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The Securities and Exchange Commission can pursue fraud charges against an Internet gambling site that ran a “virtual stock exchange,” a federal appeals court has ruled. The case involves a Web site called StockGeneration, where “investors” sent money and bought “stocks” in fictitious companies. The player wins or loses money based on the company’s value. There is no computerized method for the “stock” going up or down; it was done entirely at the whim of the game’s managers. The SEC filed a complaint in June 2000 alleging that the investment offerings were nothing more than a pyramid scam that violated federal securities laws. A U.S. District Court judge sided with the company in January because it did not offer, buy or sell securities, and because it presented itself as a game. But the 1st U.S. Circuit Court of Appeals ruled against the company Sept. 13, agreeing with the SEC that the language of the site essentially represented a type of investment contract. “We’re very disappointed at the court’s decision,” said Daniel Small, the attorney for SG Limited and SG Perfect Limited, which ran the site. “The court of appeals has given the SEC the green light for a fishing expedition,” he said. The site will not operate and the company’s $6.5 million in assets will remain frozen until the matter is resolved. SEC District Administrator Juan Marcel Marcelino said that if the commission prevails, “we will seek to reimburse the investors for any losses.” The company said StockGeneration, run from the Caribbean island of Dominica, had more than 325,000 players from more than 70 countries, and had paid out millions of dollars before it was shut down. Players were promised a guaranteed annual return of 215 percent. Copyright 2001 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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