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On Tuesday, a U.S. District Court judge threw out a case that the U.S. Securities and Exchange Commission (SEC) had filed against a Caribbean Web site operating a virtual stock game.
The SEC had alleged that the Web-based StockGeneration game was in fact a pyramid scam that violated the agency's regulations on interstate commerce. But federal judge Joseph L. Tauro dismissed the case against SG Limited, the Dominican-based company that ran the StockGeneration, nullifying a June 2000 injunction against the site.
The decision highlights the difficulty governments face in enforcing Internet regulations across national jurisdictions.
The SEC filed its grievance with the U.S. District Court after receiving complaints from users in 27 U.S. states. After the injunction was issued, the SEC froze S.G. Limited's US$6.5 million in assets.
S.G. Limited's attorney, Daniel Small, said the company expects the assets to be released soon and the Web site to resume operations. According to Small, over 325,000 players from more than 70 countries were involved with the StockGeneration Web site before it was shut down.
Just A Game
In his decision, Judge Tauro told the SEC that the agency had exceeded its authority, since SG Limited made no offers to trade actual securities. Moreover, the judge agreed with SG company officials, who had pointed out that the site was clearly a game.
Noting that the StockGeneration site used words like, "player," "winner" and "prize," the judge wrote: "It is difficult to imagine more clear and forceful language alerting potential participants that they would be playing a game, not making an investment."
Attorney Small added that the companies players traded were all fictitious, and that game managers determined the success or failure of each "company."
"It's entirely up to the controllers of the game," Small told news sources. "It's totally chaotic, depending on what managers of the game say would be fun that day. It's a game, not determined by any outside events."
Know the Rules
An attorney from a major U.S. law firm speaking on condition of anonymity told NewsFactor Network that the judge's decision has raised the bar on Internet-related complaints, saying that if people are fooled by this, it's their own fault.
In addition, the source told NewsFactor that games like the one offered on StockGeneration's Web site are fairly well-known and have been around in different forms for years. He likened these games to the stock equivalent of a baseball "Rotisserie League," where players put together fantasy teams and bet on their outcomes.
"Generally, you pay the company some amount, perhaps $50 or $500, to cover the company's expenses, and you pretend to buy and sell stocks. Whoever has the most money at the end of the time period wins a trip to the New York Stock Exchange; the second-place finisher gets a computer; and the third, let's say, a Palm Pilot."
Added the source: "And you can't have winners without having losers."
SEC Plans Appeal
According to SG Limited, the company paid out millions of dollars worth of prizes before the site was shut down.
SEC officials told news sources that they are considering appealing the judge's decision, saying that SG Limited promised risk-free investment to its users and an annual rate of return of 215 percent.
The SEC had alleged that the Web-based StockGeneration game was in fact a pyramid scam that violated the agency's regulations on interstate commerce. But federal judge Joseph L. Tauro dismissed the case against SG Limited, the Dominican-based company that ran the StockGeneration, nullifying a June 2000 injunction against the site.
The decision highlights the difficulty governments face in enforcing Internet regulations across national jurisdictions.
The SEC filed its grievance with the U.S. District Court after receiving complaints from users in 27 U.S. states. After the injunction was issued, the SEC froze S.G. Limited's US$6.5 million in assets.
S.G. Limited's attorney, Daniel Small, said the company expects the assets to be released soon and the Web site to resume operations. According to Small, over 325,000 players from more than 70 countries were involved with the StockGeneration Web site before it was shut down.
Just A Game
In his decision, Judge Tauro told the SEC that the agency had exceeded its authority, since SG Limited made no offers to trade actual securities. Moreover, the judge agreed with SG company officials, who had pointed out that the site was clearly a game.
Noting that the StockGeneration site used words like, "player," "winner" and "prize," the judge wrote: "It is difficult to imagine more clear and forceful language alerting potential participants that they would be playing a game, not making an investment."
Attorney Small added that the companies players traded were all fictitious, and that game managers determined the success or failure of each "company."
"It's entirely up to the controllers of the game," Small told news sources. "It's totally chaotic, depending on what managers of the game say would be fun that day. It's a game, not determined by any outside events."
Know the Rules
An attorney from a major U.S. law firm speaking on condition of anonymity told NewsFactor Network that the judge's decision has raised the bar on Internet-related complaints, saying that if people are fooled by this, it's their own fault.
In addition, the source told NewsFactor that games like the one offered on StockGeneration's Web site are fairly well-known and have been around in different forms for years. He likened these games to the stock equivalent of a baseball "Rotisserie League," where players put together fantasy teams and bet on their outcomes.
"Generally, you pay the company some amount, perhaps $50 or $500, to cover the company's expenses, and you pretend to buy and sell stocks. Whoever has the most money at the end of the time period wins a trip to the New York Stock Exchange; the second-place finisher gets a computer; and the third, let's say, a Palm Pilot."
Added the source: "And you can't have winners without having losers."
SEC Plans Appeal
According to SG Limited, the company paid out millions of dollars worth of prizes before the site was shut down.
SEC officials told news sources that they are considering appealing the judge's decision, saying that SG Limited promised risk-free investment to its users and an annual rate of return of 215 percent.