October 11, 2000
Mr. Robert
Pagliarini
Chief Executive Officer
Progressive Technology Inc.
9663
Santa Monica Blvd. # 230
Beverly Hills, CA 90210
Re: Denial
of No-Action Request to Progressive Technology Inc.
Dear Mr. Pagliarini:
In your letter dated February 10, 2000 (a copy
of which is enclosed), you requested assurance that the staff would not
recommend enforcement action to the Commission if Progressive Technology, Inc.
("Progressive") engages in the activities outlined in your letter, through its
web site at <http://http://www.seekingcapital.com/>, without
registering as a broker-dealer under Section 15(b) of the Securities Exchange
Act of 1934 ("Exchange Act"), as an exchange under Section 6 of the Exchange
Act, or as an investment adviser under Section 203(a) of the Investment Advisers
Act of 1940 ("Advisers Act").
We are unable to offer you assurance that
the staff of the Division of Market Regulation would not recommend enforcement
action by the Commission under Section 15(a) of the Exchange Act if Progressive
engages in the activities described in your letter without registering as
[*2] a
broker-dealer.
Section 15(a) of the Exchange Act makes it unlawful for a
broker or dealer "to effect any transactions in, or to induce or attempt to
induce the purchase or sale of, any security (other than an exempted security or
commercial paper, bankers' acceptances, or commercial bills) unless such broker
or dealer is registered" with the Commission. Section 3(a)(4) of the Exchange
Act defines a "broker" as a person, other than a bank that is "engaged in the
business of effecting transactions in securities for the account of others."
A person effects transactions in securities if he or she participates in
such transactions "at key points in the chain of distribution." n1 Such
participation includes, among other activities, structuring a securities
offering or transaction, identifying potential purchasers of securities,
screening potential purchasers of securities, soliciting securities
transactions, and taking transaction orders from customers. Factors indicating
that a person is "engaged in the business" include, among others, receiving
transaction-related compensation; holding oneself out as a broker, as executing
trades, or as assisting others in completing securities transactions. [*3] In addition to indicating that a person is
"effecting transactions," soliciting securities transactions is also evidence of
being "engaged in the business." n2
n1 Massachusetts Financial Services, Inc. v. Securities
Investor Protection Corp., 411 F. Supp. 411, 415 (D. Mass.), aff'd
545 F.2d 754 (1st Cir. 1976), cert. denied, 431 U.S. 904 (1977). See also SEC v. National Executive Planners, Ltd., 503 F.
Supp. 1066, 1073 (M.D.N.C. 1980).
n2 See, e.g., SEC v. Century Investment Transfer Corp., et
al., Fed. Sec. L. Rep. (CCH) P 93,232 (S.D. N.Y. Oct. 5, 1971).
Based upon your letter, we believe that activities planned for your Web
site will make Progressive a broker within the meaning of Section 3(a)(4) of the
Exchange Act. Progressive plans to operate a facility that brings together
issuers of securities and investors. The precise nature of all the fees that
Progressive receives for these services from issuers and others is unclear.
Moreover, you have not clarified whether Progressive's fees will be made
contingent upon [*4] the
outcome or completion of any securities transaction resulting from a listing on
SeekingCapital.com.
You appear to base your request on the staff's
letter to Angel Capital Electronic Network (Oct. 25, 1996)
("Angel Capital Letter"). That letter involved unique facts. We believe that
IPONET (July 26, 1996) may provide you with more pertinent
guidance. As the Commission noted in a recent interpretive release, the Division
of Market Regulation, in the context of IPONET's request for no-action relief
from the Division of Corporation Finance, "required that a registered
broker-dealer maintain overall supervision of IPONET's activities; otherwise,
IPONET would have been required to register as a broker-dealer under Section
15(a) of the Exchange Act." n3
n3 Use of Electronic Media, Securities
Act Release No. 7856 (Apr. 25, 2000), at 36 n. 94 (available on the Commission's
web site at: <http://www.sec.gov/rules/concept/34-42728.htm>).
In response to your request for assurances that the staff will not
recommend enforcement action against Progressive if it does not register as an
exchange under Section 6 of the Exchange Act, please be advised that, in 1998,
the Commission adopted [*5]
Regulation ATS, which provides a new framework for alternative trading systems.
n4 Regulation ATS allows alternative trading systems to choose whether to
register as national securities exchanges, or to register as brokerdealers and
comply with additional requirements depending on their activities and trading
volume. Accordingly, the Division of Market Regulation no longer grants
no-action relief from exchange registration.
n4 Regulation of Exchanges
and Alternative Trading Systems, Exchange Act Release No. 40,760 (Dec. 8, 1998)
(available on the Commission's web site at: <http://www.sec.gov/rules/final/34-40760.txt>).
We understand that the Division of Investment Management has verbally
provided separate advice with respect to issues regarding the Investment
Advisers Act of 1940.
Finally, with respect to whether the activities
outlined in your letter raise issues under the Securities Act of 1933, we refer
you to the Commission's recent release on the use of electronic media,
Securities Act Release No. 7856 (April 28, 2000) [ 65 FR 25843].
Very truly yours,
Kevin A. Zambrowicz
Special Counsel
Division of Market Regulation
INQUIRY-1:
Progressive
[*6]
Technology Incorporated
9663 Santa Monica Blvd. # 230
Beverly Hills, CA 90210
310-358-9679 (Voice)
520-569-2240 (Fax)
February 10, 2000
Catherine McGuire, Associate Director
and Chief Counsel
Division of
Market Regulation
U.S. Securities and Exchange Commission
450 Fifth
Street, N.W.
Washington, D.C. 20549
Dear Ms. McGuire:
On behalf of Progressive
Technology Incorporated, and its Internet site, SeekingCapital.com
("SeekingCapital.com"), we request confirmation from the Division of Investment
Management that the staff would not recommend enforcement action against
SeekingCapital.com if SeekingCapital.com and SeekingCapital.com officers and
employees do not register as "investment advisers" under Section 203(a) of the
Investment Advisers Act of 1940, as amended ("Investment Advisers Act").
In addition, we also request confirmation from the staff of the Division
of Market Regulation that it would not recommend enforcement action against
SeekingCapital.com and SeekingCapital.com officers and employees if
SeekingCapital.com and SeekingCapital.com officers and employees do not register
as "brokers" or "dealers" under Section 15(b) of the Securities Exchange Act of
1934, as amended [*7]
("Exchange Act"), and if SeekingCapital.com and SeekingCapital.com officers and
employees do not register as "exchanges" under Section 6 of the same Act.
PROPOSAL
SeekingCapital.com intends to be a resource for
individuals or businesses that are interested in obtaining debt and/or equity
financing (herein collectively referred to as "Users"). Users will fill out a
form on the SeekingCapital.com website. This form may contain, but is not
limited to the state in which the User is located, the type of business/industry
the User is seeking capital for, the amount the User is seeking to raise, the
projected revenue the User anticipates, and the past experience of the User.
Each User will be given an account number and password. Using an appropriate
account number and password, Users will be able to modify or delete their
listing 24 hours a day, seven days a week. Users will be charged a flat monthly,
quarterly, or annual fee for this service.
Access to information posted
by Users on SeekingCapital.com will be available only to venture capital firms
or "accredited investors" (herein collectively referred to as "Investors")
through an account number and password system. Venture capital firms [*8] will be automatically given an account
number and password. Accredited investors will be required to fill out a form,
which will require the investor to self-certify as to accredited investor
status. Before "accredited investors" are given an account number and password,
each investor will be required to certify that the investor is an "accredited
investor" within the meaning of Rule 501 of Regulation D under the Securities
Act of 1933. "Accredited investors" will be required to provide this
certification on an annual basis as part of an investor's subscription renewal.
It will be the responsibility of the User to determine independently, before
completion of any sale, whether the investor satisfies the criteria for an
"accredited investor" within the appropriate jurisdiction.
To help
Investors review the listings on SeekingCapital.com a search engine may be
utilized at their discretion. The Investor may choose criteria and enter it into
the system. The search criteria may include, but not be limited to the state in
which to invest, the type of business/industry of the company, the amount the
company is seeking to raise, and the amount the investor wishes to invest.
In addition, the [*9] search
engine may be able to notify the Investor via the Internet when a company that
lists on SeekingCapital.com has characteristics that correlate to the Investor's
specified basic search criteria. The search engine will be based upon the
following: (i) the engine will operate only for the Investor and not for Users
listed on SeekingCapital.com, (ii) the notices may be sent to all Investors
interested in the same basic criteria, (iii) the notices will not send the name
of the company or specific securities information but will require the investor
to log on SeekingCapital.com to receive the User's information, and (iv) the
notices will consist only of fact-based data. The search engine and notification
system are only to be used as a means to raise and continue interest in
SeekingCapital.com and to facilitate review of SeekingCapital.com's listings.
SeekingCapital.com will be funded, in part, by flat fees that will be
charged to the Users. These fees will not be made contingent upon the outcome or
completion of any securities transaction resulting from a listing on
SeekingCapital.com. (During the initial "trial period" of SeekingCapital.com,
fees may be waived for Users). Additional funding [*10] may be sought from online advertising.
Advertising on SeekingCapital.com will not grant the advertiser either special
access to SeekingCapital.com's listings or decision-making authority over
SeekingCapital.com. Users that are listed on SeekingCapital.com will be
ineligible to become investors.
DISCUSSION
The Investment
Advisers Act of 1940
SeekingCapital.com and SeekingCapital.com officers
and employees do not believe that they are required to register as "investment
advisers" as set forth under Section 203(a) of the Investment Advisers Act of
1940.
SeekingCapital.com will not be engaged in the business of advising
others concerning the advisability of investing in Users listed on the Internet
site nor will they be in the regular business of issuing or promulgating
analyses or reports concerning securities.
SeekingCapital.com will not
make any recommendations concerning any offering of securities listed on
SeekingCapital.com. SeekingCapital.com will not (i) advise any Users or
Investors on the merits of any investment opportunity, (ii) participate in
negotiating the terms of any investment, (iii) hold themselves out as providing
any securities-related services other than a listing [*11] or matching service, (iv) directly assist
investors or listing companies with the completion of any transaction, for
example, through the provision of closing, or (v) handle funds or securities
involved in completing the transaction. In addition, no fees, other than flat
fees to Users, will be assessed and no fee will be made contingent upon the
completion of any securities transaction resulting from a listing on
SeekingCapital.com.
SeekingCapital.com officials, participants, and
employees with direct or indirect operating or supervisory control over
SeekingCapital.com will not participate as Users or Investors in any company
listed on SeekingCapital.com, except in compliance with the federal securities
laws and unless such participation is disclosed to Users or Investors of
SeekingCapital.com.
The Securities Exchange Act of 1934
SeekingCapital.com does not believe that they are required to register
as "brokers" or "dealers" under Section 15(b) of the Exchange Act of 1934. In
addition, it is believed that SeekingCapital.com is not required to register as
"exchanges" under Section 6 of the same Act.
While a "broker" is defined
in Section 3(a)(4) of the Exchange Act as a person engaged [*12] "in the business of effecting
transactions in securities for the account of others," and a "dealer" is defined
in Section 3(a)(5) of the Exchange Act as a person engaged "in the business of
buying and selling securities for his own account." SeekingCapital.com neither
effects the transactions in securities listed on SeekingCapital.com nor are in
the business of buying and selling securities listed on SeekingCapital.com.
Specifically, SeekingCapital.com will not: (i) provide advice about the
merits of particular opportunities or ventures, (ii) receive compensation from
Users other than the flat sign-up fee, (iii) participate in any negotiations
between investors and listing companies, (iv) directly assist Users or Investors
with the completion of any transaction, (v) handle funds or securities involved
in completing a transaction, or (vi) hold themselves out as providing any
securities-related services other than a listing or matching service.
SeekingCapital.com participants and employees with direct or indirect
operating or supervisory control over SeekingCapital.com will not participate as
Users or Investors in any company listed on SeekingCapital.com, except in
compliance with the [*13]
federal securities laws and unless such participation is disclosed to Users and
Investors of SeekingCapital.com. Also, such persons will not discuss any matters
with listing companies, investors, or other persons that might require
familiarity with securities or the exercise of judgment concerning securities
activities.
No transactions or negotiations will occur by or through
SeekingCapital.com. In addition, SeekingCapital.com will not maintain possession
of the funds, securities, or property of any user of SeekingCapital.com.
With regard to the registration of SeekingCapital.com as "exchanges"
under Section 6 of the Exchange Act, SeekingCapital.com does not believe that
they are required to register. SeekingCapital.com will not perform the functions
commonly performed by a stock exchange. SeekingCapital.com will only be a
listing service for Users and will not effect any transaction in a security.
Once an Investor decides to invest in a company listed on SeekingCapital.com,
the Investor must contact the User directly.
In particular, we believe
that operation of SeekingCapital.com, as proposed, will not entail operation of
an "exchange" for the purposes of Section 3(a)(1) of the Exchange Act. See Delta
Government [*14]
Options Exchange, Securities Exchange Act Release No. 17611 (January 12, 1990)
(the "Delta Order"). We believe that the proposed operation of
SeekingCapital.com will not involve an "exchange" within the Commission's
articulated reasoning because it merely facilitates access to information about
the listed companies to accredited investors, and neither centralizes trading
nor provides buy and sell quotations about particular securities.
The Commission further stated that the term "exchange" was not intended to
encompass markets that "serve as bulletin boards for the episodic display, by
broker-dealers and institutions, of buying and selling interest." Id.
SeekingCapital.com, in bringing together potential investors and small companies
in need of venture capital, will neither offer participants the opportunity to
display orders in securities they are interested in trading nor allow them to
match with countervailing interests
CONCLUSION
1. SeekingCapital.com and SeekingCapital.com officers and employees should not be required to register under Section 203 of the Investment Advisers Act since SeekingCapital.com will not be engaged in the business of dispensing advice to Investors [*15] on the worthiness of Users listed on SeekingCapital.com.
2. SeekingCapital.com and SeekingCapital.com officers and employees should not be required to register under Section 15(b) of the Exchange Act. SeekingCapital.com and SeekingCapital.com officers and employees will not be engaged in the business of effecting securities transactions nor will they be engaged in the business of buying and selling securities.
3. SeekingCapital.com and SeekingCapital.com officers and employees should not be required to register as exchanges under Section 6 of the Exchange Act. SeekingCapital.com is solely a listing service and does not effect any transactions in securities or report any such transactions to third parties.
ACTION REQUESTED
We
respectfully request that the staff of the Commission confirm that it will not
recommend enforcement action against SeekingCapital.com and/or
SeekingCapital.com officers and employees.
Thank you for your
consideration of this matter. If you need clarification or have any questions
concerning the establishment of SeekingCapital.com, please contact us at (310)
358-9679.
Sincerely,
Robert Pagliarini, CEO
Progressive
Technology Incorporated