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Court: SEC Can Pursue Net Charges
Updated: Mon, Sep 17 7:05 PM EDT
By LISA LIPMAN, Associated Press Writer
BOSTON (AP) - The 1st U.S. Circuit Court of Appeals has ruled that the Securities and Exchange Commission can pursue fraud charges against an Internet gambling site that ran a "virtual stock exchange."
"We're very disappointed at the court's decision ... the court of appeals has given the SEC the green light for a fishing expedition," said Daniel Small, the attorney for SG Limited and SG Perfect Limited, which ran the StockGeneration Web site.
"Investors" played the game by sending money - usually checks - to StockGeneration and then buying "stocks" in fictitious companies.
The player then wins or loses money based on whether or not the company's value decreases or increases. There is no computerized method for the "stock" going up or down; it was done entirely at the whim of the game's managers.
The Web site will not operate and the company's $6.5 million in assets will remain frozen until the matter is resolved.
The SEC filed a complaint in June 2000 alleging that that the investment offerings of SG Limited and SG Perfect Limited, which run "StockGeneration," were nothing more than a pyramid scam that violated federal securities laws.
But in January, U.S. District Court Judge Joseph L. Tauro agreed with the company that the SEC overreached its authority because the company did not offer, buy or sell securities, and that it presented itself as a game.
The court of appeals agreed in a ruling issued Thursday that there had been substantial disclosure as to what was going on, but also agreed with the SEC's theory that the language of the Web site essentially represented an investment contract of some kind.
"(The decision) confirmed our position that this was (promoted as) investments," said SEC District Administrator Juan Marcel Marcelino.
Marcelino said that if the SEC prevails, "we will seek to reimburse the investors for any losses."
The SEC complained that SG Limited, which operates StockGeneration from the Caribbean island of Dominica, promised risk-free investment and a guaranteed annual return of 215 percent.
The scheme raised hundreds of thousands of dollars, but people did not receive the promised return or even their initial investment, the SEC said. The SEC received complaints about the company from 27 states.
The company said StockGeneration had more than 325,000 players from more than 70 countries, and had paid out millions of dollars in prizes before it was shut down.
Updated: Mon, Sep 17 7:05 PM EDT
By LISA LIPMAN, Associated Press Writer
BOSTON (AP) - The 1st U.S. Circuit Court of Appeals has ruled that the Securities and Exchange Commission can pursue fraud charges against an Internet gambling site that ran a "virtual stock exchange."
"We're very disappointed at the court's decision ... the court of appeals has given the SEC the green light for a fishing expedition," said Daniel Small, the attorney for SG Limited and SG Perfect Limited, which ran the StockGeneration Web site.
"Investors" played the game by sending money - usually checks - to StockGeneration and then buying "stocks" in fictitious companies.
The player then wins or loses money based on whether or not the company's value decreases or increases. There is no computerized method for the "stock" going up or down; it was done entirely at the whim of the game's managers.
The Web site will not operate and the company's $6.5 million in assets will remain frozen until the matter is resolved.
The SEC filed a complaint in June 2000 alleging that that the investment offerings of SG Limited and SG Perfect Limited, which run "StockGeneration," were nothing more than a pyramid scam that violated federal securities laws.
But in January, U.S. District Court Judge Joseph L. Tauro agreed with the company that the SEC overreached its authority because the company did not offer, buy or sell securities, and that it presented itself as a game.
The court of appeals agreed in a ruling issued Thursday that there had been substantial disclosure as to what was going on, but also agreed with the SEC's theory that the language of the Web site essentially represented an investment contract of some kind.
"(The decision) confirmed our position that this was (promoted as) investments," said SEC District Administrator Juan Marcel Marcelino.
Marcelino said that if the SEC prevails, "we will seek to reimburse the investors for any losses."
The SEC complained that SG Limited, which operates StockGeneration from the Caribbean island of Dominica, promised risk-free investment and a guaranteed annual return of 215 percent.
The scheme raised hundreds of thousands of dollars, but people did not receive the promised return or even their initial investment, the SEC said. The SEC received complaints about the company from 27 states.
The company said StockGeneration had more than 325,000 players from more than 70 countries, and had paid out millions of dollars in prizes before it was shut down.