## Facts

- Ishopnomarkup.com, Inc. (“iShop”) sought to raise money by selling shares of its common stock to potential investors.
- In soliciting investors, iShop distributed “confidential offering memoranda” and other written materials describing the company and the stock offering.
- iShop’s materials stated that the stock was being offered only to investors who claimed to satisfy “accredited investor” requirements.
- iShop indicated it relied on advice of counsel in treating the stock offering as exempt from the Securities Act’s registration requirements.
- The SEC alleged that iShop’s capital-raising effort (from roughly 1999 to 2000) involved sales of millions of shares to more than 350 investors and generated about $2.3 million in proceeds.
- No registration statement was filed or in effect for the offers and sales at issue.
- The SEC filed a civil enforcement action against iShop and others, asserting (among other claims) violations of Securities Act §§ 5(a) and 5(c) based on unregistered offers and sales.
- The SEC moved for partial summary judgment against iShop on the Section 5 registration claim, arguing the undisputed facts established liability and that iShop had not shown any valid exemption.

## Issues

1. Whether the SEC established, as a matter of law, a prima facie violation of Securities Act § 5 by showing that iShop offered or sold securities using interstate means when no registration statement was in effect.
2. Whether iShop carried its burden to show that the challenged offering qualified for a registration exemption (including a private-offering type exemption based on investor accreditation).
3. Whether iShop’s asserted reliance on advice of counsel, or its representations that investors claimed accredited status, created a genuine dispute of material fact that would defeat summary judgment on § 5 liability.

## Decision

- The court granted the SEC’s motion for partial summary judgment on the Securities Act § 5 claim against iShop.
- The court found the SEC made the required prima facie showing that iShop offered or sold securities without an effective registration statement and through interstate means.
- The court held iShop failed to prove the availability of any registration exemption for the offering described in the record.
- The court ruled that iShop’s claimed good faith and reliance on counsel did not bar liability under § 5, though such matters could relate to remedies rather than whether a violation occurred.

## Legal Principles

- To prove a prima facie violation of Securities Act § 5, the SEC must show: (1) the defendant directly or indirectly offered or sold securities, (2) the offers or sales used the mails or interstate means, and (3) no registration statement was filed or in effect for the securities.
- Once the SEC makes a prima facie showing, the defendant bears the burden to prove that an exemption from registration applies.
- Claimed exemptions from registration are construed narrowly, and an issuer must show that the offering in practice fits the exemption’s requirements; labels in offering documents are not enough by themselves.
- Section 5 liability does not require proof of intent; reliance on counsel or a belief that an exemption applied does not defeat § 5 liability, though it may be considered when deciding relief.

## Conclusion

The court entered partial summary judgment for the SEC on its Securities Act § 5 claim, concluding that iShop’s stock offering involved unregistered offers and sales through interstate means and that iShop did not meet its burden to show the offering was exempt from registration, leaving other claims and questions of relief for later proceedings.


Securities and Exchange Commission v. Ishopnomarkup.com, Inc., 2007 U.S. Dist. LEXIS 70684 (Sept. 24, 2007)