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News Release: 99-12
GRAY DAVIS, Governor
Date: 07/28/99
WILLIAM KENEFICK, Acting Commissioner
State Internet Sweep Nets "Illegal and Fraudulent Entertainment" Investments
Los Angeles, July 28, 1999 — The California Department of Corporations today announced the completion of a sweep of illegal and fraudulent entertainment investment offerings on the Internet that resulted in the issuance of 23 Desist and Refrain orders and the filing of one civil action. The offerings sought to raise over $2.1 billion in capital for film productions all over the world.
The department noted that California is the home of many successful Internet and entertainment companies, and their success has spawned a large number of illegal and fraudulent offerings of investments in entertainment products via the Internet. The Internet has made it possible to market these entertainment investments to tens of millions of potential investors with a few keystrokes. It offers the advantages of being global and borderless, which makes surveillance and enforcement more difficult, and dramatically increases the risks to investors in the new marketplace.
In an ongoing effort to uncover fraudulent securities offerings on the Internet and to protect investors, the department’s Internet Compliance and Enforcement (ICE) Team reviewed over 3,000 Websites that sought to raise investment capital. The department opened nearly 300 investigations that have in the last two weeks resulted in the issuance of 23 Desist and Refrain Orders against 39 individuals and entities and one civil action against seven defendants for the illegal and fraudulent offerings of securities.
Federal laws and the laws in California and most other states require the registration of securities offerings to raise investment capital from the public to ensure that the offering is fair to investors and/or that full disclosure is made of the terms and risks of the offering. In many of the cases investigated by the department, much of the information on the Internet offerings was inherently misleading. Risks were downplayed and results were guaranteed. In each of the cases, the companies had failed to register the offerings with the Department of Corporations or to comply with the terms of available exemptions and failed to disclose this fact on any of the Websites.
Of the administrative and civil actions taken, 19 were against California companies and individuals, two were against a Massachusetts company and an individual and three were against Washington companies and individuals. In addition, 17 cases were referred to other states for investigation.
Since the department set up its Internet Compliance and Enforcement ("ICE") Team last year, this sweep brings to 77 the total number of orders the Department has issued against 226 entities and individuals for violations of the state securities laws. In addition, the department has filed two civil actions against 33 defendants and five criminal cases against 21 defendants. The mission of the department’s ICE Team is to aggressively monitor the California Internet marketplace to ensure that unlawful offerings do not impair the raising of investment capital by high tech, entertainment and other industries. Investors need to have confidence that the Internet is a tool for legitimate capital raising efforts.
The Department of Corporations is California's Investment and Financing Authority, reporting to the Business, Transportation and Housing Agency and the Governor. The Department is responsible for the regulation, enforcement and licensing of securities, franchises, off-exchange commodities, investment and financial services, independent escrows, consumer and commercial finance lending and residential mortgage lending. For further information or to obtain a complaint form, see the Department's Web site at www.corp.ca.gov.
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