Re: In the Matter of ICS Communications; In the Matter of Investment Hotlines
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 7601 / October 27, 1998
ADMINISTRATIVE PROCEEDING
File No. 3-9768
______________________________
:
In the Matter of : ORDER INSTITUTING PUBLIC
: ADMINISTRATIVE PROCEEDINGS
David A. Wood, Jr. and : PURSUANT TO SECTION 8A OF
ICS Communications, Inc., : THE SECURITIES ACT OF 1933,
: MAKING FINDINGS AND ORDERING
Respondents. : RESPONDENTS TO CEASE AND DESIST
______________________________:
I.
The Securities and Exchange Commission ("Commission")
deems it appropriate that proceedings be, and they hereby
are, instituted pursuant to Section 8A of the Securities Act
of 1933 ("Securities Act"), to determine whether David A.
Wood, Jr. ("Wood") and ICS Communications, Inc. ("ICS")
violated Section 17(b) of the Securities Act.
II.
In anticipation of the institution of these
proceedings, Respondents Wood and ICS have together
submitted an Offer of Settlement which the Commission has
determined to accept. Solely for the purpose of these
proceedings and any other proceedings brought by or on
behalf of the Commission or in which the Commission is a
party, Respondents Wood and ICS, without admitting or
denying the findings set forth herein, except that they
admit the jurisdiction of the Commission over them and over
the subject matter of these proceedings, consent to the
issuance by the Commission of this Order Instituting Public
Administrative Proceedings Pursuant to Section 8A of the
Securities Act of 1933, Making Findings and Ordering
Respondents to Cease and Desist (the "Order"), and to the
entry of the findings set forth below.
III.
On the basis of this Order and Respondents' Offers of
Settlement, the Commission makes the following findings:[1]
A. SUMMARY
This matter involves violations of Section 17(b) of the
Securities Act by ICS Communications, Inc. and its
president, David A. Wood, Jr. Since April 1997, Wood has
been responsible for the "(d)evelopment, implementation and
maintenance of (an) investor relations and market awareness
program" for a certain issuer (the "company") under a series
of consulting agreements.[2] Under these agreements, Wood
published a series of messages over the internet on an
electronic bulletin board service. He also paid others to
publish information about the company.
In consideration for these and other services under the
agreements, the company paid Wood and ICS $10,000 and at
least 610,000 shares of its common stock. Wood and ICS
violated Section 17(b) of the Securities Act by publishing,
giving publicity to, or circulating various communications
that described the company's stock without fully disclosing
their receipt of this consideration.
B. RESPONDENTS
ICS Communications, Inc. is a North Carolina
corporation, which maintains its principal place of business
in Charlotte, North Carolina.
David A. Wood, Jr., age 47, resides in Charlotte, North
Carolina. Wood is the sole owner and president of ICS, and
ICS is Wood's sole source of income. Wood is not currently
registered with the Commission or the NASD in any capacity,
but from 1992 to 1995, he worked as a registered
representative for four registered broker-dealer firms.
C. COMMUNICATIONS DESCRIBING THE COMPANY'S STOCK
Wood's services under the consulting agreements
included the distribution of various kinds of communications
about the company and its stock through various means.
These communications included the following:
**FOOTNOTES**
[1]: The findings herein are made pursuant to Respondents' Offer of
Settlement and are not binding on any other person or entity in this or
any other proceeding.
[2]: The consulting agreements are dated April 15, 1997; October 15,
1997; and June 9, 1998. Two agreements are between the company and
Wood; the third is between the company and "David A. Wood Jr., D.b.a.
ICS Communications, Inc."
2
1. Messages on Silicon Investor
Wood started a discussion about the company by posting
a message on the Silicon Investor web site[3] on June 6,
1997, which stated in its entirety:
---------------------------------------------------------------
| Started By: DAVID A. WOOD JR. |
| Date: Jun 6 1997 11:07 AM ET |
| |
| (The company) is stock to watch @ $.56 per share, it |
| won't stay here long! The company has had an increase |
| in earnings for the last 8 consecutive Qtrs!! |
---------------------------------------------------------------
By August 1998, this discussion consisted of more than
260 messages responding to Wood's initial posting.
Between June 1997 and March 1998, Wood posted 10 more
messages in addition to the first one. Some of these
messages simply provided Wood's telephone number or a link
that automatically connects interested users to the
company's web site. Other messages contained substantive
information describing the company and its stock. For
example, Wood posted a message dated June 17, 1997, which
stated in part:
(The company) is a great opportunity for anyone looking
to the next 3 to 6 mos. . . . the company is
aggressively expanding its national sales force along
with its public awareness program. Look for (the
company) to appreciate in price over the short term and
enjoy a strong steady growth pattern over the next 5
years. Definitely a stock to take seriously at it
(sic) current price $.87, strong managemnt (sic), and a
very successful niche market!!! Target price $2.50 to
$3.00
Wood did not disclose in any of his messages any
information about the consideration that he and ICS were
receiving from the company under the consulting
agreements.[4]
2. Reports and Corporate Profiles
In April 1997, ICS entered into a partnership agreement
with another firm under which the other firm provided "(the)
copy (for) advertisements, press releases, (and) printed
materials . . . as mutually agreed upon between partners and
(the company)." ICS agreed to pay this firm $5,000 and
80,000 shares of the stock it received from the company for
its services under the partnership agreement. This firm
prepared three "research" reports and a corporate profile
about the company and its stock. These documents contained,
among other things, a financial overview of the company, an
interview with the company's CEO, and, ultimately, a "buy"
recommendation for the company's stock. Wood arranged to
have an internet site set up for the company, and to have
the reports and the profile posted on the site. Wood
reviewed and approved these reports and the profile before
they were published.
The reports published under the partnership agreement
contained identical disclosures that stated in relevant part
that:
(the firm) may from time to time either through the
corporation or officers hold positions in (the company)
equity, and is paid a fee for its promotional relations
activities by (the company).
The corporate profile contained the following disclosure:
ICS and (the firm) may from (time) to time either
through their corporations or officers hold positions
in (the company) equity and is paid a fee for
promotional relations activities by (the company).
The reports and the corporate profile did not disclose the
amount of the consideration the company paid Wood and ICS or
any other details about their compensation.
3. Advertising Campaign
ICS's partner firm also developed a series of
advertisements about the Company that were published in
Investors' Business Daily on May 16th, May 19th and May 21,
1997. Wood reviewed and approved a final copy of the ads
before they were published. The advertisements did not
disclose any information about the consideration that Wood
and ICS were receiving from the company under the consulting
agreements.
4. Broker Bulletin E-Mail
In June 1998, ICS paid 80,000 shares of company
securities to a research firm to draft a one-page report
entitled "Broker Bulletin" describing the company and its
securities, and setting forth reasons to invest in the
company. Wood paid another company to send, on or about
June 26, 1998, an electronic mail, or "e-mail" message
containing the text of the Broker Bulletin report to as many
as 100,000 internet e-mail
**FOOTNOTES**
[3]: The Silicon Investor site is located on the world-wide
web at www.siliconinvestor.com. The site includes an
electronic bulletin board service where users can, among
other things, discuss securities by posting messages. Other
users can view these messages and respond to them. The
discussions are organized by topic. The topic typically is
an issuer, as it is here.
[4]: In late August 1998, shortly after the Division of
Enforcement first contacted him, Wood instructed Silicon
Investor to add the following statement to his initial
message about the Company: "Dave Wood acts as and is
compensated by [the company] for Investor Relations
services." In September 1998, Wood changed his initial
message entirely to state, in relevant part, that "Dave Wood
acts as Investor Relations and Business Consultant to [the
company] and was compensated 650,000 shares of common stock
through period April 1997 to June 1998."
3
addresses. The version sent by e-mail omitted any
information about the consideration Wood and ICS received
from the company.[5]
D. LEGAL DISCUSSION
Section 17(b) of the Securities Act, in pertinent part,
makes it unlawful for any person:
to publish, give publicity to, or circulate any notice,
circular, advertisement, newspaper, article, letter,
investment service, or communication which, though not
purporting to offer a security for sale, describes such
security for a consideration received or to be
received, directly or indirectly, from an issuer . . .
without fully disclosing the receipt, whether past or
prospective, of such consideration and the amount
thereof.
This provision was "particularly designed to meet the
evils of the 'tipster sheet' as well as articles in
newspapers or periodicals that purport to give any unbiased
opinion but which opinions in reality are bought or paid
for." Committee on Interstate and Foreign Commerce. H.R.
Rep. No. 85, 73d Cong., 1st Sess. (1933) 24. See also SEC
v. Wall Street Publishing Institute, Inc., 851 F.2d 365, 369
n. 6 (D.C. Cir. 1988) (quoting House Report).
As set forth above, Wood and ICS published, gave
publicity to, or circulated a variety of communications that
described the company's securities "for a consideration
received or to be received, directly or indirectly, from"
the company. Wood and ICS violated Section 17(b) because
they did so "without fully disclosing the receipt . . . of
such consideration and the amount thereof." See, e.g.,
U.S. v. Amick, 439 F.2d 351, 364-65 (7th Cir.), cert.
denied, 404 U.S. 823 (1971); SEC v. Huttoe, et al., Civ.
Action No. 96-02543 (D.D.C. Sept. 14, 1998)(Lit. Rel. No.
15906, Sept. 24, 1998).
Some of the communications contained inadequate
disclosures of consideration that Wood and ICS received from
the company in that, for example, they did not state the
amount of the compensation. Others contained no disclosure
at all.
On March 5, 1998 and June 12, 1998, the company filed
with the Commission its consulting agreements with Wood as
exhibits to registration statements on Form S-8. These were
not sufficient disclosures under Section 17(b). There is no
indication in any of the communications described above that
details about the company's payments to Wood and ICS could
be obtained from these filings. Many of the communications
were made before the company made these filings. Many of
the communications made after the filing, such as the Broker
Bulletin sent by e-mail, gave no indication that Wood and
ICS were involved in publishing them. It thus would not
have been apparent that the persons making these
communications were receiving compensation under the
consulting agreements on file with the Commission. [6]
IV.
Based on the foregoing, the Commission finds that David
A. Wood, Jr. and ICS Communications, Inc. committed or
caused violations of Section 17(b) of the Securities Act.
V.
In view of the foregoing, the Commission deems it
appropriate to accept the Respondents' Offers of Settlement
and to impose the sanctions specified therein.
Accordingly, IT IS ORDERED, pursuant to Section 8A of
the Securities Act of 1933, that David A. Wood, Jr. and ICS
Communications, Inc. cease and desist from committing or
causing any violation and any future violation of Section
17(b) of the Securities Act.
By the Commission.
Jonathan G. Katz
Secretary
**FOOTNOTES**
[5]: The Broker Bulletin as originally drafted contained the
following disclosure: "This publication is an advertisement
on behalf of ICS Communications, Inc. . . . ICS has retained
[the research firm] and its investor relations counsel and
have paid [the research firm] and its affiliates for such
promotional services, including the publication of this
advertorial [sic]."
[6]: Filing an agreement under which compensation is
received does not necessarily satisfy separate obligations
under the securities laws to disclose the compensation. See
In the Matter of W.R. Grace & Co., Exchange Act Rel. No.
39156 (September 30, 1997) (issuer's disclosure of
executive's retirement benefits was insufficient even where
the executive's retirement agreement was filed with the
Commission).
4
=====
Securities Act of 1933
Release No. 7605 / October 27, 1998
Administrative Proceeding File No. 3-9772
PUBLIC ADMINISTRATIVE CEASE-AND-DESIST PROCEEDINGS
INSTITUTED AGAINST GLOBAL INFORMATION SERVICES, INC. d/b/a
INVESTMENT HOTLINES AND JAMES E. GRADY
On October 27, 1998, the Commission instituted cease-and-
desist proceedings against Global Information Services, Inc.
d/b/a Investment Hotlines ("Investment Hotlines"), a Clearwater,
Florida-based company, and its president, James E. Grady
("Grady") (collectively "Respondents"), alleging that the
Respondents committed or caused violations of Section 17(b) of
the Securities Act of 1933 ("Securities Act").
The Order Instituting Public Administrative Cease-And-Desist
Proceedings Pursuant To Section 8A of the Securities Act
("Order") alleges that Investment Hotlines publishes Investment
Hotlines Online, an Internet Web site, which features companies
whose stock is quoted principally on the OTC Bulletin Board. The
Order alleges that the Web site includes, among other things,
one-line corporate profiles and press releases prepared by the
featured companies, as well as links to Web sites maintained by
the companies and others who offer Internet users quote
information on the companies' stocks. The Order further alleges
that in exchange for its Internet services, Investment Hotlines
has received freely tradable common stock and cash from companies
featured on its Web site.
In the Order staff allege that the focus of the Web site was
its "Featured Investment Opportunities " page that contains one-
line descriptions of companies whose stocks are or have been
quoted on the OTC Bulletin Board. Since its inception in or
about December 1995, the Investment Hotlines OnLine Web site has
featured 14 companies on its Featured Investment Opportunities
page. The Order alleges that Investment Hotlines provides links
from its Featured Investment Opportunities page to each of the
featured companies' Web sites which offer additional information
about the company that includes corporate backgrounds, business
descriptions, general financial information, stock symbols,
investment opportunities and outlooks, and/or links to price
quotation services. In addition, the Order alleges that
Investment Hotlines also posts press releases issued by the
companies to its Investment Hotlines OnLine site.
The Order alleges that from the inception of its Web site
through August 31, 1998, Investment Hotlines charged four of the
companies $1,500 each for these promotional services and received
approximately 200,000 shares of common stock from seven other
companies. Until September 23, 1998, the Investment Hotlines
OnLine Web stated that, "[t]he publisher, its affiliates,
officers, directors, subsidiaries, and agents of this
advertisement have been compensated by the companies herein."
This disclosure appeared on a Web page apart from the Featured
Investment Opportunities page and was accessible only by a link
from the sites' home page highlighted as "IMPORTANT INFORMATION-
Please Read". Nowhere on its Web site did Investment Hotlines
disclose which of the featured companies had compensated it for
the publicity it was providing on its Web site, or, more
specifically, that it had received common stock and cash from
these featured companies for that publicity.
As a result of the conduct described above, the staff allege
that Investment Hotlines and Grady committed or caused violations
of Section 17(b) of the Securities Act.
A hearing will be scheduled to determine whether the
allegations are true, and if so, whether a cease-and-desist order
should be entered.
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