Page 9 - Respondents' characterization of these statements as protected, forward-looking statements under the statutory SAFE HARBOR provisions of the Securities Act and the Exchange Act is inapposite since issuers of penny stock are specifically excluded from the SAFE HARBOR protection of those provisions. 24/ Also, the SAFE HARBOR protects a speaker from liability for forward-looking statements only in private actions, not in enforcement actions brought by the Commission. 25/ ...
Page 3 - The court specifically rejected Respondents' arguments that the misleading UNDR press releases on which the fraud allegations were based contained forward-looking statements covered by the statutory SAFE harbors in Section 27A of the Securities Act, 7/ and Section 21E of the Securities Exchange Act of 1934, 8/ and that, when Respondents issued UNDR shares to stock promoter Edward Durante, they were under the mistaken impression that the shares did not need to be registered. 9/
9/ The District Court rejected the first defense because the statutory SAFE HARBOR does not apply to Commission enforcement actions, or to penny stocks, like UNDR stock, citing 15 U.S.C. §§ 77z-2(b)(1)(c), 77z-2(c), 78u-5(b)(1)(c), and 78u-5(c).
Page 4 - 11/ UNDR was originally formed in 1994 when Crews took over Ophir Gold Mines, a Colorado public shell corporation. UNDR reincorporated in the Dominion of Melchizedek in 1996, and filed a bankruptcy petition in Melchizedek in 1998. Melchizedek is essentially a virtual nation that exists at www.Melchizedek.com, although its website makes claims to treaty rights to some uninhabitable atolls in the South Pacific.
Page 9 - Respondents' characterization of these statements as protected, forward-looking statements under the statutory SAFE HARBOR provisions of the Securities Act and the Exchange Act is inapposite since issuers of penny stock are specifically excluded from the SAFE HARBOR protection of those provisions. 24/ Also, the SAFE HARBOR protects a speaker from liability for forward-looking statements only in private actions, not in enforcement actions brought by the Commission. 25/
Page 6 - 14/ As is pertinent here, Exchange Act Section 3(a)(51)(A) defines a "penny stock" as "any equity security other than a security that is . . . excluded, on the basis of exceeding a minimum price, net tangible assets of the issuer, or other relevant criteria, from the definition of such term by rule or regulation which the Commission shall prescribe for purposes of this paragraph . . . ." In general, under Exchange Act Rule 3a51-1, certain equity securities -- including securities priced at five dollars or more, securities subject to last sale reporting and listed on a national securities exchange or quoted on Nasdaq, and securities of an issuer that meets either a minimum net tangible assets or revenues test -- are excluded from the definition of "penny stock." 17 C.F.R. § 240.3a51-1. See Nolan Wayne Wade, Exchange Act Rel. No. 48245 (July 29, 2003), 80 SEC Docket 2683, 2684.
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