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SEC Warns on ‘Pre-IPO’ Fraud

September 14, 2000

WASHINGTON (AP) _ Federal regulators are seeing a number of securities sales online or by Internet companies, claiming to offer ``pre-IPO″ stock to give investors a jump before the firms go public. They have charged some of the companies with fraud and are warning investors to be wary of such investments.

In a related action Thursday, the Securities and Exchange Commission announced it had reached a settlement with 1stBuy.com Inc., a company that operates an Internet retail site, and its founder, who agreed to pay a $25,000 civil fine.

1stBuy.com and Roger D. Pringle, its founder and chief financial officer, neither admitted nor denied wrongdoing in agreeing to the settlement of the SEC’s allegations. The regulators alleged that they raised some $3.8 million from 1,200 investors nationwide by making false and misleading statements about an IPO, or initial public offering of stock, and by referring to the offering as a ``pre-IPO.″

Pringle and the company, based in Austin, Texas, agreed to refrain from future violations of securities laws.

1stBuy.com is a legitimate company with real business, but ``they strayed from the straight and narrow when they made this stock offering,″ Spencer Barasch, associate administrator of the SEC’s office in Fort Worth, Texas, said in a telephone interview.

Gary Woolfolk, an attorney for 1stBuy.com and Pringle, declined comment.

It was the fourth action of this type the SEC has pursued in recent months, in which regulators have accused people of playing off the frenzy of legitimate Internet IPOs and exploiting people who scour the Internet looking for online businesses in which to invest.

Since March, the agency has alleged that three Internet companies, New World Web Vision.com, Y2K Highway Inc. and Stadtt Media LLC, committed securities fraud by making false claims about IPOs. All three cases are pending in federal court.

The SEC also urged investors to ``investigate thoroughly″ claims about IPOs and ``pre-IPOs″ before making an investment.

Such stock offerings often will claim that an IPO is imminent and will predict the value of the company’s stock after the IPO, while referring to successful IPOs by legitimate Internet companies, the SEC said.

``In some instances, these claims may be false or misleading,″ the agency said in a statement.

Said Barasch: ``They exploit investors who are looking for a good Internet investment, a ground-floor investment.″


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