Document ID: SEC-2007-1365-0001
Agency: sec
Document Type: Notice
Title: Public Alert: Unregistered Soliciting Entities (``Pause) Program
Posted Date: 2007-10-02T04:00Z

[Federal Register: October 2, 2007 (Volume 72, Number 190)]
[Notices]               
[Page 56110-56111]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02oc07-85]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release Nos. 34-56534; IA-2658; File No. S7-24-07]

 
Public Alert: Unregistered Soliciting Entities (``Pause'') 
Program

AGENCY: Securities and Exchange Commission.

ACTION: Notice; request for comment.

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SUMMARY: The Securities and Exchange Commission (``SEC'' or 
``Commission'') is announcing a new program that will post on its Web 
site certain factual information about unregistered entities that are 
engaged in the solicitation of securities transactions.

DATES: Comments should be submitted on or before November 1, 2007.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/other.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number S7-24-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number S7-24-07. This file 
number should be included on the subject line if e-mail is used. To 
help us process and review your comments more efficiently, please use 
only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/other.shtml); 

Comments also are available for public inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: John Reed Stark, Chief of the Office 
of Internet Enforcement and Counselor to the Director, at (202) 551-
4540, Jack Hardy, Branch Chief, Office of Investor Education and 
Advocacy, at (202) 551-6500, Alberto Arevalo, Acting Assistant 
Director, Office of International Affairs, at (202) 551-6690, at the 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-6628.

SUPPLEMENTARY INFORMATION: The Commission today is announcing a new 
program for informing the public about unregistered entities engaged in 
solicitations of securities transactions. Through this new program, 
``Public Alert: Unregistered Soliciting Entities'' (``PAUSE''), the 
Commission will publish on its Web site certain factual information 
about unregistered soliciting entities that have been the subject of 
complaints forwarded by investors and others, including fellow 
securities regulators. By making this information readily available, 
the Commission expects investors to be better able to evaluate 
solicitations to buy and sell securities. Before the program and Web 
site become operational December 3, 2007 the Commission is interested 
in receiving comments and suggestions on the PAUSE program.

1. Background

    Generally, entities that solicit purchases or sales of securities 
for the accounts of other persons in the United States are required to 
register with the SEC. The Commission regularly receives complaints and 
inquiries from investors and others, including foreign securities 
regulators, about solicitations made by entities claiming to be 
registered, licensed and/or operating in the United States, and in some 
cases, entities soliciting U.S. investors that are not registered in 
the United States. When an entity claims to be registered with the SEC, 
it is in effect claiming that it has made itself available for SEC 
regulation and oversight. For this reason, it is important for 
prospective investors to consider whether a soliciting entity is, in 
fact, registered with the SEC.
    The Commission's Office of Investor Education and Advocacy 
(``OIEA'') fields investor complaints and inquiries. The single largest 
number of investor complaints received by OIEA concern solicitations of 
investors by unregistered entities that appear to be involved in boiler 
room and secondary advance fee schemes.\1\ In 2005 and 2006, OIEA

[[Page 56111]]

received respectively 1,385 and 1,418 complaints from investors who 
were solicited by unregistered entities, many of which purported to be 
U.S.-based securities firms trading in securities of U.S.-based 
issuers.
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    \1\ Boiler room operations use high-pressure sales tactics 
generally over the telephone and solicit investors with false and/or 
misleading information. They frequently purport to be registered 
broker dealers and/or operating in the United States and offer 
``opportunities'' to invest in securities, often issued by companies 
organized in the United States. The schemes are disbanded and the 
wrongdoers disappear after investors wire their money, which is then 
transferred to offshore accounts. Secondary ``advance fee'' schemes 
work very similarly to boiler room operations, the difference being 
that an advance fee scheme generally targets investors who purchased 
underperforming securities, perhaps through an affiliated boiler 
room, offering to arrange a lucrative sale of those securities, but 
first requiring the payment of an ``advance fee'' in the form of a 
commission, regulatory fee or tax, or some other incidental expense. 
The advance fees are paid, but the promised sale of the securities 
is never arranged.
    For more information about boiler rooms and advance fee schemes, 
please see the following discussions on our Web site:
     The Fleecing of Foreign Investors: Avoid Getting Burned 
by ``Hot'' U.S. Stocks (http://www.sec.gov/investor/pubs/fleecing.htm
)

     Worthless Stock: How to Avoid Doubling Your Losses 
(http://www.sec.gov/investor/pubs/worthless.htm)

     Protect Your Money: Check Out Brokers and Investment 
Advisers (http://www.sec.gov/investor/brokers.htm)

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    Moreover, perpetrators of boiler rooms and advance fee schemes 
increasingly use new devices to convince investors that their 
solicitations are legitimate, including:
     Impersonating U.S. registered securities firms by, for 
example, using the same or a similar name or providing an address that 
closely resembles that of a U.S. registered securities firm;
     Making false reference to, including false claims of 
endorsement by, governmental agencies and international organizations 
(sometimes even impersonating them); and
     Claiming endorsements by, or making other reference to, 
governmental agencies and international organizations that sound 
official, but do not exist.\2\
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    \2\ In one case, a soliciting entity impersonated the 
International Organization of Securities Commissions (``IOSCO''). 
The Securities Investor Protection Corporation (``SIPC'') has also 
been impersonated by virtue of a ``look alike'' Web site and 
responded by posting an alert identifying the fictitious 
organization, the ``International Brokerage Association.''
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    Our staff is frequently able to determine quickly the accuracy of 
various claims made by the soliciting entities. For example, a claim by 
an entity that it is a U.S. registered broker-dealer is easily 
verifiable by checking public sources, including the Central 
Registration Depository database administered by the Financial Industry 
Regulatory Authority, Inc. (formerly, the NASD).\3\ Entities that use 
names that are the same as, or similar to, the names of U.S. registered 
securities firms can also be verified by checking public sources and 
obtaining information from officials at the firms. In this way, our 
staff can also determine whether the complained-of entity has any 
actual affiliation with the registered firm. A claim that an entity 
operates from a particular location in the United States can also be 
established. Finally, if a soliciting entity claims that the securities 
it offers are approved or endorsed by a particular governmental agency, 
that claim can usually also be quickly confirmed.
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    \3\ http://www.nasd.com/InvestorInformation/InvestorProtection/ChecktheBackgroundofYourInvestmentProfessional/index.htm_____________________________________-

___________-

    In appropriate cases, our staff's review may lead to a referral to 
the Division of Enforcement, which may begin an investigation of 
possible securities law violations, and the Commission may ultimately 
bring an enforcement action for such violations. However, in a 
significant number of cases there may be obstacles to effective 
enforcement action. Soliciting entities change names frequently, often 
before law enforcement action can be taken. Often the subjects of 
complaints purport to be based in the United States, but in fact 
operate from numerous jurisdictions overseas. Notwithstanding 
cooperation with foreign counterparts, investigations of offshore 
operations can be complex and time-consuming. Even if the Division of 
Enforcement's investigation determines that the entities involved in 
such activities have sufficient contacts with the United States to 
grant the Commission and U.S. courts with jurisdiction over their 
conduct, there can be substantial obstacles to completing legal action 
against these foreign operators and obtaining meaningful relief, while 
in the meantime investors can suffer significant harm.

2. The PAUSE Program

    In light of the challenges associated with taking enforcement 
action against such operations, the Commission believes that it is 
useful to devise a complementary approach that serves to empower 
prospective investors. The goal of the PAUSE Program is to provide 
prospective investors with relevant information about unregistered 
soliciting entities before they invest.
    To implement the PAUSE Program, the Commission will post on its 
public Web site specific information about unregistered soliciting 
entities that have been the subject of complaints. For each of these 
entities, the Commission's staff will have determined either (1) That 
there is no U.S. registered securities firm with that name, or (2) that 
there is a U.S. registered securities firm with the same (or a similar) 
name but that solicitations appear to have been made by persons not 
affiliated with the U.S. registered securities firm.
    In addition, the PAUSE list will contain a ``Comments'' section for 
each entry. The Comments section will reflect certain results of the 
staff's investigation addressing the entity's U.S. registration status; 
any use of a name that is the same or similar to that of a U.S. 
registered securities firm; and any references to governmental agencies 
and international organizations in the solicitations. The Comments 
section may include other relevant information that may be helpful to 
investors, such as the use of addresses that do not appear to exist.
    A second PAUSE list will name fictitious governmental agencies and 
international organizations referred to by complained-of entities.

3. Additional Information

    The Commission's intent is to publish factual information that may 
be valuable to investors in connection with their investment 
decisions.\4\ A listing on the PAUSE web page does not mean that the 
Commission has found violations of U.S. federal securities laws or made 
a judgment about the merits of any securities offered by listed 
entities. As well, the PAUSE web page will not necessarily include 
information about all unregistered entities or entities that have been 
the subject of complaints. There may be various reasons, including law 
enforcement and policy, which may militate against including 
information about an entity on the PAUSE web page. The Commission 
intends to regularly update the PAUSE lists and archive information 
approximately nine months from the date of last observed activity.
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    \4\ See, e.g., Securities Exchange Act Sec.  section 21(a). Cf. 
Kukatush Mining Corp. v. Securities and Exchange Commission, 309 
F.2d 647 (D.C. Cir. 1962); and Freedom of Information Act, 5 U.S.C. 
552.
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4. Corrections

    The Commission is committed to providing accurate information under 
the PAUSE Program. Before listing an entity on PAUSE, the Commission's 
staff will notify the entity and provide an opportunity--two calendar 
days from the date of the staff's notification letter--for the entity 
to respond. If, after being listed on PAUSE, an entity believes it 
should be removed from a list because information included about it is 
incorrect, or for other reasons, it should notify the Commission's 
staff and provide such documents and other information as reasonably 
necessary to support its assertion.
    To notify the Commission of a factual error or to request removal 
from a list, please write to the following address: U.S. Securities and 
Exchange Commission, Attn: PAUSE Program Administrator, 100 F Street, 
NE., Washington, DC 20549-5631, enf-pauseresponse@sec.gov, Fax: 202-
772-9278.
    Submissions will be reviewed for appropriate action by Commission 
staff.
* * * * *

    Dated: September 26, 2007.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E7-19343 Filed 10-1-07; 8:45 am]

BILLING CODE 8011-01-P