UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES ACT of 1933 Release No. 7598 / October 27, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9765 : : In the Matter of: : : ORDER INSTITUTING : PROCEEDINGS PURSUANT TO CORE COMMUNICATIONS : SECTION 8A OF THE GROUP, INC. AND : SECURITIES ACT OF 1933, JOSHUA Z. LEVINE, : MAKING FINDINGS, AND : IMPOSING A CEASE-AND- Respondents. : DESIST ORDER : : : I. The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") against Core Communications Group, Inc. ("Core") and Joshua Z. Levine ("Levine"). II. In anticipation of the institution of these proceedings, Core and Levine have submitted Offers of Settlement ("Offers"), which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the Commission's findings contained herein, but admitting the jurisdiction of the Commission over them and the subject matter of this proceeding, Core and Levine consent to the entry of the findings and the imposition of the cease-and-desist order set forth herein. III. On the basis of this Order and the Offers, the Commission makes the following findings: A. FACTS [1] 1. Respondents Levine, age 39, resides in New York City, New York. He is the president of Core. Core is a New York corporation with offices in Great Neck, New York. Core was incorporated in March 1992 with Levine as its president and majority shareholder. 2. Background a. Formation of Core In March 1992, Levine incorporated Core Technology Group, Inc. to publish a business newsletter concerning technology companies in the Long Island, New York region. In 1994, Levine ceased publication of the newsletter, changed the name of the business to Core Communications Group, Inc., and changed the nature of its business to investor relations. Since 1994, Core has had nine investor relations clients, to whom it has provided a range of investor relations services. b. Core's Web Site In June 1997, Levine set up a web site for Core, which was titled Next Wave Stocks (www.nextwavestocks.com) ("Next Wave"). Levine styled the web site as an "on-line magazine" containing information about electronics, information, and biopharmaceutical companies. 3. Core's Reports Did Not Disclose Its Receipt Of Fees Since at least November 1996, Core has published reports on seven investor relations clients that have publicly traded securities. The companies were Nord Pacific Limited ("Nord"), Robotic Vision Systems, Inc. ("Robotic"), Inflazyme Pharmaceuticals Ltd. ("Inflazyme"), AMBI, Inc. (formerly Applied Microbiology, Inc.)("AMBI"), CVD Equipment Corporation ("CVD"), Imark Technologies, Inc. ("Imark"), and InSite Vision, Inc. ("InSite"). Each report resembled a third party's research report. Each report had "Next Wave Stocks" as its masthead banner, with the subheading, "Intellectual Capital for the Professional Investor." The reports' masthead identified Next Wave as a publication of Core, which was described as "a financial communication and equity research firm." Levine wrote five of the seven reports, and co-authored the other two. For the two that he co-authored, he retained final approval within Core of what would be published. All seven reports portrayed the companies favorably. Although the reports disclosed that Core might receive fees for acting as investor relations counsel, none of the seven reports disclosed the amount of fees that Core and Levine received from the companies pursuant to compensation arrangements. Levine mailed six of the reports to persons and entities on Core's mailing list, which included stockbrokers, analysts, venture capitalists, portfolio managers, investment bankers, media outlets, and private investors. b. Internet Reports After its creation in June 1997, Levine had the seven written reports posted on the Next Wave web site. The contents of the Internet reports were virtually identical to the written reports. The web site did not disclose the amount of fees that Core and Levine received from the companies pursuant to compensation arrangements. 4. Core's Receipt Of Fees From Issuers a. Nord Between October 1994 and July 1997, Core had an investor relations agreement with Nord, a mining company whose American Depository Receipts are quoted on NASDAQ. The agreement provided that Core would receive $3,500 per month for investor relations services. Under the agreement, Core received a total of $115,500 from Nord. In February 1997, Levine wrote a two page Next Wave report concerning Nord. Levine mailed the report to several thousand persons and entities on Core's mailing list. After the Next Wave web site was created in June 1997, Levine also had the report posted there. b. Robotic Between February 1995 and July 1998, Core had a series of investor relations agreements with Robotic, a manufacturer of "machine vision" equipment whose stock is quoted on NASDAQ. The agreements provided that Core would receive between $1,500 and $5,000 per month for investor relations services. Under these agreements, Core received a total of $143,500 from Robotic. In September 1997, Levine wrote a two page Next Wave report concerning Robotic. Levine mailed the report to approximately 5,000 to 6,000 persons and entities on Core's mailing list. Also in September 1997, Levine had the text of this report posted on the Next Wave web site. **FOOTNOTES** [1]: The findings are not binding on anyone other than the Respondents. c. Inflazyme Between June 1996 and January 1997, Core had an investor relations agreement with Inflazyme, a pharmaceutical company whose stock is quoted on the Vancouver Stock Exchange and the OTC Bulletin Board. The agreement provided that Core would receive $4,500 per month, and 80,000 options to purchase Inflazyme common stock, to vest at the rate of 6,500 per month. During this period, Core received a total of $36,000 from Inflazyme, but did not receive the options. In November 1996, Levine wrote a four page Next Wave report concerning Inflazyme. Levine mailed the report to approximately 5,000 to 6,000 persons and entities on Core's mailing list. After the Next Wave web site was created in June 1997, Levine also had the report posted there. d. AMBI Between September 1995 and March 1997, Core had an investor relations agreement with AMBI, a pharmaceutical company whose stock is quoted on NASDAQ. The agreement provided that Core would receive $3,500 per month, and 35,000 warrants to purchase AMBI common stock. From March 1996 to March 1997, Core received a monthly fee that ranged from $2,100 per month to $4,200 per month. Between September 1995 and March 1997, Core received a total of $52,400 from AMBI, along with 40,000 warrants (the original 35,000 and a bonus of 5,000). In January 1997, Levine wrote a four page Next Wave report concerning AMBI. Levine mailed the report to approximately 5,000 to 6,000 persons and entities on Core's mailing list. After the Next Wave web site was created in June 1997, Levine also had the report posted there. e. CVD In October 1997, Core entered into an agreement with CVD, a manufacturer of chemical vapor deposition systems whose stock is quoted on the OTC Bulletin Board. Under the agreement, Core was to produce a Next Wave company profile and to include CVD in the Next Wave on-line magazine. Core's fee for this service was $2,500. Between February 1998 and August 1998, Core had an investor relations agreement with CVD. The agreement provided that Core would receive $4,000 per month, and 12,000 options to purchase CVD common stock, to vest at the rate of 2,000 per month. Between October 1995 and August 1998, Core received $24,000 from CVD, but did not receive the warrants. In November 1997, Levine wrote a two page Next Wave report concerning CVD. Levine provided this report to CVD, which included it in a mailing to shareholders that it mailed. Also in November 1997, Levine had the report posted on the Next Wave web site. f. Imark Between February 1998 and August 1998, Core had an investor relations agreement with Imark, an Internet service provider whose stock is quoted on NASDAQ. The agreement provided that Core would receive $3,000 per month, and 30,000 warrants to purchase Imark common stock, with 10,000 to vest at the rate of 1,000 per month starting in February 1998, and the remaining 20,000 to vest upon Core's completion of certain tasks, such as posting a report concerning Imark on the Next Wave web site. From February 1998 through the present, Core has received a total of $3,000 from Imark (the first monthly payment), but has not received the warrants. In March 1998, Levine co-authored a four page Next Wave report concerning Imark. Levine mailed the report to approximately 3,500 persons and entities on Core's mailing list. Also in March 1998, Levine had the text of this report posted on the Next Wave web site. g. InSite Since April 1998, Core has had an investor relations agreement with InSite, which develops genetic tools for diagnosing and treating glaucoma, and whose stock is quoted on the American Stock Exchange. The agreement provides that Core would receive $4,500 per month for the first three months, $5,500 per month for the second three months, and $6,000 per month for the last three months. The agreement also provides that, in July 1998, InSite would evaluate Core's performance and consider the issuance of stock options to Core. Since April 1998, Core has received a total of $30,000 from InSite. In June 1998, Levine co-authored a four page Next Wave report concerning InSite. Levine mailed the report to approximately 3,500 persons and entities on Core's mailing list. Also in June 1998, Levine had the text of this report posted on the Next Wave web site. B. LEGAL DISCUSSION Section 17(b) of the Securities Act makes it unlawful for any person: to publish . . . or circulate any notice, circular, advertisement . . . or communication which, though not purporting to offer a security for sale, describes such security for a consideration received or to be received, directly or indirectly, from an issuer . . . without fully disclosing the receipt, whether past or prospective, of such consideration and the amount thereof. Levine and Core published favorable reports concerning seven issuers via mailings and on Core's Internet web site. The mailings and the web site did not disclose that Levine and Core had agreements with the issuers pursuant to which they received fees, and did not disclose the amounts of these fees. Accordingly, Levine and Core violated Section 17(b) of the Securities Act. See, e.g., United States v. Amick, 439 F.2d 351, 364-65 (7th Cir.), cert. denied, 404 U.S. 823 (1971); Wall Street Publishing Institute, Inc., 851 F.2d 365 (D.C. Cir. 1988); SEC v. Huttoe, C.A. No. 96-2453 (GK) Memorandum Opinion (D.D.C., filed September 14, 1998) (vague allusions to possible financial interest insufficient to satisfy Section 17(b)); In re Continental Capital & Equity Corp., Securities Act Release No. 7267; Exchange Act Release No. 36886 (Feb. 26, 1996) (disclaimer of possible receipt of compensation inadequate when actual agreement existed and compensation paid). Based on the foregoing, the Commission finds that Levine and Core committed violations of Section 17(b) of the Securities Act. IV. In view of the foregoing, the Commission deems it appropriate to accept the Offers submitted by Levine and Core and to issue the cease-and-desist order specified in the Offers. Accordingly, IT IS HEREBY ORDERED, pursuant to Section 8A of the Securities Act, that Core Communications Group, Inc. and Joshua Z. Levine cease and desist from committing or causing any violation and any future violation of Section 17(b) of the Securities Act. By the Commission. Jonathan G. Katz Secretary