UNITED STATES OF AMERICA Before the
SECURITIES AND EXCHANGE COMMISSIONSECURITIES ACT OF 1933
Release No. 7267 / February 26, 1996SECURITIES EXCHANGE ACT OF 1934
Release No. 36886 / February 26, 1996ADMINISTRATIVE PROCEEDINGFile No. 3-8963
---------------------------------:
In the Matter of : ORDER INSTITUTING PROCEEDINGS
: PURSUANT TO SECTION 8A OF THE
Continental Capital & Equity : SECURITIES ACT OF 1933 AND
Corp. and John R. Manion, : SECTION 21C OF THE SECURITIES
: EXCHANGE ACT OF 1934, MAKING
Respondents. : FINDINGS, AND ORDERING
: RESPONDENTS TO CEASE AND
: DESIST_________________________________:
I.
The Securities and Exchange Commission ("Commission") deems
it appropriate and in the public interest that proceedings be,
and they hereby are, instituted pursuant to Section 8A of the
Securities Act of 1933 ("Securities Act") and Section 21C of the
Securities Exchange Act of 1934 ("Exchange Act") to determine
whether Continental Capital & Equity Corp. ("CCE") and John R.
Manion ("Manion") violated Section 17(b) of the Securities Act
and Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2thereunder.
II.
In anticipation of the institution of these proceedings,
Respondents CCE and Manion have each 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 to which the
Commission is a party, and prior to a hearing pursuant to the
Commission's Rules of Practice, 17 C.F.R. Section 201.100 et
seq., Respondents CCE and Manion, 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 Proceedings Pursuant to
Section 8A of the Securities Act of 1933 and Section 21C of the
Securities Exchange Act of 1934, Making Findings and Ordering
Respondents to Cease and Desist and to the entry of the findings
and imposition of the sanctions set forth below.
III.
On the basis of this Order and Respondents' Offers of
Settlement, the Commission makes the following findings: A. RESPONDENTS
CCE is a Florida corporation, which maintains its principal
place of business in Maitland, Florida. CCE prepares and
distributes direct mail advertisements to potential investors on
behalf of publicly held corporations.
Manion, age 47, resides in Apopka, Florida. Manion is the
president and sole owner of CCE. B. OTHER RELEVANT ENTITIES
First National Entertainment Corp., f/k/a 1st National Film
Corp., ("First National") is a Colorado corporation, which, at
all relevant times, maintained its principal place of business in
Austin, Texas. First National's common stock has been registered
with the Commission pursuant to Section 12(g) of the Exchange Act
since November 9, 1989, and has been listed on NASDAQ since July
1991.-[1]- Since late 1990, First National has engaged in
the acquisition, development and marketing of animated films. At
all relevant times, the company's primary asset was a feature-
length, animated film entitled "Happily Ever After." First
National released "Happily Ever After" in theaters on May 28,1993.-[2]-
---------FOOTNOTES----------
-[1]- In the early fall of 1992, First National stock
sold at an average price of approximately $5 per
share on average daily volume of 15,000 to 20,000
shares. Between late October 1992 and the end of
May 1993, trading in First National stock
increased significantly, reaching a high of $9
13/16 on April 13, 1993, on volume of
approximately 1.3 million shares.
-[2]- On June 27, 1995, the Commission filed a complaint
in the U.S. District Court for the Western
District of Texas (Civil No. A 95CV 371 AA)
alleging, among other things, that First National,
certain of its executive officers and others had
violated the anti-fraud provisions of the federal
securities laws by, among other things, making
(continued...)
C. FACTS 1. CCE's Publications
Between approximately November 1992 and April 1993, CCE and
Manion wrote and distributed two advertising pieces about First
National. The first of these publications was entitled "Inside
Wall Street," and the second was entitled the "Corporate
Profile." Both publications were essentially tout sheets for
First National's stock. Manion drafted the publications based
upon information provided to him by First National. First
National reviewed and approved the text of the publications and
authorized CCE to distribute them to prospective investors.
"Inside Wall Street" was a four-page glossy brochure, which
was designed to resemble an investment newsletter. The bulk of
the brochure described the boom in the animated film industry and
favorably compared First National to Walt Disney Studios. The
brochure projected that First National's film "Happily Ever
After" would gross $60 to $80 million at the box office and net
an additional $35 to $42 million in video tape sales.-[3]-
The final page of "Inside Wall Street" contained a disclaimer in
small print that stated, in part: "Officers, directors or
affiliates of the publisher may from time to time have a position
in the securities mentioned herein, or receive compensation for
dissemination of information on the company." The advertisement
also contained a postage-paid reply card that interested persons
could send to CCE and an "800" number they could call to obtain
additional information about First National.
CCE distributed "Inside Wall Street" in four bulk mailings
to a total of approximately 400,000 prospective investors
nationwide.-[4]- CCE coordinated investor responses to the
---------FOOTNOTES---------- -[2]-(...continued)
false and misleading statements to the public
concerning the revenues the company anticipated
from the release of "Happily Ever After" and the
financing the company had obtained to release the
film.
-[3]- After its release, "Happily Ever After" grossed
approximately $4 million in box office receipts
and $5.6 million in video tape revenues.
-[4]- CCE made the bulk mailings in December 1992 and
January, March and April 1993. CCE prepared new
editions of "Inside Wall Street" for each bulk
mailing that were substantially identical to the
original.
==========================================START OF PAGE 3======
brochure through the reply cards and calls to the "800" number
and forwarded the names and addresses of those who responded to
First National and to brokerage firms identified to it by FirstNational.
In approximately December 1992 and January 1993, CCE wrote
a second advertising piece called the "Corporate Profile" and
distributed it to about 4,000 persons who had replied to the
solicitation in "Inside Wall Street." The "Corporate Profile"
reiterated much of the information in "Inside Wall Street," but
also provided historical data about First National. The
"Corporate Profile" contained a chart setting out First
National's anticipated earnings from "Happily Ever After" and
projecting an exponential increase in the value of the company's
stock. The "Corporate Profile" contained a disclaimer identical
in all material respects to that contained in "Inside WallStreet."
Pursuant to written agreements between First National and
CCE, First National made periodic payments to CCE for the
publication and distribution of "Inside Wall Street" and the
"Corporate Profile" in the form of First National stock. Between
November 1992 and March 1993, First National issued approximately
148,500 shares of its stock to CCE pursuant to this agreement.
Shortly after receiving the shares, CCE sold them in the open
market for a total of approximately $781,000.
2. CCE's Acquisition of More Than 5% of First
National's Stock and Its Filings on Schedule 13D
In March 1993, First National and CCE entered into an
arrangement to finance the release of "Happily Ever After."
Pursuant to this arrangement, First National issued stock to CCE.
CCE, in turn, sold the stock in the open market and used the
proceeds to pay various expenses incurred by First National in
connection with the release of its film.-[5]- Between March
9 and May 18, 1993, First National issued a total of
approximately 1.8 million shares of its stock to CCE. CCE and
Manion sold these shares in increments between March 9 and May
20, 1993, for a total of approximately $9.8 million.
CCE filed two Schedules 13D, dated March 25 and April 7,
1993, with the Commission in connection with the stock it had
acquired pursuant to its financing agreement with First National.
---------FOOTNOTES----------
-[5]- In March 1993, First National and CCE entered into
a written contract in which First National granted
to CCE options to purchase First National stock
that were exercisable only upon payment in cash or
upon presentation of paid invoices for media
purchased.
==========================================START OF PAGE 4======
First National's counsel prepared, and Manion signed, both of
these filings. Both filings were incomplete andinaccurate.-[6]-
The first filing was comprised of a cover page and a single
attached page containing the disclosures required by Items 5(c)
through 7 of Schedule 13D. No disclosure was made of the
information required by Items 1 through 5(b).-[7]- In the
list of recent transactions required by Item 5(c) of the
Schedule, CCE and Manion disclosed the purchase of two blocks of
First National common stock that they had obtained in connection
with the distribution of "Inside Wall Street." They failed to
disclose, however, CCE's acquisition of an additional 600,000
shares, representing approximately 8.7% of the issued and
outstanding shares, of First National common stock on March 9,
1993. CCE acquired these shares pursuant to its financing
arrangement with First National and sold the bulk of the shares
by March 25, 1993, the date of the filing.
The second Schedule 13D filed by CCE on or about April 7,
1993, disclosed the acquisition and subsequent sale of First
National stock acquired by CCE on March 9, 1993, pursuant to its
agreement with First National. However, CCE and Manion falsely
stated in the Schedule that CCE had purchased the First National
stock "with services and expenses incurred" and failed to
disclose the true nature of the arrangement between CCE and First
National concerning the acquisition and disposition of First
National securities. In addition, CCE and Manion did not
disclose the acquisition of an additional 600,000 shares of First
National stock on March 26, 1993, and the sale of the bulk of
this stock by the date of the filing. Finally, CCE and Manion
never amended CCE's Schedule 13D filings to reflect the
acquisition of a total of approximately 600,000 shares of First
National stock on April 13 and May 18, 1993, and the subsequent
sale of these shares. D. LEGAL DISCUSSION
1. Violations of Section 17(b) of
the Securities Act by CCE and Manion
Section 17(b) of the Securities Act, in pertinent part,
makes it unlawful for any person:---------FOOTNOTES----------
-[6]- These filings were also late. CCE should have
filed its Schedules 13D by March 19 and April 9,
1993, respectively.
-[7]- Manion had no explanation for the missing page and
could not provide the staff with a complete copy
of the filing.
==========================================START OF PAGE 5======
to publish... or circulate any notice, circular,
advertisement... 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 an 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 SEC v. Wall Street Pub. Institute, Inc.,
851 F.2d 365, 369 n.6 (D.C.Cir. 1988).
CCE and Manion failed to disclose in either "Inside Wall
Street" or the "Corporate Profile" that they had an agreement
with First National pursuant to which they would receive First
National stock for the publication and distribution of the
advertisements and the amount of the compensation they were to
receive. The only mention of any compensation agreement in
either publication was contained in the disclaimer in each, which
read: "[o]fficers, directors and affiliates of the publisher may
from time to time have a position in the securities mentioned
herein, or receive compensation for dissemination of information
on the company." This disclaimer was misleading in that it
failed to disclose the existence of a compensation agreement that
had already been entered into, as opposed to one that might be
entered into in the future. In the January, March and April 1993
editions of "Inside Wall Street," CCE and Manion failed to
disclose not only the existence of similar compensation
agreements, but also of the actual compensation they had received
in connection with the publication of earlier editions.
CCE's and Manion's failure to disclose the compensation
agreements with First National and the compensation they were
entitled to receive, or had already received, for the publication
of "Inside Wall Street" and the "Corporate Profile" violated
Section 17(b) of the Securities Act.
2. Violations of Section 13(d) of the Exchange
Act and Rules 13d-1 and 13d-2 by CCE and Manion
Section 13(d) of the Exchange Act and Rule 13d-1 thereunder
require any person who directly or indirectly acquires beneficial
ownership of more than 5% of a class of equity securities of a
public company to file a Schedule 13D with the Commission within
10 days of such acquisition. Rule 13d-2 further requires that,
if any material change occurs in the facts set forth in Schedule,
including, but not limited to, a material increase or decrease in
==========================================START OF PAGE 6======
the percentage of the class beneficially owned, such filing
person shall promptly file an amendment to the Schedule
disclosing such change. It is axiomatic that the information
disclosed in a Schedule 13D must be true and accurate and that
the Schedule not contain any false or misleading statements. See
GAF v. Milstein, 453 F.2d 709 (2d Cir. 1971). Proof of scienter
is not required to establish a violation of these reporting
provisions. See SEC v. Savoy Industries, Inc., 587 F.2d 1149,
1167 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979).
Between approximately March 9 and April 12, 1993, CCE
acquired and sold over 5% of First National common stock. On or
about March 29 and April 13, 1993, CCE filed two Schedules 13D,
signed by Manion, with the Commission concerning these
transactions. Both of these filings were late, incomplete and
inaccurate. The first filing failed to disclose the bulk of the
information required by the Schedule and contained a list of
transactions in First National stock that omitted the acquisition
of an 8.7% block during the reporting period. The second filing
failed to disclose the true nature of the agreement between CCE
and First National concerning the acquisition and disposition of
First National securities, and CCE's acquisition and sale of
600,000 shares of First National stock during the reporting
period. Finally, between April 13 and May 18, 1993, CCE acquired
an additional block of 600,000 shares of First National stock and
failed to file an amendment to its Schedules 13D. As a result,
CCE and Manion violated Section 13(d) of the Exchange Act and
Rules 13d-1 and 13d-2 thereunder. IV.
Based on the foregoing, the Commission finds that CCE and
Manion willfully violated Section 17(b) of the Securities Act and
Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2thereunder.
V.
In view of the foregoing, the Commission deems it
appropriate and in the public interest to accept the Respondents'
Offers of Settlement and to impose the sanctions specifiedtherein.
Accordingly, the Commission HEREBY ORDERS that:
A. John R. Manion and Continental Capital & Equity Corp.
cease and desist from committing or causing any
violation and any future violation of Section 17(b) of
the Securities Act and Section 13(d) of the Exchange
Act and Rules 13d-1 and 13d-2 thereunder.
==========================================START OF PAGE 7======
By the Commission. Jonathan G. Katz
Secretary |
