Source: http://sos.mo.gov/securities/orders/AP-05-39a.asp
Timestamp: 2014-04-21 04:32:12
Document Index: 615154412

Matched Legal Cases: ['§409', '§409', '§409', '§409', '§409', '§409', '§409', '§409', '§409', '§ 409', '§ 409', '§409', '§409', '§409', '§409', '§409', '§409', '§409', '§409']

346 E. Cross Fox Trail Camdenton, Missouri 65020 FINAL ORDER TO CEASE AND DESIST AND
On February 9, 2006, the Enforcement Section of the Securities Division, by and through Mary S. Hosmer, Assistant Commissioner, submitted a petition, requesting a final cease and desist order and other administrative relief. After reviewing the petition, the Commissioner issues the following findings of fact, conclusions of law and order:
CoreFunds, Inc. is a corporation that was engaged in offering high-speed, dial-up Internet services through Corefunds Online an Internet Service Provider. Respondents raised approximately $240,000 through investments in the form of Royalty Agreements in CoreFunds, Inc. from at least 17 investors. In December 2004, Rapp withdrew $50,000 of the invested funds in a “60-day loan”; Rapp has repaid only $10,000 of this loan. Respondents failed to disclose, among other things, that the securities and the individuals were not registered and that Skola, the secretary of Corefunds had a prior felony conviction. Respondents
CoreFunds, Inc. (“CoreFunds”), is a Nevada corporation purportedly engaged in offering high-speed, dial-up Internet services through Corefunds Online an Internet Service Provider (“CF-ISP”). CoreFunds has an address of 2907 Sunnybrook Court, Jefferson City, Missouri 65109.
Jan M. Skola, at all times relevant to this order, was the Secretary of CoreFunds and has an address of 346 E. Cross Fox Trail, Camdenton, Missouri 65020.
Douglas Brummett, at all times relevant to this order, purported to be a marketing director for CoreFunds and has an address of 2327 A North Belt Hwy, St. Joseph, MO 64506.
As used in this Cease and Desist Order, the term “Respondents” refers to CoreFunds, Rapp, and Skola.
Skola’s Felony Conviction and FDIC Order
In September 1994, Skola was convicted of the felony of making false entries to books and records of an institution insured by the Federal Deposit Insurance Corporation (“FDIC”). In October 1994, Skola was sentenced to federal prison.
As a result of Skola’s actions the Bank had suffered or would probably suffer financial loss;
Such practices involved personal dishonesty on the part of Skola; and
In September 2004, Brummett spoke to a Missouri resident (“MR”) and told MR, among other things, the following:
Brummett did not disclose information to MR about Skola’s felony conviction, Order of Prohibition and the Royalty Agreement did not contain this information.
On October 15, 2004, Brummett gave MR, a document entitled Royalty Agreement. The Royalty Agreement stated, among other things, that: “The undersigned hereby summits [sic] the sum of $5,000.00 into the Corefunds [sic] Royalty Participation Plan.” MR signed this agreement.
On October 26, 2004, MR mailed Rapp a check for $5,000 made payable to CoreFunds.
Around October 1, 2004, a Colorado resident (“CR”) learned about CoreFunds through a friend. CR contacted Rapp who told CR, among other things, the following:
Rapp failed to disclose to CR information about Skola, including the material fact that: Skola had a prior felony conviction;
Skola did not offer or sell unregistered securities in CoreFunds in Missouri.
Skola was the secretary of CoreFunds and only signed stock certificates. Skola’s other duties for CoreFunds involved being a salesman for the ISP.
In the April 15, 2005 response, Skola’s counsel provided an e-mail message that Skola had received from Rapp dated August 19, 2004. This August 2004 e-mail had a subject heading of “cash” and provided profit projections for the company and for the investors. The first projection showed the profits to be derived from charging $17.95 for high-speed Internet access. The second provided profits derived from charging $19.95 for this access. In each of these projections the Royalty holders were projected to make 75 cents and the company would make between five and seven dollars.
On March 5, April 5, May 18 and June 27, 2005, the Division sent letters of inquiry to counsel for Rapp that requested, among other things, the following: a claim of exemption from registration or exception from definition upon which Respondents relied in offering unregistered securities or any claim that the securities were federal covered securities. The letters also requested additional information about the offers to Missouri residents and advised Respondent that failure to respond within a reasonable time as set by the Commissioner constituted proper grounds for the entry of an order suspending the right to offer and sell securities in the State of Missouri.
The May 18 and June 27, 2005 letters from the Division stated that Respondents solicited and sold an investment contract in the form of Royalty Agreements in CoreFunds. An investment contract is defined as an investment in a common enterprise with the expectation of profits to be derived primarily from the efforts of a person other than the investor.
“…if the transactions involving the Royalty Agreements are considered a security, they would be exempt from registration under Section 409.2-202(14). No sales, marketing persons, or volunteers were involved in the offering or sale of the Royalty Agreements”;
Rapp was not aware that Skola had a felony conviction; that Skola had served time in federal prison; or that Skola had entered into a Consent Agreement with the FDIC;
Rapp used the $50,000 from the “60-day loan” from the CoreFunds bank account for personal reasons;
As of July 19, 2005, Rapp had repaid $10,000 of the December 2004, “60-day loan” Rapp took from the CoreFunds bank account;
“When Mr. Brummett worked for Corefunds, Inc. [sic], his job responsibilities included contacting not-for-profit corporations, educating them as to the services offered by Corefunds, Inc. [sic], enlisting the not-for-profit organization’s participation in the Corefunds [sic] Online program”;
Skola surrendered his shares of stock on June 23, 2005.
On April 4, 2005, a representative with the Division telephoned Brummett, who stated, among other things, the following:
Brummett’s services had been voluntary; and
On July 13, 2005, Brummett responded to the Division’s letter and stated, among other things, that:
Rapp received a total of $87,900 from September 2004, through June 24, 2005 in “consulting fees”;
Skola received $15,000 in “consulting fees”;
Brummett received $23,800 in “consulting fees”;
One additional consultant received $11,590 in “consulting fees”;
Rapp, Skola, Brummett and the additional consultant received at least $138,000 or approximately 57% of the $240,000 invested in CoreFunds; and
Most of the funds received by CoreFunds came from investors. CoreFunds had very few subscribers to its ISP. Payments to the charitable organizations totaled under $250, which indicates that CF-ISP had fewer than 100 subscribers.
On December 12, 2004, Rapp withdrew $50,000 noting, “60 day loan” on the withdrawal check. This loan and the consulting fees equaled approximately $188,000 or 78% of the $240,000 invested in CoreFunds. As of July 2005, Rapp had repaid $10,000 of the $50,000 loan to CoreFunds.
Although Brummett stated that he was “volunteering” his services he solicited most of the investors and stated he raised funds for Rapp. In addition, Brummett received “consulting fees” and a bonus for his “volunteer” work;
Rapp also solicited at least one investor and received large amounts of money from CoreFunds in the form of consulting fees and loans; and
Respondents and Brummet received approximately 78% of the funds raised from the offering as consulting fees, loans and/or bonuses. Many of these consulting fees were paid from the bank account within days after an investor’s funds were deposited into the account.
The investors only effort was to put forth the money required for the investment. All other significant efforts, both managerial and entrepreneurial, came from the performance of parties other than the investors.
That Skola had a felony conviction;
That Skola had served time in federal prison;
That the FDIC had issued an order of prohibition against Skola; and
That over 70 % of the money raised would be used for consulting fees and loans.
In connection with the offer, sale or purchase of a security to Missouri residents, Respondents made untrue statements of material fact to CR that Rapp was an attorney, when, in fact, this is not true.
§409.3-301, RSMo Supp. 2004, provides that it is unlawful for any person to offer or sell any security in this state unless (1) the security is a federal covered security; (2) the security, transaction, or offer is exempted from registration under sections 409.2-201 to 409.2-203; or (3) the security is registered under this act.
§409.4-402, RSMo Supp. 2004, provides, in part, that§409.4-402, RSMo Supp. 2004, provides, in part, that it is unlawful for an issuer engaged in offering or selling securities in this state, to employ an agent who transacts business in this state unless the agent is registered or exempt from registration.
§409.5-501, RSMo Supp. 2004, provides that it is unlawful for a person, in connection with the offer, sale or purchase of any security, directly or indirectly; (1) to employ a device, scheme, or artifice to defraud, (2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading or (3) to engage in an act, practice or course of business that operates or would operate as a fraud or deceit upon another person.
§409.5-503, RSMo Supp. 2004, provides that the person claiming an exemption, exception, preemption or exclusion has the burden of proving its applicability.
§409.6-604(a) RSMo Supp. 2004, provides:
If the commissioner determines that a person has engaged, is engaging, or is about to engage in an act, practice, or course of business constituting a violation of this act or a rule adopted or order issued under this act or that a person has materially aided, is materially aiding, or is about to materially aid an act, practice, or course of business constituting a violation of this act or a rule adopted or order issued under this act, the commissioner may: Issue an order directing the person to cease and desist from engaging in the act, practice, or course of business or to take other action necessary or appropriate to comply with this act;
Issue an order denying, suspending, revoking, or conditioning the exemptions for a broker-dealer under section 409.4-401(b)(1)(D) or (F) or an investment advisor under section 409.4-403(b)(1)(C); or
§409.6-604(e), RSMo Supp. 2004, provides:
Respondents violated §409.3-301, RSMo Supp. 2004, when they offered a security as described in the above facts without the security being (1) a federal covered security, (2) exempt from registration under §§409.2-201 or 409.2-202, or (3) registered under the Missouri Securities Act.
Respondents violated § 409.4-402(d), RSMo Supp. 2004, when they employed an unregistered agent in the state of Missouri as described above.
Respondents violated § 409.5-501(2), RSMo Supp. 2004, when, in connection with the offer and or sale of a security, Respondents omitted to state the following material information:
That over 70% of the money raised would be used for consulting fees and loans.
Respondent Rapp violated §409.5-501(2), RSMo Supp. 2004, when, in connection with the offer and or sale of a security, Respondent Rapp made the untrue statements of material fact to CR that Rapp was an attorney, when, in fact, this is not true.
NOW, THEREFORE, it is hereby ordered that the Order is made FINAL as to all Respondents and that these Respondents, their agents, employees and servants, and all other persons participating in or about to participate in the above-described violations with knowledge of this order are prohibited from:
Violating or materially aiding in the violation of §409.4-402(d), RSMo Supp. 2004, by employing an unregistered agent; and
Violating or materially aiding in the violation of §409.5-501(2), RSMo Supp. 2004, by omitting to state a material fact and or making untrue statements of material fact in connection with the offer and sale of the securities as described above.
IT IS FURTHER ORDERED that pursuant to §409.6-604(d), RSMo Cumulative Supp. 2003, Respondent CoreFunds, Inc. shall pay by March 13, 2006, the sum of ten thousand dollars ($10,000) to the State of Missouri as civil penalties. This amount shall be sent to the Secretary of State and made payable to the State of Missouri, and the Secretary of State shall forward these funds to the state treasury for the benefit of county and township school funds as provided in Article IX, Section 7 of the Constitution of Missouri.
IT IS FURTHER ORDERED that pursuant to §409.6-604(d), RSMo Cumulative Supp. 2003, Respondent Robert W. Rapp shall pay by March 13, 2006, the sum of ten thousand dollars ($10,000) to the State of Missouri as civil penalties. This amount shall be sent to the Secretary of State and made payable to the State of Missouri, and the Secretary of State shall forward these funds to the state treasury for the benefit of county and township school funds as provided in Article IX, Section 7 of the Constitution of Missouri.
IT IS FURTHER ORDERED that pursuant to §409.6-604(d), RSMo Cumulative Supp. 2003, the Enforcement Section of the Securities Division shall ensure and confirm that Respondent Jan Skola paid by February 28, 2006, the sum of eight thousand dollars ($8,000) to the State of Missouri as civil penalties. This amount shall be sent to the Secretary of State and made payable to the State of Missouri, and the Secretary of State shall forward these funds to the state treasury for the benefit of county and township school funds as provided in Article IX, Section 7 of the Constitution of Missouri.
IT IS FURTHER ORDERED that pursuant to §409.6-604(e), RSMo Cumulative Supp. 2003, Respondents CoreFunds and Rapp shall jointly and severally pay by March 13, 2006, the additional sum one thousand and forty dollars ($1040) as reimbursement for the costs of the investigation and administration of this matter. This amount shall be sent to the Secretary of State and made payable to the Missouri Secretary of State’s Investor Education and Protection Fund. IT IS FURTHER ORDERED that pursuant §409.6-604(f), RSMo Cumulative Supp. 2003, this matter shall be referred to the Attorney Generals Office to collect the fines and costs of this Final Order.
WITNESS MY HAND AND OFFICIAL SEAL OF MY OFFICE AT JEFFERSON CITY, MISSOURI THIS 3RD DAY OF MARCH, 2006.