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SEC Posting
Subject: PR: SEC Brings
First Actions to Halt Unregistered Online Offerings of So-Called
'Free Stock' – July 22, 1999.
From: help@sec.gov
Date: 1999/07/23
Newsgroups: gov.us.fed.sec.announce,gov.us.topic.finance.securities
Archive-Name: gov/us/fed/sec/press/99/83.txt
For Immediate Release 99-83
SEC Brings First Actions To Halt Unregistered Online Offerings of So-Called
"Free Stock"
Washington, DC, July 22, 1999 -- In response to a wave of so-called "free
stock" offerings made through the Internet and a resulting flood of
investor complaints, the Securities and Exchange Commission brought and settled
four enforcement actions against four promoters and two Internet companies who
offered and distributed free stock through online websites without properly
registering their offerings.
SEC Enforcement Director Richard H. Walker said, "Free stock is really a
misnomer in these cases. While cash did not change hands, the companies that
issued the stock received valuable benefits. Under these circumstances, the
securities laws entitle investors to full and fair disclosure, which they did
not receive in these cases."
Mr. Walker also acknowledged the importance of complaints and tips received from
investors regarding these cases, saying, "The investors who write us and
e-mail us through our homepage are an essential part of our enforcement program.
Along with our
CyberForce, they are our eyes and ears in cyberspace."
In each of the four cases, the investors were required to sign up with the
issuers' web sites and disclose valuable personal information in order to obtain
shares. Free stock
recipients were also offered extra shares, in some cases, for soliciting
additional investors or, in other cases, for linking their own websites to those
of an issuer or purchasing services offered through an issuer. Through these
techniques, issuers received value by spawning a fledgling public market for
their shares, increasing their business, creating publicity, increasing traffic
to their websites, and, in two cases, generating possible interest in projected
public offerings.
Two of these free stock issuers offered stock through websites that featured
false claims. In one case, investors were told that the free shares they
received would give them interests in an aerospace company that would revive
lunar exploration. In fact, the company was never incorporated and its promoter
had no space exploration or aerospace engineering experience. In another case
involving an Internet telecommunications marketing firm, the website informed
free stock recipients that their shares could eventually exceed $200 each in
value, even though
the firm had realized less than $30 in gross operating revenues.
In each of the four administrative proceedings, the respondents consented,
without admitting or denying the findings in the Commission's orders, to
settlements in which they agreed to cease and desist from future violations of
the registration provisions of the Securities Act of 1933. In addition,
respondents Joe Loofbourrow (promoter of American Space Corp.), Web Works
Marketing.com, Inc. and Web Works founder Trace D. Cornell agreed to refrain
from violating the antifraud provisions of the federal securities laws.
Case Summaries and SEC Contact List
1. In the Matter of Joe Loofbourrow
(SEC contact: Daniel J. Goldstein (212-748-8066)):
The Commission's order finds that Loofbourrow, from July 1995 through the spring
of 1999, via misleading Internet websites he created, offered investors free
stock or other securities in his company American Space Corp., an unincorporated
entity he intended to use to engage in space exploration and medical research.
The offerings were not registered. Loofbourrow's websites touted his company as
planning to build the largest aerospace manufacturing plant in the world and
resume U.S. lunar exploration by the early 2000s, and proposing a subsidiary
that would research cures for aging and all diseases. In addition, Loofbourrow
stated, without reasonable basis, that the shares of free stock in American
Space Corp. had a value of $1 each. In fact, American Space Corp. was never
incorporated, and had no offices, employees or contracts.
2. In the Matter of Web Works Marketing.com, Inc. and Trace D. Cornell (SEC
contact: Richard P. Murphy (404-842-7665)):
The Commission's order finds that Cornell offered, through an Internet website,
unregistered free shares in Web Works Marketing.com, Inc., a telecommunications
marketing firm. On the Web Works website, Cornell informed investors that the
shares they could receive by registering on his website or signing up for long
distance service had a value of more than $38 per share and could appreciate to
roughly $200 per share in value. Web Works' site further indicated that the
company had 10,000-12,000 customers, held a contract with a Virginia-based long
distance service provider and would provide investors with liquidity by
conducting a future public stock offering. In fact, Web Works, which ran out of
Cornell's home, had no contract with the long distance carrier, had only 35
customers, had less than $30 in gross revenues, and had taken no steps to effect
a public offering.
3. In the Matter of WowAuction.com Inc. and Steven M. Gaddis,Sr. (SEC contact:
Richard P. Murphy (404-842-7665)):
The Commission's order finds that Gaddis, between March 1999 and May 1999,
offered unregistered free stock in online auctioneer WowAuction.com Inc. to
investors who registered with WowAuction's website or recruited others to
register with the site. The site also informed investors that WowAuction.com
would conduct a so-called "direct public offering" during the third
quarter of 1999.
4. In the Matter of Theodore Sotirakis
(SEC contact: Eric M. Schmidt (212-748-8046)):
The Commission's order finds that, for a short period during April 1999,
Sotirakis offered unregistered free stock in Kinesis International, Inc., an
unincorporated business, to
individuals who registered on the Kinesis website or linked their websites to
Kinesis' site. In addition, investors could earn extra shares by referring
additional registrants to the Kinesis site. At least 200 investors registered
for free shares in the unincorporated business.
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