United States of America
Before the
Securities and Exchange Commission
Securities Act of 1933
Release No. 8311 / October 23, 2003
Administrative Proceeding
File No. 3-11313
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In the Matter of
Energy & Engine Technology Corporation and ProActive Computer Services, Inc.,
Respondent.
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: ORDER INSTITUTING PUBLIC CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") against Energy & Engine Technology Corporation ("Energy & Engine") and ProActive Computer Services, Inc. ("ProActive") (collectively "Respondents").
II.
In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement (the "Offers") 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 without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public Cease-and-Desist Proceedings, Making Findings and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 ("Order"), as set forth below.
III.
On the basis of this Order and Respondents' Offers, the Commission finds1 that:
FACTUAL SUMMARY
1. This matter involves a common abuse found among certain small publicly held companies. In recent years, many such companies have hired stock promoters to tout their shares on stock-picking websites and through mass-mailed e-mail messages (commonly known as "spam"). The promoter is often compensated in the form of purportedly unrestricted shares of the company's common stock, which the promoter sells after its touting has attracted investor interest in the company.
2. Under the federal securities laws, a public company cannot distribute unrestricted stock to ublic investors without first registering the offering with the Commission or having a valid exemption from registration for the transaction. Registration requires a company to provide important information about its finances and business to potential investors, and allows the Commission to review the company's disclosures. In an attempt to circumvent those registration requirements, certain issuers have sought alternate sources of purportedly "free trading" company stock in order to compensate the stock promoters. In such arrangements, the issuers and promoters are nonetheless participating in an unregistered offering of securities to the public in violation of the federal securities laws, as described below.
RESPONDENTS
3. Energy & Engine, a Nevada corporation headquartered in Plano, Texas, maintains a natural gas gathering system. Energy & Engine's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), and is quoted on the OTC Bulletin Board under the symbol EENT.
4. ProActive, a Nevada corporation based in Houston, Texas, provides computer services to small and medium-sized businesses. ProActive's common stock is not registered with the Commission, and is quoted in the Pink Sheets under the symbol PAVP.
OTHER RELEVANT PERSONS
5. MicroCap Marketing, Inc. ("MicroCap Marketing") an Illinois corporation, promotes small cap companies on several websites it operates, including MicroCapMarketing.com, HotOTCStockPicks.com, and PennyGems.com, and in an electronic newsletter, Hot OTC Stock Picks.
6. Shane M. Nelson ("Nelson"), 29, of Bethany, Illinois, is the President and Chief Executive Officer of MicroCap Marketing.
7. Harold Engel, Jr. ("Engel"), 51, of Vancouver, Washington, promotes small cap stocks on his website, WillyWizard.com.
8. Lorsin, Inc. ("Lorsin") is a Florida corporation that promotes small cap companies on its website, GreedOrFear.com.
9. Loretta M. Lockhart ("Lockhart"), 30, of Kill Devil Hills, North Carolina, is the sole officer and director of Lorsin.
10. Craig K. Hjalmarson (Hjalmarson"), 31, of Kill Devil Hills, North Carolina, manages Lorsin and operates the GreedOrFear.com website.
11. George R. Siembida ("Siembida"), 55, of Depew, New York, ran a financial consulting and stock promotion business from approximately 1998 through 2002 under the name Russell Management, Inc.
12. Russell Management, Inc. ("Russell Management") is a private, New York corporation controlled by Siembida.
THE UNREGISTERED DISTRIBUTION OF ENERGY & ENGINE SECURITIES
13. In January 2002, Energy & Engine filed a Form S-8 Registration Statement for the proposed offering of up to 1,000,000 common shares of stock ("Energy & Engine S-8 shares"). The Form S-8 permitted Energy & Engine to issue unrestricted stock to certain employees and consultants. However, under the Securities Act (and as stated in the instructions to Form S-8), Energy & Engine could not use this Form S-8 to issue unrestricted stock to stock promoters.
14. Energy & Engine then hired Siembida and his company, Russell Management, to promote the company on the Internet. To pay for these services, Energy & Engine issued to Siembida 200,000 Energy & Engine S-8 shares on January 10, 2002.
15. Siembida subcontracted with Engel, who operates a stock picking website, WillyWizard.com, to promote Energy & Engine. To compensate Engel, Siembida transferred 185,000 of his Energy & Engine S-8 shares to Engel on January 18, 2002.
16. Engel, in turn, subcontracted with Lorsin's Hjalmarson to profile Energy & Engine on the website Hjalmarson operated, GreedOrFear.com. Engel also hired Nelson to profile Energy & Engine on the websites Nelson operated under the MicroCap Marketing name.
17. On January 25, 2002, Engel transferred a portion of his Energy & Engine S-8 shares to Hjalmarson and Nelson to pay for their promotional efforts. Hjalmarson's shares were deposited into a brokerage account in the name of Lorsin, and in which Hjalmarson was authorized to trade. Nelson's shares were deposited into his personal brokerage account.
18. By January 18, 2002, Engel had posted a profile touting Energy & Engine on his website, WillyWizard.com.
19. Nelson posted on his PennyGems.com website a profile touting Energy & Engine on or about January 21, 2002. Hjalmarson, who operated Lorsin, distributed to subscribers of Lorsin's GreedOrFear.com stock-promotion website an Energy & Engine press release on or about January 23, 2002.
20. From January 16, 2002 through January 24, 2002, and while Energy & Engine's stock was being promoted on the Internet, the price of Energy & Engine's stock rose 68 percent, from $0.29 to $0.49 per share, on average daily trading volume that was 659 percent higher than that of the preceding six months.
21. Following the promotional efforts described above, Engel, Hjalmarson, Nelson, and Siembida sold their Energy & Engine S-8 shares on the open market for $8,167.50, $998, $2,042, and $3,390.40, respectively.
22. Although certain issuers may register a securities offering under particular circumstances using the simplified procedure offered by Form S-8, such registration is not available for securities offered as compensation for stock promotion services. The transaction in which Energy & Engine issued shares to Siembida was not eligible for Form S-8 registration.
23. No applicable registration statement was filed with the Commission or was in effect as to the Energy & Engine shares sold by Siembida, Engel, Hjalmarson, and Nelson. Because Siembida obtained the stock from the issuer in an unregistered offering with a view to distributing the stock to the public, Siembida was an underwriter, as defined by the Securities Act, in this public distribution of Energy & Engine stock. Engel, Hjalmarson, and Nelson, who participated in this distribution, also could not sell their stock to the public unless the sales were registered. Therefore, the sales of Energy & Engine stock by Siembida, Engel, Hjalmarson, and Nelson violated Sections 5(a) and 5(c) of the Securities Act.
THE UNREGISTERED DISTRIBUTION OF PROACTIVE SECURITIES
24. In March 2001, ProActive, through its president, hired Nelson to promote the company. ProActive agreed to compensate Nelson for its services with a combination of restricted and purportedly unrestricted ProActive shares. Nelson signed the agreement with ProActive on behalf of his company, MicroCap Marketing.
25. ProActive arranged for a third-party shareholder to transfer 300,000 shares of ProActive stock to Nelson's personal brokerage account. Nelson realized that an issuer cannot provide unrestricted stock directly without registering the transaction.
26. In early March 2002, Nelson began the ProActive campaign by posting profiles of ProActive on MicroCap Marketing's websites and touting the stock in his electronic newsletter.
27. Nelson sold the ProActive shares shortly after he received them from the third-party shareholder on the open market for $1,340.50.
28. No registration statement was filed with the Commission or was in effect as to the ProActive shares sold by Nelson. Because he obtained the stock from a person directly or indirectly controlling or controlled by ProActive, or under direct or indirect common control with ProActive, with a view to distributing the stock to the public, the stock was not exempt from registration. As a result, the securities were restricted and could not be sold to the public within a year after they were acquired by Nelson. Therefore, the securities transactions described above violated Sections 5(a) and 5(c) of the Securities Act.
VIOLATIONS
29. As a result of the conduct described above, Respondents violated Sections 5(a) and 5(c) of the Securities Act, which prohibit the offer or sale of securities through the mails or in interstate commerce, unless a registration statement has been filed or is in effect as to such securities.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondents' Offers.
Accordingly, it is hereby ORDERED that Respondents cease and desist from committing or causing any violations and any future violations of Sections 5(a) and 5(c) of the Securities Act.
By the Commission.
Jonathan G. Katz
Secretary
Endnote
1 The findings herein are made pursuant to Respondents' Offers and are not binding on any other person or entity in this or any other proceeding.
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