FOR IMMEDIATE RELEASE 99-138
In First Case of Its Kind, Commission Sues Three Individuals for
Illegally Offering Securities Over Internet Auction Site
Washington, DC, October 20, 1999 -- The Commission today
brought and settled securities charges against three people who
illegally offered to sell securities on the Internet auction site
run by eBay, Inc. ("eBay"). The Commission issued cease-and-
desist orders against the three individuals. This is the first
case in which the Commission brought charges based on sales of
securities over an Internet auction site.
The Commission found that in auctions on eBay:
* Richard L. Davis, of Duncanville, Texas, illegally
misrepresented the prospects that a company he founded would go
public and offered to sell unregistered stock.
* J.R. Hoff, of Hudson, Wisconsin, illegally offered to sell
unregistered stock in an unincorporated company he owns.
* Louis P. Sitaras, of Jupiter, Florida, illegally offered to
sell restricted securities, meaning securities that could not be
sold publicly.
The Commission approved settlements with each of the three
respondents simultaneously with the institution of the actions.
The Commission ordered each respondent to cease-and-desist from
violating the relevant provisions of the securities laws. The
respondents neither admitted nor denied the claims against them.
eBay was not accused of any wrongdoing.
Helane L. Morrison, District Administrator for the
Commission's San Francisco District Office said, "The securities
laws ensure that investors have access to reliable, accurate
information about a security prior to making an investment
decision. These laws apply in cyberspace, just as they do
elsewhere."
1. Richard L. Davis -- In May 1999, Davis posted an offer on
eBay to sell a 5% interest in Mindhunt.com, a company he founded,
for $250,000. In his offer, Davis claimed that he had "purchased
a public shell [company]" and that Mindhunt.com would be a public
company "within 4 to 5 months." The Commission found that at the
time of his offer, Davis had not incorporated Mindhunt.com, had
not purchased a public shell company, and had no reasonable basis
for the claim that Mindhunt.com would be public within 4 to 5
months. Moreover, Davis illegally offered to sell unregistered
stock. No one bid in response to Davis' offer.
2. J.R. Hoff -- In April 1999, Hoff posted an offer on eBay
to sell 1,000 shares in AmeriGa.net, a company Hoff co-owns.
Hoff illegally offered to sell unregistered stock and, in fact,
at the time of his offer, AmeriGa.net had not even been
incorporated. Several people bid on the shares, but no sale was
consummated before eBay nullified the auction in response to a
contact by the Commission staff.
3. Louis P. Sitaras -- In May 1999, Sitaras posted an offer
on eBay to sell 2,000 shares of Metropolitan Health Networks,
Inc. ("MHN"), a health care services company. Although MHN stock
trades on the OTC Bulletin Board, the shares Sitaras offered to
sell were restricted and could not be offered for sale publicly
until September 1999. In response to Sitaras' posting, several
people placed bids, but Sitaras determined not to proceed with
the auction after the Commission staff contacted him. The
Commission found that Sitaras had illegally offered unregistered
securities for sale.
The Commission found that Davis engaged in securities fraud,
in violation of Sections 17(a)(1) and 17(a)(3) of the Securities
Act of 1933 ("Securities Act"), and sold unregistered securities,
in violation of Section 5 of the Securities Act. The Commission
found that Hoff and Sitaras also violated Section 5 of the
Securities Act. Section 5 requires, among other things, that
stock issued to the public be registered with the Commission,
unless an exemption from registration applies.
For more information contact:
Helane L. Morrison
District Administrator, San Francisco District Office
(415) 705-2450
Robert L. Mitchell
Branch Chief, San Francisco District Office
(415) 705-2351
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