The U.S. Securities and Exchange Commission (SEC) has settled its lawsuit against an e-tailer it said raised approximately $3.8 million (US$) from investors by touting false information about plans for an initial public offering (IPO).
Austin, Texas-based 1stBuy.com, Inc. and its founder and chief financial officer, Roger D. Pringle, made “false and misleading statements” about the company’s supposed plans for an IPO, the projected value of the stock, and the company’s ability to make money for stockholders, according to the SEC.
Moreover, the commission said, 1stBuy’s offering failed to meet delivery and timing requirements called for under securities laws.
Without admitting to any of the allegations, 1stBuy and Pringle agreed to settle the charges that they broke the fraud and registration provisions of federal securities laws. As part of the settlement, Pringle will pay a $25,000 civil penalty, the SEC said.
Special Exemption Flaunted
1stBuy raised money from about 1,200 investors in 1999 and early 2000 through a stock offering completed under a special exemption contained in securities laws for small issues. The company and Pringle, according to the SEC, billed the offering as a “pre-IPO” to drum up investor interest.
According to the SEC, 1stBuy claimed that a price range for its IPO of $12 to $18 per share had already been set; that a $5,000 investment would grow 1,200 percent in one year and an additional 21,000 percent over the following three years; and that after the small-business offering, 1stBuy would have a market capitalization of more than $28 million — meeting Nasdaq listing requirements for small-capitalization stocks.
The claims, the SEC said, were made on the company’s Web site and in unsolicited e-mails the commission called “spams.”
In fact, according to the SEC, 1stBuy was rejected by the one brokerage firm it approached about underwriting an IPO; the statements about returns had “no basis in fact”; the company did not meet Nasdaq listing requirements; and the $28 million figure was based on an “arbitrary and unsupported share price figure.”
Moreover, said the SEC, 1stBuy did not comply with the small-issues exemption, which lets eligible companies sell up to $5 million of securities during any 12-month period. The company, the commission said, waited until after the 12-month period to sell its shares and failed to provide investors with an offering circular containing financial information, as required.
Instead of issuing a circular, the company said, 1stBuy directed investors through a series of Web site links before the offering was available for viewing. While navigating the site, the SEC said, “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.”
Other Fraud Cases Pending
The SEC said it filed the civil action after 1stBuy failed to take appropriate action in response to problems that SEC staffers pointed out in December 1999.
The SEC said it has observed a number of pitches for securities offerings made over the Internet or by Internet companies that use the term “pre-IPO,” often referring to plans for an IPO and a predicted stock price. Charges have been filed in three similar cases, the commission said.
For investors, the SEC has a free publication, “Cyberspace Alert,” available on its Web site or by calling (800) SEC-0330.