Internet tutoring service Tutornet.com Group, Inc. (OTC: TTNP.OB) lied about its financial condition in regulatory filings and in a letter to shareholders published on its Web site, the U.S. Securities and Exchange Commission (SEC) said in a complaint filed Wednesday.
The SEC said it sued the Reston, Virginia-based Tutornet and its chief executive officer, Euburn R.A. Forde, alleging they “made false and misleading statements” and failed to state material information” in a May 18th SEC filing and a January 2000 shareholder letter. According to the SEC, the defendants attempted 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 Tutornet’s quarterly financial statement filed with the SEC on August 21st was deficient because it did not include a statement of cash flow. In that latest filing, Tutornet said management had doubts about its ability to stay in business beyond the next 60 days.
“The company is in discussion with several entities seeking alternate sources of capital,” the filing said.
Supposed AOL Alliance
The SEC’s complaint alleges that Tutornet falsely claimed it had an alliance with America Online, Inc., and that Forde and the company misled investors about a supposed $30 million (US$) investment and a U.S. government contract.
In the May filing, Tutornet said it was “in the process of co-branding” with AOL in a revenue-sharing agreement the company said could be worth $324 million per year.
“At the time that statement was made, that was completely false,” said Luci McClure, senior trial counsel with the SEC in Philadelphia, Pennsylvania. “Tutornet and its president knew back in April that AOL terminated the contract because Tutornet couldn’t meet its obligations,” McClure told the E-Commerce Times.
Investment Claim ‘Reckless’
In the same filing, Tutornet said it had received a $30 million investment from Princeton Investments, allegedly a Bahamian company. “Neither Tutornet nor Forde had any reasonable basis for making the statement,” said McClure.
A $30 million investment “would be a significant infusion of money into this financially troubled company,” she said. “That’s at least reckless, for Tutornet to get [investors’] hopes up.” Bahamain authorities, she said, told the SEC that Princeton Investments had been taken off its list of registered companies in 1998.
The SEC also alleges that Tutornet misled investors in a January letter by leading them to believe the company was getting paid for a pilot program it had with the U.S. Department of Housing and Urban Development (HUD), when in fact it was providing the service for free.
In addition, said McClure, the company said HUD planned to expand the program to 1,000 sites around the U.S., which was not true.
Tutornet’s Web site was unavailable Thursday, and a recording at the company headquarters’ phone number announces that the number has been “temporarily disconnected.”
In press releases, the company has described itself as “the world’s first live, interactive tutoring service offered over the Internet.” Online tutors offered help with English, math and science, as well as preparation for standardized tests.
Some tutors, though, have been dissatisfied with their experiences. A Web site posts copies of bounced checks and a message board for complaints about the company.
Tutornet shares closed Wednesday at 5, down from a high of 14 earlier this summer.