SECURITIES AND EXCHANGE COMMISSION

LITIGATION RELEASE NO. 17129 / September 14, 2001

   First Circuit Reverses Lower Court's Dismissal of SEC Action Against
   Internet "Virtual Stock Exchange" Scheme Operators

   (United States Court of Appeals for the First Circuit, Nos. 01-1176
   and 01-1332) (September 13, 2001)

   The Commission announced that yesterday, September 13, 2001, the
   United States Court of Appeals for the First Circuit issued a ruling
   that allowed the SEC to proceed with its fraud action against SG
   Limited. The SEC had alleged that SG violated federal securities laws
   by offering investments in a "virtual company" on its
   "StockGeneration" website and by falsely representing that investors
   in the company would receive a guaranteed profit of 10% per month. The
   Court of Appeals ruling reversed a lower court's decision that
   dismissed the case on the basis that the SG investment was not a
   security. The Court of Appeals ruled that the lower court had erred
   and that the investment scheme as described in the SEC's complaint was
   an investment contract, a form of security covered by the federal
   securities laws.

   The SEC's case, originally filed on June 9, 2000 in the United States
   District Court for the District of Massachusetts, alleged that SG
   Limited, an offshore entity, operated a massive Internet pyramid
   scheme under the name "StockGeneration." SG allegedly described the
   StockGeneration program as a "virtual stock exchange" offering
   investments in the stock of several "virtual companies," including one
   identified as the "privileged company" whose shares "only rise" and
   generate a risk-free, guaranteed return of 10% per month, or 215% per
   year. The Commission further alleged that investors in this privileged
   company did not receive the guaranteed return and have not even been
   able to recover their initial investments.

   The District Court initially granted the Commission's motions for a
   temporary restraining order and a preliminary injunction halting SG's
   alleged fraudulent activities and imposing an asset freeze through
   which the SEC was able to protect over $5,000,000 of investor funds
   held in banks in the U.S., Estonia and Cyprus. (The freeze remained in
   effect pending the appeal.) On January 25, 2001, however, the court
   granted SG's motion to dismiss the SEC's complaint, concluding that
   SG's "virtual stock exchange" program fell outside the scope of the
   federal securities laws because SG's website clearly marked and
   defined the activity as a game and therefore it was not within the
   ordinary concept of a security in the commercial world.