""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). The court also, in rejecting the second defense, noted that scienter is not an element of a Section 5 violation, citing SEC v. Softpoint, Inc., 958 F.Supp. 846, 859-60 (S.D.N.Y.1997), aff'd, 159 F.3d 1348 (2d Cir. 1998); and SEC v. Universal Major Indust. Corp., 546 F.2d 1044, 1047 (2d Cir.1976), cert. denied, 434 U.S. 834 (1977). ..."""
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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