Exchange" Scheme Operators, Recoups Full Amount of Investor Losses
Today, the Securities and Exchange Commission (SEC) announced the settlement of its case against SG Limited (SG), an offshore entity that operated an Internet website called "StockGeneration." As part of the settlement, the defendants will pay over $1.3 million in disgorgement and penalties, which will be used to repay investors.
The SEC's case was originally filed on June 9, 2000 in the United States District Court for the District of Massachusetts. According to the SEC's complaint, the website described the StockGeneration program as a "virtual stock exchange" in which participants could buy and sell "virtual shares" in several "virtual companies" at prices set by SG. The website stated that the share price of one company, identified as "Company #9" or the "Privileged Company," would generate a risk-free, guaranteed return of 10% per month, or 215% per year. The complaint alleged that in April 2000, SG unilaterally reduced the virtual share prices by nearly 100% and stopped honoring investors' requests to redeem their virtual shares and recover their money. The United States Court of Appeals for the First Circuit ruled in September 2001 that an investment in Company #9 was an investment contract, a form of security covered by the federal securities laws. Approximately 45,000 investors worldwide placed money in Company #9 and lost a total of $850,558.
On May 29, 2003, the Honorable George A. O'Toole, United States District Judge for the District of Massachusetts, entered a final judgment by consent. Without admitting or denying the allegations in the SEC's complaint, SG and relief defendants SG Perfect and SG Trading consented to the entry of the final judgment, which permanently enjoins SG from violating federal securities laws requiring registration of securities and prohibiting fraud in connection with the offer or sale of securities: Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. In addition, the final judgment requires SG, SG Perfect, and SG Trading to pay disgorgement in the amount of $850,558, plus pre-judgment interest. This amount represents the actual dollar loss suffered by all investors in Company #9. The final judgment also requires SG to pay a civil penalty of $471,544.
The SEC will request appointment of a receiver to distribute funds to the investors in Company #9 pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act of 2002.