To all: I just read the following at the wsj site and am posting it here.
May 12, 1999
--------------------------------------------------------------------------------
FTC Says Hitsgalore Official Knew Complaint Was Ongoing
By ANTHONY PALAZZO
Dow Jones Newswires
BUENA PARK, Calif. -- Hitsgalore.com Inc. (HITT) founder and technology director Dorian Reed is lying when he says he believed fraud allegations against him had been resolved when he failed to disclose the allegations in a February Securities and Exchange commission filing, according to the Federal Trade Commission executive who supervised the fraud litigation.
"Any characterization that he had no knowledge of this action, and much of what transpired, would be incorrect," said Eileen Harrington, the FTC's associate director for marketing practices. "Rather, I think the correct characterization would be that he chose to ignore all efforts to communicate."
Hitsgalore shares plunged 51% on Tuesday after a report that Reed failed to make the disclosure in February, when the Rancho Cucamonga, Calif., Internet marketing firm filed papers with the SEC to merge with a public shell company, Systems Communications Inc., of Clearwater, Fla. The failure to make the disclosure was first reported by Bloomberg Business News.
In the Feb. 11 filing, Hitsgalore.com said none of its officers or employees were subjects of a governmental investigation. On the contrary, Reed and two other principals of Internet Business Broadcasting, which also was based in Rancho Cucamonga, were the subjects of an FTC complaint filed in February 1998, alleging the three made false and misleading claims on their web site and in junk e-mail messages called "spam."
In April, FTC officials won a default judgment against the three defendants for $613,110 and a court order barring Reed from assisting in the making of false statements in the future.
In a press release issued Tuesday, Reed said he thought the matter was resolved and he was unaware that the FTC had taken any further action or sought a judgment.
"More than one year ago I received the complaint from the FTC. I personally responded without the aid of a lawyer and I denied all allegations. I have heard nothing since I responded and I assumed the matter was taken care of last spring," said a statement attributed to Reed.
Not true, says Harrington, of the FTC.
"Mr. Reed was personally served with the complaint and the summons in this case, and all of the subsequent motions and pleadings that we filed were sent to him either by registered mail or by courier," Harrington told Dow Jones. "He wrote 'refused' on them and refused to accept them."
This continued for a short time, Harrington said, until Reed moved and refused to leave a forwarding address. "There came a time that communications and pleadings that we sent to him were returned by the Postal Service indicating that he moved and left no forwarding address," she said.
The record of Reed's failure to respond "was before the court when the court entered the default judgment," she said.
Harrington also disputes Reed's claim that he responded to the complaint without an attorney. "Initially he was represented by an attorney in this case and dismissed the attorney," she said. "So certainly at the commencement of this action, when he received the complaint and summons, he had benefit of counsel," she said.
Reed didn't immediately respond to questions e-mailed to him at Hitsgalore.com, as the company requested.
According to documents filed with the SEC, Hitsgalore.com was formed in July 1998, four months after the FTC filed its complaint against Reed, the two others and Internet Business Broadcasting.
Hitsgalore began operating its Web site in November, with a business that sells $99 "sponsorships" for free ad banners. The Web site also offers sponsorships of "Local City Editor" licenses, at a minimum cost of $1,495 for one year.
It is not clear from the Web site how investors in Hitsgalore.com sponsorships are supposed to make money, but some of the claims are similar to those laid out in the FTC's complaint against Internet Business Broadcasting.
For example, Hitsgalore claims that "First year earnings potential for local city editors is about $50,000 with only a few sales a day!"
In its 1998 complaint, the FTC alleged that Internet Business Broadcasting's e-mail spams touted leased Web billboards as the "business opportunity (that) offers a solid return potential of 100.8% the first year with only a 25% occupancy rate," and a guaranteed return on investments of $5,000 to $7,500. Few purchasers achieved these levels of response and the defendants did not provide the full refund it promised, the FTC said.
Reed was described in the FTC complaint as Internet Business's "principal telemarketer."
Once Hitsgalore.com began trading publicly on Nasdaq's OTC Bulletin Board, its share price rose dramatically, to a close of 20 1/8 on Monday from less than 2 in mid-March. The price implied a market capitalization of $1 billion for a company with unaudited revenue of less than $10,000 last year.
On Tuesday, in the wake of news reports about Reed, Hitsgalore shares lost more than half their value, but they rebounded on Wednesday to close at 12, up 2 5/8, on volume of 1.3 million shares.
- Anthony Palazzo; (714) 739-5538;
tony.palazzo@cor.dowjones.com
|
