UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT OF 1933 Release No. 7338 / September 26, 1996 ADMINISTRATIVE PROCEEDING File No. 3-9101 ------------------------------- : In the Matter of : : ORDER INSTITUTING A PUBLIC BROAD CAPITAL ASSOCIATES, INC. : PROCEEDING PURSUANT TO SECTION and MURRAY AARON HUBERFELD, : 8A OF THE SECURITIES ACT OF : 1933, MAKING FINDINGS AND Respondents. : IMPOSING A CEASE-AND-DESIST : ORDER : : -------------------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding be, and hereby is, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") to determine whether Respondents Broad Capital Associates, Inc. ("Broad Capital") and Murray Aaron Huberfeld ("Huberfeld") violated Section 5 of the Securities Act. II. In anticipation of the institution of this proceeding, Broad Capital and Huberfeld have each submitted an Offer of Settlement ("Offers") which the Commission has determined to accept. By the terms of their respective Offers, Broad Capital and Huberfeld, without admitting or denying the findings set forth below, except that each admits to the jurisdiction of the Commission over them and over the matters set forth in this Order Instituting a Public Proceeding Pursuant to Section 8A of the Securities Act of 1933, Making Findings and Imposing a Cease-and-Desist Order (the "Order") and, solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or to which the Commission may be a party, consent to the entry of this Order. III. ==========================================START OF PAGE 2====== On the basis of this Order and the Respondents' Offers, the Commission finds-[1]- that: A. FACTS 1. Respondents a. Broad Capital is a private corporation, incorporated in the State of New York in 1989, with principal offices in New York City. Its founders and sole shareholders are Huberfeld and David B. Bodner ("Bodner"). Broad Capital, through Huberfeld, Bodner and several commission-based employees, is engaged in investing in private and public companies. Broad Capital is not now and has never been registered with the Commission in any capacity. b. Huberfeld, 35, is a resident of Lawrence, New York. During all relevant times herein, Huberfeld was employed as the President of Broad Capital and owned fifty percent of the outstanding common stock of Broad Capital. 2. Other Relevant Entity -- Wye Resources, Inc. Wye Resources, Inc. ("Wye") was incorporated pursuant to the laws of the Province of Ontario, Canada on May 4, 1984. At all times relevant to this matter, it was headquartered in Labrador City, Newfoundland. Wye purports to be a natural resource and development company. Its principal assets consist of a Canadian gold mining property and various diamond mining concessions in Zaire. However, it has never engaged in, or recorded earnings from, any mining operations in connection with any of these properties. Prior to February 1994, Wye's common stock traded on the Canadian Dealing Network ("CDN"). Between November 1992 and January 25, 1994, the approximate number of shares of Wye common stock outstanding increased from 4 million to 14.1 million. Neither Wye nor its stock has ever been registered with the Commission. On February 1, 1994, the CDN halted trading in the securities of Wye. On February 4, 1994, the Ontario Securities Commission ("OSC") issued a "Temporary Order" ordering a halt in all trading in the securities of Wye. This Temporary Order was continued by Order dated March 21, 1994 and remains in effect. ---------FOOTNOTES---------- -[1]- The findings herein are made pursuant to Broad Capital's and Huberfeld's Offers of Settlement and are not binding on any other person or entity named as a respondent or defendant in this or any other proceeding. ==========================================START OF PAGE 3====== 3. Background During 1993 and early 1994, as part of a fraudulent scheme to distribute unregistered securities in the United States, Wye and its then President, Rehan Malik ("Malik"), promoted Wye stock to United States investors by placing advertisements concerning Wye in a number of American publications. Wye and Malik also placed press releases and other information on an advertised computer bulletin board service that was based in New Orleans and available to U.S. investors through the Internet. In addition, Wye and Malik directly mailed releases and other company- generated information to prospective U.S. investors. The conduct of Wye and Malik was intended to and did attract a wider shareholder base in the U.S. and cause an increase in the market price of Wye stock. As part of these activities, between October 30, 1993 and February 4, 1994, Wye issued over 5.3 million common shares without registering the shares under either Canadian or U.S. securities laws. During the same approximate period, the price of Wye common stock rose from a price of $ .10 per share to a high of $1.85 per share. 4. Broad Capital and Huberfeld Facilitated the Unregistered Distribution of Wye Stock In or about October 1993, Broad Capital initiated contact with Malik. Broad Capital offered to provide financing to Wye, which was then in desperate need of funds to explore and develop its mining properties in Zaire. Wye and Malik previously had been unsuccessful in obtaining financing in Canada. On or about October 26, 1993, Malik visited the New York offices of Broad Capital and met with Huberfeld, among others. At the conclusion of the meeting, Huberfeld, on behalf of Broad Capital, entered into a verbal agreement to purchase 1.25 million shares of the common stock of Wye at a discount from Wye's then market price. These shares were not properly authorized and issued by Wye nor were they registered with the OSC or the Commission. In connection with the sale of Wye shares, Malik sent to Broad Capital a document that characterized the transaction not as a sale, but rather as in part a loan secured by Wye stock and in part payment in Wye stock for certain enumerated services. Malik falsely characterized the transaction in this manner in order to evade Canadian securities registration requirements. Despite Malik's deliberate mischaracterization of the true nature of the transaction, no one at Broad Capital conducted any due diligence as to the status of the shares; nor did the obvious "red flag" of Malik's false documentation cause Broad Capital to question the credibility of Malik's representation that the shares were free-trading. ==========================================START OF PAGE 4====== Specifically, Broad Capital and Huberfeld failed to investigate whether the Wye stock purchased by Broad Capital had been properly authorized and issued by Wye, whether the stock was properly registered in either Canada or the United States, or whether any exemption from registration was applicable to the shares. Huberfeld failed to inquire even as to whether the seller was Wye or Malik acting in his individual capacity. Huberfeld also failed to investigate whether there were additional regulatory or other implications stemming from Wye's status as a foreign issuer. The transaction was memorialized in a writing dated November 12, 1993. At the time of their purchase, Broad Capital and Huberfeld intended to immediately resell the Wye stock. Among other things, this intent is evidenced by the fact that Broad Capital began to sell the stock through an American broker-dealer on November 12, 1993. At the direction of Huberfeld, Broad Capital sold the entire block of stock through various transactions ending December 10, 1993. The agreement between Malik and Broad Capital provided Broad Capital with the option to purchase another 1.25 million shares of Wye stock for $180,000. Wye's delivery of shares pursuant to this agreement was again falsely characterized by Malik as being payment for services rendered and the satisfaction of an outstanding loan. On or about December 9, 1993, Broad Capital, at the direction of Huberfeld, executed the option to purchase additional Wye shares. At the time of this second purchase, it was the intent of Broad Capital and Huberfeld to immediately resell these shares. Huberfeld caused Broad Capital to sell the shares acquired in the second transaction by mid-January 1994. In mid-January 1994, Broad Capital and Huberfeld negotiated a third agreement with Malik involving the purchase of 1 million additional shares of Wye stock for $250,000. As with the first two transactions, Broad Capital's payment to Wye was falsely characterized in the written agreement as a "loan." In connection with the third transaction, Huberfeld signed a contract that falsely stated that Broad Capital was also receiving a "fee for placement" of 2 million shares. Huberfeld knew that this document did not accurately reflect the terms of the transaction but nevertheless signed the agreement at the request of Malik. The third transaction between Wye and Broad Capital was never consummated due to the February 1, 1994 halt trade order issued by the CDN. Broad Capital was aware of, and participated in, Wye's promotional efforts in the United States. During his contacts with Broad Capital from in or about October 1993 through January 1994, Malik requested that Broad Capital represent Wye in contacts with investors and potential investors in the United States. Broad Capital agreed and its name and phone number were placed on a number of press releases issued by Wye during the ==========================================START OF PAGE 5====== relevant period. As a result, a number of United States investors and prospective investors called Broad Capital and were provided information about the company and its prospects. As of January 25, 1994, shortly before trading in Wye stock was halted, approximately 29 percent of the outstanding stock of Wye was held by United States investors. B. LEGAL DISCUSSION Broad Capital and Huberfeld violated Section 5 of the Securities Act Section 5(a) of the Securities Act provides that, "[u]nless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly -- (1) . . . to sell such a security . . . or (2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale." Section 5(c) makes it "unlawful for any person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce or of the mails to offer to sell or offer to buy . . . any security, unless a registration statement has been filed as to such security . . . ." Liability under Section 5 applies to any person who acts as an "underwriter" with respect to the distribution of unregistered securities. Section 2(11) of the Securities Act defines an underwriter to include "any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking . . . ." "[I]ndividual investors who are not professionals in the securities business may be 'underwriters' within the meaning of that term as used in the Securities Act if they act as links in a chain of transactions through which securities move from an issuer to the public." In the Matter of Edward J. Mawod & Company, Admin. Proc. File No. 3-4547; 8-14068 (April 12, 1976). Stated alternatively, "an underwriter is one who purchases stock from the issuer with an intent to resell to the public." Quinn and Company, Inc. v. SEC, 452 F.2d 943, 946 (10th Cir. 1971), cert. denied, 406 U.S. 957 (1972)(citing Gilligan v. SEC, 267 F.2d 461, 466 (2d Cir.), cert. denied, 361 U.S. 896 (1959)); Kane v. SEC, 842 F.2d 194 (8th Cir. 1988). A view or intent to distribute can be inferred from the short time period before the purchaser resells the unregistered stock. SEC v. Computronic Industries Corp., 294 F.Supp. 1136, 1139 (N.D.Texas 1968). Broad Capital and Huberfeld are liable under Section 5 as statutory underwriters for the distribution of unregistered Wye ==========================================START OF PAGE 6====== stock in the United States. Between November 12 and December 9, 1994, Broad Capital and Huberfeld purchased for value at least 15 percent of all Wye shares then outstanding. Further, Broad Capital and Huberfeld acted with the intent to immediately resell the shares and did, in fact, resell those shares within weeks of the initial purchases. They thereby formed the first link in a chain of transactions that permitted Wye to distribute its unregistered securities in the United States. IV. FINDINGS Based on the foregoing, the Commission finds that Broad Capital and Huberfeld violated Section 5 of the Securities Act. V. ORDER Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act, that: A. Broad Capital and Huberfeld CEASE AND DESIST from committing or causing violations and any future violations of Section 5 of the Securities Act; and B. Broad Capital and Huberfeld disgorge the sum of $356,872.75, for which they are jointly and severally liable, representing all profits gained as a result of transactions in the unregistered securities of Wye, and pay prejudgment interest in the amount of $69,917.30. It is further ORDERED that these amounts be paid within 10 days of the entry of this Order. Such payment shall be made by certified check, cashier's check or money order, made payable to the U.S. Securities & Exchange Commission, transmitted to the Comptroller, Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 2-5, Washington, D.C. 20549 and submitted under a cover letter that identifies Broad Capital and Huberfeld as the respondents in this proceeding, the file number of this proceeding, and the Commission's internal case number (HO-2927). A copy of the cover letter shall be simultaneously transmitted to the Secretary of the Commission, Office of the Secretary, Mail Stop 6-9, 450 Fifth Street, N.W., Washington, D.C. 20549 and Glenn S. Gentry, Senior Counsel, Division of Enforcement, Mail Stop 4-7, 450 Fifth Street, N.W., Washington, D.C. 20549. By the Commission. Jonathan G. Katz Secretary