Summary: Quantum Group, Ltd. stated that there were over two million dollars in incentives to State Street Securities, Marketing Direct Concepts and a Business Consulting firm (A.B. and Associates). Saf-T-Lok, Inc. (Nasdaq: LOCK) did an offshore stock placement of 1,500,000 shares to three offshore companies all having the same president. The gross proceeds of this stock sale were three million dollars. Out of these proceeds Saf-T-Lok paid $375,000 to Marketing Direct Concepts, $250,000 to A.B. and Associates and $465,000 to State Street Securities. At no time did Quantum Group, Ltd. report that State Street Securities ever received compensation in the form of stock or warrants
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UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
SECURITIES ACT OF 1933
Release No. 7952 / February 14, 2001
ADMINISTRATIVE PROCEEDING
File No. 3-10419
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In the Matter of
MARKETING DIRECT
CONCEPTS, INC. and
MICHAEL A. CALDERONE,
Respondents.
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ORDER INSTITUTING A PUBLIC
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 public proceeding be instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") to determine whether Respondents Marketing Direct Concepts, Inc. ("MDC") and Michael A. Calderone ("Calderone") violated Section 17(b) of the Securities Act.
II.
In anticipation of the institution of these proceedings, MDC and Calderone each have submitted an Offer of Settlement ("Offers") that the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding 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. § 201.1 et seq., MDC and Calderone, by their Offers, without admitting or denying the Commission's findings, except that they admit to the Commission's jurisdiction over them and over the subject matter of this proceeding, consent to the entry of this Order Instituting a Public Proceeding Pursuant to Section 8A of the Securities Act of 1933, Making Findings and Imposing a Cease-and-Desist Order (the "Order").
III.
The Commission's Order finds that:
FACTS
A. Respondents
(1) Marketing Direct Concepts, Inc., ("MDC"), at all relevant times, was a privately held Nevada closed corporation that provided advertising services to small, under-publicized public companies.
(2) Michael Anthony Calderone, age 40, is a resident of Las Vegas, Nevada. During all relevant times herein, Calderone was the President and sole shareholder of Marketing Direct Concepts and was solely responsible for MDC's activities.
B. Other Relevant Entity -- Texas American Group, Inc.
Texas American Group, Inc. ("TAG") was incorporated in Texas in 1967 as Texas American Sulphur Company. After existing as a dormant shell for sixteen years, in 1989 TAG registered 1.723 million shares of its common stock pursuant to an S-18 Registration Statement and three amendments thereto. At all times relevant to this matter, TAG was headquartered in Verdi, Nevada.1
In order to generate investor interest in TAG stock, MDC was hired to place an "advertorial" in the in-flight magazines for major U.S. airlines which promoted TAG as an undervalued stock. The advertorial, which ran in the July 1996 editions of the in-flight magazines, contained false claims concerning TAG's purported assets, including a claim that TAG had acquired the second largest independent retailer in the United Kingdom and that TAG had "close to ½ billion dollars in revenue."
C. Underlying Violations
In April of 1996, TAG retained MDC to perform certain promotional services, including the preparation and publication of a national advertisement about TAG, termed an "advertorial." The advertorial, which appeared in the July 1996 editions of in-flight magazines for the major U.S. airlines, touted TAG, described its stock as "extremely undervalued," and contained a "buy recommendation."
MDC was compensated for these promotional services in an amount of $135,000. Additionally, MDC's contract with TAG provided that MDC would receive 1,440,000 shares of TAG's "unregistered Rule 144 common stock." Despite the fact that MDC had received $135,000, and had contracted to receive even more compensation, MDC did not disclose that payment. Instead, it disclosed in small print at the bottom of the TAG advertorial that, "MDC may from time to time have a position in the securities mentioned herein, or receive compensation for the dissemination of information on the company."2
In late 1996 and early 1997, MDC also received compensation for preparing and publishing in-flight magazine advertisements for Diversifax, Inc., Chadmoore Wireless Group, Inc., and Total World Telecommunications, Inc. As with the TAG advertorial, the disclosures accompanying each of these in-flight magazine advertisements were deficient because they failed to disclose the specific fact of and the amount of compensation received for their preparation and publication. In connection with the preparation of the TAG advertorial, MDC and Calderone used information provided to them by the company.
IV.
LEGAL DISCUSSION
Section 17(b) of the Securities Act provides that, "t shall be unlawful for any person, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails, 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, underwriter, or dealer, without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof." (Emphasis added). Section 17(b) 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 and paid for." House Committee Report No. 85 (1933), 73d Cong., 1st Sess., p. 24.
Calderone and MDC placed in-flight advertorials without disclosing either that MDC had been compensated for placing the advertorials or the amount of compensation received. Even though MDC actually received compensation for publishing the in-flight advertisements that touted TAG, Diversifax, Inc., Chadmoore Wireless Group, Inc., and Total World Telecommunications, Inc., in each instance MDC only disclosed that it "may" have received compensation. By failing to disclose the compensation that was received, the investing public was left with the illusion that the magazine advertisements could be unbiased opinion, rather than one that "in reality [was] bought and paid for" by the issuer of the security. Id. The statute requires that the specific consideration from an issuer must be disclosed, including the amount received. By failing to disclose both that MDC had indeed been compensated for touting TAG, Diversifax, Inc., Chadmoore Wireless Group, Inc., and Total World Telecommunications, Inc., and the amount of such compensation, MDC and Calderone violated Section 17(b) of the Securities Act. See e.g., SEC v. Liberty Capital Group, Inc., 75 F.Supp 2d 1160, 1162 (W.D.Wa. 1999).
V.
FINDINGS
Based on the foregoing, the Commission finds that MDC and Calderone violated Section 17(b) of the Securities Act.
VI.
ORDER
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act, that:
MDC and Calderone 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
1 On August 11, 2000, the Commission filed suit in the United States District Court for the District of Columbia against Texas American Group, Inc., Alan E. Humphrey (Director and President of TAG), Richard E. Lee (Director of TAG) and William Grosvenor (Chief Executive Officer of TAG). The suit seeks a permanent injunction against future violations of the federal securities laws and civil penalties.
The suit alleges that the defendants engaged in a fraudulent scheme to promote TAG's stock and to evade the registration requirements of the federal securities laws. As part of the fraudulent scheme, the defendants made various false claims of asset ownership in Commission filings, at investor seminars, to TAG's auditors and in in-flight magazine advertisements. Among the assets that the defendants falsely claimed were a vacation resort in Tenerife, Canary Islands, Spain, a software-program for Internet lottery and casino games designed for multilingual access by users around the world, a Nevada based hotel development and management company, and a London
Pathology testing service.
2 MDC's disclosure read in its entirety, "This Announcement is not an offer of securities for sale or a solicitation of any offer to buy securities. An offer can be made only with the accompanying Disclosure Documents, and only in the states approved. MDC may from time to time have a position in the securities mentioned herein, or receive compensation for the dissemination of information on the company. The magazine publisher accepts no responsibility for any claims made by the advertiser in the above advertorial."
sec.gov
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