Clarence H. Grotto, Esq.
2 Judson Street
Canton, New York 13617
Re: Venture
Listing Services, Inc.
Dear Mr. Grotto:
In your
letter of November 30, 1993, on behalf of Venture Listing Services, Inc. ("VLS),
as supplemented by telephone conversations with the staff, you request the
staff's assurances that it will not recommend that the Commission take
enforcement action under Sections 6 and 15(a) of the Securities Exchange Act of
1934 ("Exchange Act") and Section 203(a) of the Investment Advisers Act of 1940,
n1 if VLS operates a computer listing service and distributes a regular mailing
of current listings as described below without registering as a national
securities exchange, broker-dealer, or investment adviser.
n1 We
understand that the Division of Investment Management has responded verballly to
your request for relief under the Investment Advisers Act of 1940; and the
Office of Trading Practices, Automation, and International Markets of the
Division of Market Regulation has responded verbally to your request for relief
under Section 6 of the Exchange Act.
Based upon your letter [*2] and our telephone conversations, we
understand the facts to be as follows:
VLS, which will be incorporated
as a Delaware Corporation, will operate a computer data base listing service for
entrepreneurs and business persons that subscribe to the service
("Subscribers"). VLS also will offer regular mailings of current listings and
listings via automated telephone or fax service. (The computer data base listing
service and the regular mailings will be referred to collectively as the
"System.")
The System will be offered to Subscribers in need of capital.
Subscribers will provide VLS with a short outline of their investment
opportunities (containing such information as the concept, benefits, market,
management, financial projections, capital needed and contact person) to be
included in the System. This information will be accessible by anyone possessing
a computer modem and information on how to connect to the service ("Users"). VLS
will charge a set-up fee and monthly listing fee to its Subscribers for placing
and maintaining listings in the System. Users also may be charged a fee for
access to the System. These fees will not be related to the value of the
listings, and payment of the [*3] fees
will not be contingent on the Subscriber locating a User wishing to invest in
the Subscriber's project.
The System will closely resemble a newspaper
or similar advertising medium. VLS will not engage in matching Users and
Subscribers. Users interested in a listing will contact the Subscribers
directly. Furthermore, VLS will not provide advice or information to its Users
or Subscribers on how to complete a transaction, nor will VLS have any
independent knowledge of the consummation of any transactions. No transactions
or negotiations will occur by or through the System. In addition, VLS will not
maintain possession of the funds, securities, or property of any Subscriber or
User.
The System and its access numbers will be promoted and advertised
through normal media channels. VLS will not make any representations through its
advertisements or otherwise on the value, desirability, or merits of an
investment opportunity.
Affiliated parties of VLS, including founders,
incorporators, officers, directors and employees, as well as the entities over
which VLS exercises control, will not place, offer, or list any investment
opportunities through the System.
Response:
Based on the
foregoing [*4]
representations, the staff will not recommend that the Commission take
enforcement action under Section 15(a) of the Exchange Act, if VLS operates the
System without registration as a broker-dealer pursuant to Section 15(b).
This staff position concerns enforcement action only and does not
represent a legal conclusion as to the applicability of the statutory and
regulatory provisions of the federal securities laws. This position is based
solely upon the representations that you have provided and is limited to the
transactions that you have described. Any facts or circumstances differing from
those contained in this letter may require a different response.
Sincerely,
Marva D. Simpson
Attorney
Office of Chief
Counsel
INQUIRY-1:
Clarence H. Grotto
Attorney and Counsellor at Law
2 Judson Street
Canton, New York 13617
(315) 386-8544
FAX: (315) 379-0126
November 30, 1993
Mr. Robert Colby
Office of Chief
Counsel
Division of Market Regulation
Securities & Exchange
Commission
450 Fifth Street, N. W.
Washington, D.C. 20549
1934 Act/3(a)(4&5)
1940 Act/202(a)(11)
RE: Venture
Listing Services, Inc.
Dear Mr. Colby:
I am
proposing to create a corporation in Delaware called Venture Listing Services, [*5] Inc. (VLS). This corporation will operate a
computer network where entrepreneurs seeking capital can list a brief synopsis
of their business which users of the system can view. I have not yet taken any
steps to begin operating this proposed service and have not yet incorporated
under this name. The purpose of this letter is to request the assurance of the
Division of Market Regulation that it will not recommend that the Securities and
Exchange Commission take action against Venture Listing Services, Inc., once
incorporated, if it operates in the manner below described and in particular
does not register as a securities broker-dealer, an investment advisor or an
exchange as outlined in the Securities Exchange Act of 1934 ("34 Act") and the
Investment Advisors Act of 1940 ("40 Act").
Proposed Service
Venture
Listing Services, Inc. intends to operate a computerized information
listing service, essentially a computer bulletin board, which will accept
listings from entrepreneurs and business persons in search of capital. A listing
would consist of a short outline of their project containing such information as
the concept, benefits, market, management, financial projections, capital
[*6] needed,
and contact person. VLS will charge a set up fee and monthly listing fee for
placing and keeping these listings on the system. Therefore, VLS will most
closely resemble a newspaper which charges for advertising. People who access
the system may also be charged for usage. Under no circumstances will VLS charge
a commission contingent on finding capital for an entrepreneur or an investment
for an investor.
In addition to the proposed computer bulletin board
there may also be an automated telephone/fax service which would allow users to
call in and select to have this same information automatically faxed to them.
There would also be a regular mailing of the new listings to people who have
requested and/or paid for this service.
The computer network could be
accessed by any person with a computer modem and instructions on how to connect
to the service. The user will be able to look at all the projects in the system
or sort them according to the following categories: Region, Development Level,
Industry, or Capital Needed.
No actual transactions will occur on the
system and VLS will have no involvement whatsoever in any subsequent
negotiations between the parties. Therefore, VLS [*7] will not be acting as middleman bringing
entrepreneurs and investors together as would a typical broker. The VLS service
would simply be an information medium where both parties would discover each
other.
The service and its access numbers will be promoted and
advertised through normal media channels. VLS will not make any representations
with respect to the value of an investment opportunity. The advertising will
strongly avoid making any statements which indicate that the projects listed on
the exchange are necessarily "good investments" or any other statement which
could be construed as investment advice.
Declarations
VLS
will specifically avoid the following activities:
1. advising entrepreneurs or investors on the merits of particular opportunities;
2. receiving fees based on locating capital for entrepreneurs or investments for investors;
3. participating in the negotiation of the terms of the investors investments in the entrepreneurs' businesses;
4. providing information concerning how an investor and entrepreneur could complete a transaction after meeting;
5. handling funds or securities involved in completing a transaction.
Precedents
An extensive review
[*8] of
similar no-action requests was conducted prior to preparing this letter. In
general many requests were granted for venture capital networks which operate
"matching services" for entrepreneurs and investors. There were also many
requests granted for "listing services." Since our service will not match
entrepreneurs and investors it would be most accurately be described as a
listing service. However, close attention was paid to both types of no action
letters and surrounding discussion to discover the key elements of operation
which VLS must observe to satisfy the overall objectives of the Securities and
Exchange Commission.
A review of the following "listing service" and
"matching service" no action letters seems to provide clear precedent for
granting VLS's no action request: Investex Investment Exchange Inc. (4/9/90),
Petroleum Information Corporation (11/28/89), Tri-State Livestock Credit Corp.
(10/18/89), CNB Corp. (6/9/89), Real Estate Financing Partnership (4/4/89), Troy
Capital Services (4/28/89), Venture Capital Network, Inc. (5/7/84), Venture
Capital Exchange, Inc. (4/23/86) and Venture Capital Network of New York, Inc.
(11/10/86). The reasoning below will refer to these [*9] cases.
Registration as a
Broker Dealer
Section 3(a)(4) of the 34 Act defines a "broker" as "any
person engaged in the business of effecting transactions in securities for the
account of others. . . . ." Similarly, "dealer" is defined as "any person
engaged in the business of buying and selling securities for his-own account. .
. . " VLS will not be engaged in buying or selling securities for itself or
others. It will not receive any commission or compensation based on trading
securities or finding capital for entrepreneurs. VLS will not act as the
custodian of a subscriber's funds or securities at any time in connection with
the operations of its service. VLS will solely act as an information medium.
Requiring VLS to register as a broker-dealer would not provide users
with any additional protection. The complete financial failure of VLS would
result only in the users and listers losing access to the system, not in a loss
of any funds or securities. Furthermore, the cost of registration and compliance
with such a designation would be prohibitively high. The service will be
analogous to the services provided by three other companies which received
no-action letters: Investex Investment [*10] Exchange (4/9/90), Real Estate Financing
Partnership (4/4/89) and Petroleum Information Corporation (11/18/89). For all
of the above reasons we believe VLS should not be regarded as a broker-dealer.
Registration as an Investment Advisor
An "investment
advisor" is defined by Section 202(a)(11) of the 40 Act as "any person who, for
compensation, engages in the business of advising others, either directly or
through publications or writings, as to the value of securities or as to the
advisability of investing in, purchasing, or selling securities, or who, for
compensation and as part of a regular business, issues or promulgates analyses
or reports concerning securities. . ." VLS will not advise users as to the value
of any investment opportunity listed on the service nor will it advise a user to
undertake any of the particular opportunities listed. It will simply be a medium
where information can be discovered.
VLS will not issue or promulgate
"analyses or reports concerning securities." The information on the service will
not be a report or analysis, but only a collection of the listings sent in by
the entrepreneurs. Furthermore, listings will not be in "highly selective"
categories [*11] by
only general categories with no restriction as to the geographical location,
industry, capital needed or development level. The listings within these
categories will be displayed chronologically with the most recently posted
appearing first.
Unlike other companies that have requested no action
letters such as Venture Capital Network, Inc. (5/7/84), Venture Capital Network
of New York, Inc. (11/10/86) and Heartland Venture Capital Network (5/7/87), VLS
will not "match" entrepreneurs and investors. Therefore as was reiterated in the
no action request of the Petroleum Information Corporation (11/28/89) from the
Commission's original statements in the VCN letter, . . . . " it is in the
process of targeting or matching a particular investor to a particular
opportunity in all three of these letters (VCN, VCNNY and HVCN) which qualifies
the company as an investment advisor." VLS will not provide any such matching
service and will not render any investment advice. Therefore, VLS should not be
regarded as an investment advisor.
Registration as an Exchange
Section 3(a)(1) of the 34 Act defines an "exchange" as "any
organization, association, or group of persons, whether incorporated or [*12] unincorporated, which constitutes,
maintains, or provides a market place or facilities for bringing together
purchasers and sellers of securities or for otherwise performing with respect to
securities the functions commonly performed by a stock exchange as that term is
generally understood, and includes the market place and the market facilities
maintained by such exchange."
Because VLS will simply operate an
information medium which does not effect transactions nor provide a marketplace
or facilities for trading securities, this service will clearly not be a
securities exchange. In addition, the VLS service will not possess
characteristics typically associated with "exchanges." It will not have members
or subscribers who will have a proprietary interest in or control over the
system. In addition, VLS will have no role in or control over the transactions
which may occur as a result of users discovering each other through the system.
Therefore, the VLS service should not be considered an exchange.
Summary
For the above reasons I request assurance that the
Securities and Exchange Commission will not take action against Venture Listing Services, Inc. (or
whatever name is ultimately [*13]
accepted and used for such a corporation) if it operates in the manner above
described and in particular does not register as a securities broker-dealer, an
investment advisor or an exchange as outlined in the Securities Exchange Act of
1934 and the Investment Advisors Act of 1940.
Very truly yours,
Clarence H. Grotto