|IN THE MATTER OF|
|ARKANSAS CASINO CORPORATION||NO. 98-7-S|
This Consent Order is entered into pursuant to the Arkansas Securities Act, Arkansas Code Ann. §§ 23-42-101, et seq. (the "Act"), The Rules of the Arkansas Securities Commissioner, and the Arkansas Administrative Procedures Act, Arkansas Code Ann. §§ 25-15-201, et seq. This Consent Order is agreed upon and entered into by and among the parties hereto in partial settlement of the violations of the Act alleged to have occurred by the Staff of the Department, but is not conclusive of all issues arising out of the issuance and transfer of shares of Arkansas Casino Corporation (the Company"), and in no way prohibits further action by the Staff arising out of such issuance and transfer of shares.
Arkansas Casino Corporation hereby waives its rights to a formal hearing herein, and agrees that this Consent Order may be entered immediately in lieu of the filing of a Complaint as set forth above, and undertakes to perform the actions set forth herein.
FINDINGS OF FACT
Between March 15, 1997, and June 3, 1997, the Company issued a total of five million restricted shares of common stock to the following:
Arkansas Casino Partners ("Partners"), also known as Arkansas Casino Company, an Arkansas General Partnership - 3,273,000 shares for the stated consideration of the assumption of contingent future liabilities valued by the Company at $317,600.00;
|(b)||ATAP Financial Corporation, a corporation, 100% of the outstanding shares of which is owned by Jim C. Harris, the Chairman and Secretary of the Company at the time - 1,675,000 shares for payment of a debt of $162,540.00;|
|(c)||Interwest Transfer Co., Inc., the transfer agent for the Company - 5,000 shares for the payment of an existing debt of $498.00;|
|(d)||S. W. Hatfield & Associates, CPA, the Companys accounting firm - 26,500 shares for an existing debt of $2,562.00; and|
|(e)||Buchholz & McCall, PC, the Companys law firm - 20,500 shares for an existing debt of $2,000.00.|
All of the restricted shares issued to ATAP Financial Corporation, Interwest Transfer Co., Inc., S. W. Hatfield & Associates, CPA, and Buchholz & McCall, PC, were sold to Partners on or about April 17, 1997, for the following consideration:
|ATAP Financial Corporation, 1,675,000 shares for $167,540.00|
|Interwest Transfer Co., Inc., 5,000 shares for $498.00|
|S. W. Hatfield & Assoc., 26,500 shares for $2,562.00|
|Buchholz & McCall, PC, 20,500 shares for $2,000.00|
Records of the Arkansas Securities Department do not reflect that any registration of the shares of the Company has been filed with the Department, nor do the records reflect the filing of a proof of exemption for the sale of shares of the Company.
Records of the Arkansas Securities Department do not reflect that any individual has been designated or registered as the agent of the Company or of Partners to effect sales of the Companys stock in Arkansas.
On or about June 30, 1997, Standard and Poors Corporation Records published information submitted by the Company. Such information is set forth in Exhibit "A" hereto which is an exact reproduction of the information contained at Page 7563 of the 1997 A-B Volume published October 9, 1997.
The information submitted by the Company and published by Standard and Poors Corporation Records was inaccurate in the following particulars:
|(a)||The information reflects that a plan of reorganization was approved in a Chapter 11 bankruptcy proceeding in which the Company was involved as a result of a Petition filed by the Company on or about March 1996, when there was in fact no plan of reorganization approved by the court;|
|(b)||The information reflects that the issuance of the unregistered unrestricted stock was concurrent with the reorganization under the bankruptcy proceeding, when in fact the issuance of such stock took place subsequent to the dismissal of the Companys petition.|
Such information did not contain the information specified by Arkansas Code Ann. § 23-42-504(a)(2)(D)(iv), namely audited income statements for each of the Companys immediately preceding two fiscal years.
The Company has supplied to the Department copies of promotional material which encourages potential investors to contact their broker to purchase shares of the Company. These promotional material contain statements which are false and misleading, including:
|(a)||That the Company has 9,572,733 shares outstanding which are available through most brokerage firms. In fact, at least 5,000,000 of these shares are restricted from further trading and are neither registered nor exempt from registration. In addition, the remaining shares are not subject to exemption based upon the availability of the most common secondary trading exemption, the so-called "Manual Exemption" codified at Arkansas Code Ann. § 23-42-504(a)(2);|
|(b)||That the Company has more than 1,000 Arkansas Shareholders. In fact, the share transfer history supplied by the Companys transfer agent reflects that the number of Arkansas shareholders is less than 200;|
The promotional materials furnished to the Department by the Company omit to state adverse material information concerning certain of the officers and directors of the Company, including:
|(a)||Disclosure of the fact that Jim C. Harris, the Chairman and Secretary of the Company during at least a part of the period over which the unregistered, restricted shares were sold, was the Chairman and a director of a corporation, namely Global Productions, Inc., which was the subject of Cease and Desist Order No. 97-029-S dated May 9, 1997, issued due to the sale of unregistered securities in Arkansas during the time period that Harris was Chairman and a director;|
|(b)||Disclosure of the fact that David R. Kane, a director of the Company during at least a part of the period over which the unregistered restricted shares were sold, has been the subject of prior disciplinary proceedings before the Department and has had his securities registration revoked by the FINRA. David R. Kane was as of January 1, 1997, the President of Global Productions, Inc.|
|(c)||Disclosure of the fact that Donald Ross Nicholas who is a present director of the Company, was also a director of a corporation, namely Global Productions, Inc., which was the subject of Cease and Desist Order No. 97-029-S dated May 9, 1997, issued due to the sale of unregistered securities in Arkansas during the time period that Nicholas was a director.|
The promotional materials furnished to the Department by the Company omit to disclose the possible risks associated with an investment in the Company, and other material facts necessary to allow an investor to make an informed investment decision concerning the securities of the Company, including:
|(a)||The fact that shares obtained by shareholders in the over the counter market were purchased at a price in excess of the price paid by those shareholders purchasing the unregistered restricted shares directly from the Company or from Partners;|
|(b)||The fact that the value of the shares existing prior to March 15, 1997, (which are the only shares available for purchase in the over the counter market) would be diluted by the issuance of the five million shares of unregistered restricted stock.;|
|(c)||The fact that the five million shares issued between March 15, 1997 and June 3, 1997 were neither registered nor exempt from registration; and|
|(d)||The fact that the five million shares issued between March 15, 1997 and June 3, 1997 were being sold by persons who were neither registered to sell securities in this state, nor exempt from registration.|
The share certificate transfer history obtained from Interwest Transfer Co., Inc., the Companys transfer agent, reflects that as of January 23, 1998, the Company and/or Partners has made at least eighty sales in Arkansas of 1,490,500 shares of unregistered restricted common stock.
Arkansas Code Ann. § 23-42-501 provides that it is unlawful for any person to offer or sell any security in this state unless it is registered, the security or transaction is exempted under Ark. Code Ann. §§ 23-42-503 or 23-42-504, or it is a covered security.
Arkansas Code Ann. § 23-42-301(a) provides that it is unlawful for any person to transact business in this state as a broker-dealer or agent unless he is registered.
Arkansas Code Ann. §23-42-506 imposes a duty upon an issuer or seller of securities to fully and accurately disclose to investors material facts necessary to allow the investor to make an informed investment decision.
CONCLUSIONS OF LAW
The sale of shares by the Company and Partners in Arkansas constitutes a violation Arkansas Code Ann. § 23-42-501 due to the fact that such securities are not registered under the Act, exempt from the registration provisions of the Act, nor covered securities.
The information set forth in Standard and Poors Corporation Records is inaccurate and insufficient to support the availability of the transactional exemption set forth in Arkansas Code Ann. § 23-42-504(a)(2).
The sale by the Company and its officers and by Partners and Michael D. Carlin, its Managing Partner, of shares constitutes a violation of Arkansas Code Ann. § 23-42-301(a) due to the fact that no agent is registered on behalf of the Company or Partners to offer or sell securities in this state.
It is in the public interest that all sales of the Companys securities in this state cease until such time as the securities are properly registered or exempted, and the Company is otherwise in compliance with the provisions of the Act.
The provisions of the Act governing registration and exemption of securities, as well as those provisions governing registration of agents, exist for the protection of the investor so that informed investment decisions may be made based upon full disclosure of all pertinent information. When the provisions of the Act are circumvented, this goal is thwarted. Especially serious is the case in which a portion of an issuers securities trade on an established market, because such failure to adequately provide disclosure affects many more people than those contacted directly by the issuer or those acting on its behalf. Such is the case in this instance where the Company has encouraged potential investors to purchase shares in the over the counter market, representing, at least tacitly, that such activity is in conformity with the law.
When such activities are taking place, there would seem to be but one solution until there is compliance with the Act, i.e., the cessation of all sales of the securities in this state.
As a part of this Consent Order, the Company hereby voluntarily undertakes the following steps to attempt to resolve the issues arising out of the facts set forth above:
|(a)||The Company will immediately, if it has not already done so, instruct its transfer agent, Interwest Transfer Co., Inc. to cease the transfer of all of the Companys securities;|
|(b)||The Company will immediately, if it has not already done so, notify the market makers in the Companys securities of the cessation of trading in the Companys shares;|
|(c)||The Company will notify its shareholders by letter that a problem exists concerning the registration and sale of its securities, and that the trading or transfer of the securities is suspended until such problem is resolved with the Department. Such letter shall, prior to mailing, be approved by the Commissioner;|
|(d)||The Company will immediately, if it has not already done so, remove its Web Page appearing on the Internet until such time as the problems concerning the issuance and sale of the Companys securities are resolved with the Department; and|
|(e)||The Company will initiate and complete procedures designed to afford statutory rescission to all persons desiring rescission who have purchased the Companys securities subsequent to March 31, 1997. All documents proposed to be delivered to shareholders or prior shareholders in connection with the recission offer shall contain full disclosure of all material facts concerning an investment in the securities of the Company, and shall, prior to delivery to shareholders, be approved by the Commissioner.|
It is therefore ORDERED that Arkansas Casino Corporation refrain from any further sales or promotion of sales of securities until such time as the securities are registered, or the Commissioner determines that an exemption from registration is available.
It is further ORDERED that Arkansas Casino Corporation comply with the undertaking set forth herein.
|MAC DODSON, COMMISSIONER|
The provisions set forth in this Consent Order, including the provisions set forth in the portion designated as "Undertaking", are agreed upon on behalf of the Company.
|ARKANSAS CASINO CORPORATION|
|THOMAS L. GOODWIN, PRESIDENT|
|DONNA GORDON, ASST. SECRETARY|