Re: In the Matter of Klein; In the Matter of Martineau
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 7596 / October 27, 1998
ADMINISTRATIVE PROCEEDING
File No. 3-9763
)
In the Matter of )
)
)
RUSSELL KLEIN, )
)
Respondent. )
)
ORDER INSTITUTING A PUBLIC CEASE-AND-DESIST PROCEEDING
PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933, MAKING
FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER
I.
The Securities and Exchange Commission ("Commission")
deems it appropriate that a cease-and-desist proceeding
pursuant to Section 8A of the Securities Act of 1933 be
instituted against Russell Klein ("Klein"). IT IS HEREBY
ORDERED that said proceeding be, and hereby is, instituted.
II.
In anticipation of the institution of this
administrative proceeding, Klein has submitted an Offer of
Settlement, which the Commissin has determined to accept.
Solely for the purpose of this proceeding and any other
proceeding brought by or on behalf of the Commission or in
which the Commission is a party, and without admitting or
denying the findings herein, except that the Klein admits
the jurisdiction of the Commission over him and over the
subject matter of this proceeding, Klein consents to the
entry of this Order Instituting A Public Cease-and-Desist
Proceeding Pursuant to Section 8A of the Securities Act,
Making Findings, and Imposing a Cease-and-Desist Order
("Order") and to the entry of the findings as set forth
below.
III.
On the basis of this Order and of the Offer of
Settlement of Klein the Commission makes the following
findings:
I. Respondent
A. Klein, age 75, resides in Wellford, South
Carolina. Klein is the publisher and editor of
Russ Reports, an investment newsletter he started
in 1993. Russ Reports contains investment
information and publicity concerning the
securities of companies primarily quoted on the
NASDAQ. In the Summer of 1997, Klein began
publishing an Internet version of his newsletter.
II. The Facts
A. In 1997 Klein began publishing an advertisement
for his investment newsletter, the Russ Reports,
on his Internet web site.
B. The web site contained, in addition to the
advertisement for the hard-copy version of the
newsletter, a section called "Thumb Nails" which
contained reports on specific issuers of
securities.
C. The "Thumb Nails" section only included reports on
companies which had purchased subscriptions to
Klein's newsletter.
D. The only disclosure contained on Klein's web site
was the following: "The information contained in
'Russ Reports' is based on sources which I believe
reliable but not guaranteed and is not considered
all inclusive. This firm, individual officers or
members of families may have positions in
securities mentioned and may make purchases or
sales of securities in open market or otherwise."
E. The web site did not disclose that Klein had
received from the issuers which were being touted
compensation in the form of subscriptions.
F. Klein had previously made clear to issuers that
reports about them would be placed on the Internet
if they purchased subscriptions to his newsletter.
G. Klein, by the actions stated in paragraphs B.1
through B.6. above, committed violations of
Section 17(b) of the Securities Act.
IV.
Based on the foregoing, the Commission deems it
appropriate to accept the Offer of Settlement of Klein and
accordingly,
IT IS ORDERED, pursuant to Section 8A of the Securities
Act, that Klein cease and desist from committing or causing
any violation and committing or causing any future violation
of Section 17(b) of the Securities Act.
By the Commission.
Jonathan G. Katz
Secretary
=====
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 7599 / October 27, 1998
ADMINISTRATIVE PROCEEDING
File No. 3-9767
:
In the Matter of : ORDER INSTITUTING PUBLIC
: ADMINISTRATIVE PROCEEDINGS
: PURSUANT TO SECTION 8A OF
Eugene B. Martineau, : THE SECURITIES ACT OF 1933,
: MAKING FINDINGS, AND
: IMPOSING A CEASE-AND-DESIST
: ORDER
:
Respondent. :
______________________________:
.
The Securities and Exchange Commission ("Commission") deems
it appropriate that public administrative proceedings be, and
hereby are, instituted pursuant to Section 8A of the Securities
Act of 1933 ("Securities Act") against Eugene B. Martineau
(hereinafter "Martineau" or "Respondent").
.
In anticipation of the institution of these administrative
proceedings, the Respondent has submitted an Offer of Settlement
(hereinafter the "Offer") 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, and without admitting or denying
the findings set forth herein, Respondent consents to the entry
of this Order Instituting Public Administrative Proceedings
Pursuant to Section 8A of the Securities Act of 1933, Making
Findings, and Imposing A Cease-and-Desist Order (hereinafter the
"Order").
.
On the basis of this Order and the Respondent's Offer, the
Commission makes the following findings:
. Summary
This matter involves the touting of a company's stock by
Martineau on the Internet without making any disclosure that he
expected to receive compensation in the form of stock provided
indirectly from the company. Martineau's actions constituted
violations of Section 17(b) of the Securities Act.
Between December 1996 and the end of May 1997, Martineau
made more than 60 postings on an Internet "bulletin board"
maintained by the Silicon Investor concerning a company which had
securities which traded on the OTC Bulletin Board ("the Bulletin
Board Issuer"). Martineau initiated the first posting about the
Bulletin Board Issuer on December 11, 1996, and, in the more than
60 postings that followed, spoke glowingly about the favorable
prospects for its stock, urging readers to purchase the stock or
to hold onto the shares they owned. Giving the impression that
he was simply an investor in the Bulletin Board Issuer who wanted
to share his views with others, Martineau did not disclose that
he had a 24-month option to buy 5,000 shares of the issuer's
stock at $1.50 per share that were to be provided indirectly by
the Bulletin Board Issuer.
. Respondent
Martineau, age 55, lives and works in New York City.
Operating under his company name, EBM, Inc., Martineau has for
the past few years sold computer software for a few companies and
attempted to secure clients for a company that operates an
Internet web site designed to provide securities brokers and
dealers with the names of possible investors ("the Internet Web
Site Provider").
. Facts
1. Martineau's Touting Activities
On December 11, 1996, Martineau established a folder on the
Silicon Investor "bulletin board" on the Internet promoting the
stock of the Bulletin Board Issuer. At the time, the Bulletin
Board Issuer's stock was trading at $ 15/16 per share. For the
next six months, through May 29, 1997, Martineau made more than
60 postings touting the company and urging readers to buy its
shares and to hold onto those shares they had already bought.
After a relatively steady rise in price, reaching a high of $9
per share on February 4, 1997, the Bulletin Board Issuer's stock
price ultimately fell to $2 per share on May 27, 1997, two days
before Martineau's last posting.
2. Martineau's Agreement to be Compensated
During the vast majority of the six-month time period in
which Martineau was touting the Bulletin Board Issuer's stock,
Martineau had an understanding, which he never disclosed, that
promised him compensation in the form of an option to buy shares
of the Bulletin Board Issuer that were to be provided indirectly
by the company.
Martineau's compensation was to come to him indirectly from
the Bulletin Board Issuer. The issuer entered into an agreement
as of November 3, 1996, to provide compensation, in the form of
company stock, to an investor relations firm for certain
services. On December 20, 1996, the investor relations firm then
entered into an agreement, drafted by Martineau, with the
Internet Web Site Provider for which Martineau had done work in
the past. That agreement stated that the Internet Web Site
Provider would receive, for six months of its services, "a 24
month option to buy 10,000 shares of (the Bulletin Board
Issuer's)common stock at $1.50/share."
In December 1996 Martineau entered into an understanding
with the Internet Web Site Provider, pursuant to which the latter
agreed that the two would split 50/50 the 10,000 options in the
Bulletin Board Issuer. Subsequently in January 1997, the
understanding was memorialized and stated that the options would
be provided in exchange both for the provision of Internet
services to the Bulletin Board Issuer by the Internet Web Site
Provider and for "establishing and maintaining investor
information folders on Silicone (sic) Investor (tech talks), and
on AOL's Motley Fool, which I (Martineau) will be responsible
for." To date, the option to purchase the shares has not been
formally transferred to Martineau nor has he exercised any such
option.
D. Violations
Section 17(b) of the Securities Act
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, or 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, underwriter, or
dealer, without fully disclosing the receipt, whether past
or prospective, of such consideration and amount thereof.
In return for promoting the securities of the Bulletin Board
Issuer for six months, Martineau expected to receive compensation
indirectly from the company. Martineau, however, never disclosed
that he expected to receive such compensation, nor the amount
thereof, when he posted messages on the Silicon Investor
promoting the Bulletin Board Issuer. Accordingly, Martineau
violated Section 17(b) of the Securities Act.
.
Based on the foregoing, the Commission deems it appropriate
to accept the Respondent's Offer and to impose a Cease-and-Desist
Order as specified in the Offer.
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of
the Securities Act, that Martineau cease and desist from
committing or causing any violation, and any future violations,
of Section 17(b) of the Securities Act.
By the Commission.
_____________________________
Jonathan G. Katz
Secretary
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