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UNITED STATES OF AMERICA
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In the Matter of LOG POINT TECHNOLOGIES, INC.
Respondents. |
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ORDER INSTITUTING
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I.
The Securities and Exchange Commission ("Commission") deems it appropriate that a public cease-and-desist proceeding be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Log Point Technologies, Inc. ("Log Point" or the "Company") and Samuel P. Shanks ("Shanks").
Accordingly, IT IS HEREBY ORDERED that a cease-and-desist proceeding against Log Point and Shanks be, and hereby is, instituted.
II.
In anticipation of the institution of this proceeding, Log Point and Shanks have submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein except that Log Point and Shanks admit the jurisdiction of the Commission over them and over the subject matter of this proceeding, Log Point and Shanks consent to the issuance of this Order Instituting Public Cease-and-Desist Proceeding, Making Findings and Issuing a Cease-and-Desist Order ("Order").
III.
On the basis of this Order and the Offer, the Commission makes the following findings:
A. Nature of Proceeding
1. This matter involves the distribution of false and misleading press releases by Log Point Technologies, Inc., a computer chip developer based in Mountain View, California, and its President and Chief Executive Officer, Samuel P. Shanks. Between March and September 2000, Log Point issued four press releases concerning $20 million in financing that Log Point expected to receive from a private finance company. Log Point failed to indicate in its press releases, however, that the financing was contingent on Log Point, a company with little cash on hand and no other sources of financing, first providing a $5 million deposit of its own. Log Point also filed with the Commission a quarterly report on Form 10-QSB in which it stated that it had a commitment for the $20 million financing but failed to disclose the required $5 million deposit. Finally, Log Point did not disclose until two weeks after first announcing the financing that the Company's shares would be diluted by ten percent as a result of the financing arrangement.
2. In one of the press releases, Log Point also projected combined revenue for fiscal 2001 and 2002 of approximately $75 million to $90 million. There was no reasonable basis for Log Point's revenue projection: Log Point is a development stage company with six employees; all of the Company's products are still in the testing phase; and for the fiscal year ended June 30, 2000, Log Point reported no significant sales.
3. Log Point disseminated these press releases through Business Wire and they were subsequently posted on various Internet bulletin boards by persons unaffiliated with the Company. The press releases caused the price of Log Point stock to increase as much as 50 percent, on volume as much as 2,300 percent above the stock's average daily volume during the preceding three months.
B. Respondents
4. Log Point Technologies, Inc. is a computer chip development company with its principal place of business in Mountain View, California. The Company's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act, and is quoted on the OTC Bulletin Board under the symbol LGPT.
5. Samuel P. Shanks, Ph.D., 53, is a resident of Mountain View, California and is Log Point's President and Chief Executive Officer. Shanks owns 2,029,824 shares of Log Point common stock, representing 18.35 percent of the outstanding shares.
C. Background
6. Samuel Shanks founded Log Point as a private corporation in 1993 with another individual. In 1997, Log Point became a publicly traded company through a reverse merger with a public shell company. Log Point develops high performance digital computation products that increase the speed at which computers perform mathematical calculations. The Company's patented products include software applications that can be embedded in software language and hardware products that can be mounted on circuit boards. Log Point's products are currently in the testing and evaluation phase, and the Company has yet to make any significant sales of its products.
7. For the fiscal year ended June 30, 2000, Log Point reported revenue of $1,200, assets of $140,315, and a cash balance of $67. The asset value consists primarily of a technology license between the Company and the individual with whom Shanks founded the Company. From September 1999 through February 2000, the six months preceding the events described below, the average closing price of Log Point stock was $0.81 per share.
D. The Funding Agreement
8. In March 2000, Log Point entered into a funding agreement with a New Jersey entity that purports to be a small venture capital firm (the "lender"). The lender sent a letter of intent to Shanks dated March 1, 2000, proposing that the lender lend Log Point $20 million. However, the letter required that Log Point first deposit $5 million in cash or cash equivalents into an escrow account to be held for ten months. The lender would then obtain a proof of funds letter, which supposedly would allow the lender to participate in a European Asset Investment Program. From the proceeds of this program, the lender would then lend Log Point $20 million for a term of seven years at an interest rate of approximately 6.8 percent. The Company was also required to issue stock to the lender equal to ten percent of the number of outstanding Log Point shares. Shanks signed an agreement confirming these terms on March 14, 2000.
9. The March 1, 2000 letter of intent stated that the lender would assist Log Point in raising the initial $5 million "on a best efforts basis." However, the letter of intent and subsequent contract make it clear that the $20 million loan was contingent on Log Point first raising $5 million, and that the lender had no obligation to raise the $5 million on behalf of Log Point.
E. The False and Misleading Press Releases
10. From March through September 2000, Log Point issued four press releases concerning its $20 million financing arrangement with the lender. Shanks drafted, and made the decision to issue, each press release. These press releases were materially false and misleading because they failed to disclose that the financing was contingent on Log Point making an initial deposit of $5 million. The first of these press releases was also materially false and misleading because it failed to disclose that Log Point's shares would be diluted by ten percent as a result of the financing arrangement.
11. Log Point issued the press releases through Business Wire. Within minutes, each release was posted to and discussed on Internet stock discussion boards such as Raging Bull. Several of the press releases had a significant impact on the price and trading volume of Log Point stock.
12. The first release, dated March 27, 2000, announced that Log Point "had received a Letter of Commitment for $20 million financing from [the lender], with the option to increase financing as the Company expands its operations." Log Point did not disclose (a) that its receipt of the $20 million from the lender was contingent on a $5 million initial deposit by Log Point and (b) that the Company's shares would be diluted by ten percent as a result of the financing. That day, the price of Log Point stock rose 50 percent in intraday trading, from $2.00 to $3.00 per share, on trading volume of 603,400 shares -- a 1,804 percent increase over the stock's average daily volume during the preceding three months.
13. On August 25, 2000, Log Point issued a second press release, which announced that the lender was "still 100% committed to finance Log Point. The hold up in financing is due to an unexpected delay beyond the control of both Log Point and [the lender]. We expect this situation to clear soon, and proceed with the $20 million financing. Dr. Shanks stated that Log Point would have a very positive update regarding their technology in the next few days." This press release did not disclose the $5 million contingency. That day, the price of Log Point stock rose 19 percent, from $0.84 to $1.00 per share. Trading volume of 202,700 shares was 756 percent higher than Log Point's average daily volume during the preceding three months.
14. On September 7, 2000, Log Point issued a third release, which stated that the $20 million in financing was "upcoming," once again failing to disclose the fact that the financing was contingent on Log Point's initial $5 million deposit. This release, which also contained a material misrepresentation regarding Log Point's projected revenue, is discussed further in Section III.F., below. In the hours following this announcement, Log Point's stock price rose 26 percent, from $0.94 to $1.19 per share, on volume of 1.2 million shares -- a 2,300 percent increase over the stock's average daily volume during the preceding three months.
15. Finally, a fourth release, dated September 18, 2000, reiterated that $20 million in financing was "upcoming" but again failed to disclose Log Point's required $5 million deposit.
F. The Misleading Revenue Projection
16. The September 7 press release noted above announced that the Company had made technological improvements to its product line and that "[t]his new technology along with the upcoming $20 million financing should propel Log Point into major revenue of approximately $75 million to $90 million over the next two years." As discussed above, Log Point's share price rose 26 percent and its daily trading volume rose 2,300 percent following this announcement.
17. In addition to the misrepresentation regarding the status of Log Point's financing, the September 7 press release was materially misleading because there was no basis for the revenue projection it contained. At the time, Log Point had no customers, no significant sales, and no products on the market. The Company's own Form 10-KSB, signed by Shanks and filed in October 2000, expressly stated that "no significant licensing or sales of products are expected over the twelve-month period ending June 30, 2001."
18. Log Point and Shanks knew, or were reckless in not knowing, that the March 24, 2000, August 25, 2000, September 7, 2000, and September 18, 2000 press releases were materially false and misleading. Based on the foregoing, Log Point and Shanks violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
G. The Misleading Form 10-QSB
19. On May 30, 2000, Log Point filed with the Commission a quarterly report on Form 10-QSB, signed by Shanks, for the quarter ended March 31, 2000. This Form 10-QSB stated that "Log Point completed negotiations for a major debt financing and received a commitment letter for a twenty-million-dollar financing from [the lender]." This Form 10-QSB was materially misleading because it failed to disclose that the financing was contingent on Log Point making an initial deposit of $5 million.
20. Based on the foregoing, Log Point violated, and Shanks aided and abetted and caused a violation of, Section 13(a) of the Exchange Act and Rules 13a-13 and 12b-20 thereunder. In addition, Log Point and Shanks violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
IV.
Based on the foregoing, the Commission deems it appropriate to accept the Offer submitted by Log Point and Shanks. Accordingly, IT IS HEREBY ORDERED pursuant to Section 21C of the Exchange Act that:
Log Point and Shanks cease and desist from committing or causing any violations or any future violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, and 13a-13 thereunder.
By the Commission.
Jonathan G. Katz
Secretary
http://www.sec.gov/litigation/admin/34-44023.htm
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