INITIAL DECISION RELEASE NO. 117 ADMINISTRATIVE PROCEEDING FILE NO. 3-9279 UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Washington, D.C. _______________________ : In the Matter of : : INITIAL DECISION MATT MATSON : September 25, 1997 _______________________ : APPEARANCES: Mitchell E. Herr for the Division of Enforcement, Securities and Exchange Commission Matt Matson, pro se BEFORE: Lillian A. McEwen, Administrative Law Judge PROCEDURAL HISTORY The United States Securities and Exchange Commission (Commission) instituted this proceeding on March 24, 1997, pursuant to Section 15(b) of the Securities Exchange Act of 1934 (Exchange Act). I held an evidentiary hearing in Miami, Florida on May 13th and 14th, 1997. The Division of Enforcement (Division) called Matson as a witness and offered 14 exhibits (including composite exhibits), all of which were admitted into evidence. Matson testified in his own behalf and offered 32 exhibits, all of which were admitted into evidence.<(1)> Matson submitted several exhibits, including a videotape, after the hearing record was closed. Pursuant to the opposition filed by the Division, his request for admission of the post hearing exhibits is hereby DENIED. ISSUES The Order Instituting Proceedings (OIP) alleges, inter alia, that on September 10, 1996, a final judgment of permanent injunction was entered in the United States District Court for the Southern District of Florida, by consent, against Respondent Matt Matson (Matson) in connection with his participation in a penny stock offering. (OIP II.) <(1)> Citations to the Division's exhibits will be noted as "DX- __" and to the Respondent's exhibits as "RX-__." Citations to the transcript of the hearing will be noted as "Tr. __." ======END OF PAGE 1====== I held a hearing in order to determine whether the allegations in the OIP are true and whether a penny stock bar is appropriate in the public interest pursuant to Section 15(b) of the Exchange Act. Section 15(b)(6)(A) of the Exchange Act provides that the Commission may bar a person from participating in offerings of penny stock if the Commission finds, on the record after notice and an opportunity for a hearing, that such a bar (i) is in the public interest and (ii) the person was enjoined in connection with his participation in the purchase and sale of a penny stock. FINDINGS OF FACT AND CONCLUSIONS OF LAW My findings and conclusions are based on the record. I applied preponderance of the evidence as the applicable standard of proof. On consideration of the evidence admitted at the hearing and the entire record in this matter, I make the following Findings of Fact and Conclusions of Law. Respondent Matson and Home Link Matson is approximately 57 years old. (Tr. 32.) He has a high school diploma, but has not had any formal training since high school. (Tr. 33.) From at least October 1995 until at least July 1996, Matson was the chief executive officer and sole director of Home Link Corporation, Home Link of Florida, Inc., and Home Link of Nevada, Inc. (collectively, Home Link). (Tr. 40-42; DX-1 at Bates 2-4; DX-3 at Tabs 1, 2, 3; DX-7, receiver's report, at Bates 455.) Home Link stock was not listed on the New York Stock Exchange, the American Stock Exchange, or the National Association of Securities Dealers Automated Quotations system (NASDAQ). (Tr. 46-48; DX-4; DX-5; DX-6 at Tab 21.) Home Link never filed a registration statement with the Commission. (DX-6 at Tab 22; DX-7 at Bates 459.) Home Link was not an investment company registered under the Investment Company Act of 1940, and its stock was not a put or call option issued by the Options Clearing Corporation. (DX-3 at Tabs 1, 2, 3.) Home Link consisted of start-up companies incorporated in late 1995 and early 1996; Home Link issued shares at $2.00 and $3.00 per share. (Tr. 42-46; DX-3 at Tabs 1, 2, 3.) At all relevant times, Home Link's stock generally traded at about $1 per share. Home Link traded above $5 per share only during several weeks in May and June 1996, immediately after Matson made the fraudulent statements to the investing public described below. (DX-6 at Bates 205.) Home Link s independent auditor testified that although there was nothing in Home Link s business and financial affairs that could have explained this spike, Matson s fraudulent statements could have explained the sudden and dramatic increase in the price of Home Link s stock. (DX-6, independent auditor s testimony, at Bates 227-28.) Matson attempted to minimize the impact of his fraudulent press releases: Most generally, in small corporations the size of ours, press releases really don t mean a hill of beans. . . . Press releases as a ======END OF PAGE 2====== whole, I don t think had a lot to do with this. (Tr. 325-26, 404.) However, I reject his assessment. Home Link did not generate any revenues. (DX-6, independent auditor s testimony, at Bates 217; DX-7, receiver's report, at Bates 460.) Home Link never had assets worth more than $1,000,000. (DX-7, receiver's report, at Bates 472-73.) Home Link's unaudited Asset Statement fraudulently showed total assets as of March 31, 1996, of $6,409,260. (DX-6 at Bates 309.) However, Home Link's independent auditor testified that it never received $6,000,000 of this amount and that the absence of these funds would have been "one of the most important things" a reader of Home Link's financial statements should know. (DX-6 at Bates 215-16, 219).) Home Link's independent auditor testified that, if he had finalized his audit, he would have added a "going concern" qualification to his opinion letter, because he had substantial doubts about Home Link's continued viability. (DX-6 at Bates 218-19.) Home Link stock met the definition of the term "penny stock" as set forth in Section 3(a)(51)(A) of the Exchange Act and Rule 3a51-1 thereunder and, therefore, was a penny stock within the meaning of Section 15(b)(6) of the Exchange Act. Matson participated in the offer and sale of Home Link stock. (DX-1 at Bates 2-4.) Section 15(b)(6)(C) of the Exchange Act provides that the term "person participating in an offering of penny stock" includes "any person acting as any promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer, or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock." At all relevant times, Matson was the chief executive officer and sole director of Home Link and he ran Home Link on a day-to-day basis. (Tr. 40-42; DX-1 at Bates 2-4; DX- 3 at Tabs 1, 2, 3; DX-7, receiver's report, at Bates 455.) Matson wrote to and spoke with investors to promote the sale of Home Link's stock. (DX-3, letter from Matson soliciting investment in Home Link, at Bates 144-45; DX-6, where Matson sent letter to investor promoting Home Link stock, at Bates 161-62; DX-6, where Matson spoke with investors, at Bates 326, 330, 333; DX-11, where Matson spoke with investor, at Bates 555; DX-11, letter from Matson to investors and others, at Bates 598; DX-11, where Matson solicited investment, accepted funds, and signed subscription agreement, at Bates 612, 656.) Matson also wrote to and spoke with market professionals to promote Home Link's stock. (DX-11 at Bates 718; DX-12 at Tabs 7, 8, 9, 10.) Thus, Matson participated in the offering of Home Link penny stocks. ======END OF PAGE 3====== The Permanent Injunction On September 10, 1996, Matson was permanently enjoined by the United States District Court for the Southern District of Florida in connection with his participation in the sale of Home Link's stock. (DX-2, SEC v. The Home Link Corp. No. 96-6860-CIV-Gonzalez (S.D. Fla. Sept. 10, 1996).) Matson admits that that he was a person participating in an offering of Home Link penny stock, that on September 10, 1996, a final judgment of permanent injunction was entered, by consent, against him, and that the Commission's complaint in the underlying action charged him with fraud in connection with the offer, purchase, and sale of Home Link's stock. (Tr. 35-36; DX-1 at Bates 2-4.) THE PUBLIC INTEREST Since I have found that Matson was enjoined in connection with his participation in a penny stock offering, the only remaining issue is whether a penny stock bar is appropriate in the public interest. For the reasons set forth below, the public interest demands that Matson be barred from participating in penny stock offerings. The Commission's complaint underlying the injunction made seven serious fraud allegations against Matson. (DX-8, SEC v. The Home Link Corp., Complaint for Injunctive and Other Relief, No. 96-6860-CIV-Gonzalez (S.D. Fla. July 29, 1996).) Specifically, the Commission alleged that Matson violated the registration and antifraud provisions of the federal securities laws by making misrepresentations to investors concerning, among other things, Home Link's net assets, the existence of audited financial statements, the existence of licensing revenues, the ability of Home Link stock to be listed on NASDAQ, and Matson's business background. (Id.) The Commission has held that "the allegations in the complaint in an action settled by consent may, in a subsequent proceeding before us, be given considerable weight for purposes of assessing the public interest." Charles Phillip Elliott, 50 S.E.C. 1273, 1277 (1992), aff'd, 36 F.3d 86 (11th Cir. 1994). The Commission's complaint alleged that Matson fraudulently claimed that an institutional investor had purchased $6 million in Home Link's preferred stock. (DX-8 at Bates 498-99.) This first allegation is true. On May 9, 1996, Matson sent financial statements to Standard & Poors reflecting this investment, with the request that they be published. (DX-6 at Bates 303-04.) In a May 14, 1996, press release sent to financial media, market professionals, and investors, Home Link announced that an "institutional buyer" had purchased $6 million of Home Link's preferred stock at a price of $30 per share. (DX-3 at Tab 5.) At a June 20, 1996, public meeting with shareholders, Matson reiterated that an institutional buyer had purchased $6 million of Home Link stock. (DX-6 at Bates 248.) Home Link, however, never received such an investment. Home Link's independent auditor testified that no investor, institutional or otherwise, had purchased $6 million of Home Link's preferred stock. (DX-6 at Bates 215-16.) The court-appointed receiver for Home Link reported that Home Link ======END OF PAGE 4====== had raised $1,324,000 from its inception in October 1995 through July 31, 1996, and reported no evidence of a $6 million investment in Home Link's preferred stock. (DX-7 Bates 472, 480.) I reject Matson's testimony concerning this allegation. Matson testified that the investment was going to be made by his family trust, the Nostam trust (Matson spelled backwards (Tr. 56)), and that Home Link's funds would be held in an account in Amsterdam; that he personally had to go to Amsterdam to open the account for Home Link; and that the proposed investment was canceled only after a Commission staff attorney told him that the Commission would not "validate" the transaction unless the money was brought on-shore, which Matson was unwilling to do because of tax consequences. (Tr. 95-98, 117-20.) Matson introduced a May 17, 1996, letter from his attorney that discussed the accounting treatment for such an investment and noted that the investment would not violate federal or state securities laws; the letter did not confirm that the investment had ever been made. (RX-1.) Even if Matson's testimony were credited, it would still have been a fraudulent misrepresentation for Matson to disseminate financial statements to the investing public stating that the $6 million investment already had been made. The Commission's complaint alleged that Matson fraudulently misrepresented that Home Link's financial statements were audited, and that Matson fraudulently altered Home Link's financial statements to give the false impression that they were audited. (DX-8 at Bates 499-500.) This second allegation is true. In a May 15, 1996, press release sent to the financial media, market professionals, and investors, Home Link announced to the investing public that it had finished an audit of its current financial position." (Tr. 121-22; DX-3 at Tab 8.) Likewise, a June 7, 1996, letter to investors and the news media signed by Matson as President of Home Link referred to the first quarter "audited" report published in Standard & Poors on May 9, 1996. (DX-3 at Tab 6.) Matson, however, knew that the audit of Home Link's first quarter 1996 financial statements had not been finalized. (DX-6 at Bates 214, 224.) In fact, Matson subsequently advised Home Link's independent auditor that he had decided not to complete the audit of Home Link's first quarter 1996 financial statements. (DX-6 at Bates 214.) Thus, Matson knew that he was making a fraudulent misrepresentation when he announced to investors and the financial media that Home Link's first quarter financial statements were "audited." On May 9, 1996, Matson sent to Standard & Poors what appeared to be final, audited financial statements for Home Link, with the request that they be published. Matson did not indicate to Standard & Poors, and the materials themselves did not indicate, that they were in draft or preliminary form. Under its standard operating procedures, Standard & Poors would not have published these financial statements if it realized that they were actually only preliminary drafts. (DX-6 at Bates 303-04.) While the only copies of the first quarter financial statements that Matson received from Home Link's independent auditor were stamped on every page with the legend, "PRELIMINARY DRAFT -- For Discussion Purposes Only" (DX-6 at Bates 215), the version that Standard & Poors received from Matson did ======END OF PAGE 5====== not bear this legend. (DX-6 at Bates 304.) Thus, Matson fraudulently removed this legend to give Standard & Poors the false impression that the audit had been completed. At the hearing, Matson initially attempted to justify his statements by claiming that while he said that Home Link's financial statements were "audited," he did not say that they were "certified." (Tr. 123, 136-37.) However, after being confronted with the fact that his May 14, 1996, press release did, in fact, describe Home Link's financial statements as "certified," Matson admitted that he had made a "misstatement." (Tr. 153- 54; DX-3 at Tab 5.) Matson thus attempted to justify his public statements on the basis of the hyper-technicality as to whether he used the word "certified." Matson also attempted to explain the removal of the "preliminary draft" legend by accusing Standard & Poors of fraudulently removing the legend to cover-up what Matson claimed was Standard & Poors' mistake in publishing Home Link's financial statements; Matson accused the witness from Standard & Poors' of submitting a false affidavit. (Tr. 126- 133.) Matson argued that the financial statements provided by Standard & Poors did not come from Home Link because they did not bear its facsimile line. (Tr. 129-131.) Matson denied that he knew how to turn off a facsimile line, claiming "I really don't know how to run that fax machine, you know, period." (Tr. 131.) I do not credit Matson's speculations and accusations. They are contradicted by the earlier sworn testimony of an unbiased witness from Standard & Poors. Additionally, I find that Matson, who has designed computer equipment since 1972, does know how to run a facsimile machine. (Tr. 81.) Finally, Matson's contention is contradicted by the fact that the financial statements provided by Standard & Poors are, in fact, under a cover page from Matson and Home Link and bear several facsimile lines. (DX-6 at Bates 305-17.) The Commission's complaint alleged that Matson fraudulently claimed that Home Link would receive $1.8 billion in revenue within the next year. (DX-8 at 500-01.) This third allegation is true. In a May 15, 1996, press release, Matson stated that "[r]evenues from these [recently signed] Licensee fees will add over $1.8 billion dollars to the asset column of [Home Link] over the next few months. . . . [Home Link] charges $25 million dollars for each city metro-plex it licenses." (Tr. 121-22, 139; DX-3 at Tab 8.) Similarly, an "informative letter" signed by Matson as Home Link's president stated that the company expected to receive the $1.8 billion "within the next 12 months" and further stated that Home Link "does charge $25 million for each licensee area and currently is working on implementation of these licensee agreements in 72 cities in the US." (DX-6 at Bates 204, 206-07.) Matson did not have a basis for these projections. Home Link's independent auditor testified that there was no reasonable basis to believe that Home Link could sell 72 licenses for $25 million each, and that Matson's projection was entirely arbitrary. (DX-6 at Bates 219-20.) Matson's testimony regarding his projections was not credible. Matson dismissed Home Link's independent auditor as a mere "bean counter" and was ======END OF PAGE 6====== unconcerned that the auditor would have had to issue a going concern qualification because he could not credit Matson's projections. (Tr. 141- 42.) I find that Matson is confident about his ability to turn all of his companies into great profit-generating enterprises. Matson attempted to justify his projections by stating that $25 million per license was "very reasonable" and "conservative" in light of America-On-Line's success and by noting that $25 million times 72 equals $1.8 billion. (Tr. 142-43.) Matson introduced a three-page cash management agreement under which Home Link was to pay a bank for handling certain deposits. (Tr. 220; RX-15.) Matson claimed that this standard form agreement was unique in the history of the United States and supported Home Link's license value of $25 million per city. (Tr. 220, 323-24.) Finally, Matson identified 11 companies that he had targeted to sell licenses to and testified that "$25 million to these companies is like a grain of sand on the beach." (Tr. 272; RX-24.) On this meager basis, Matson stated that he "had no problem with" his projection that Home Link would receive $1.8 billion within the next year from the sale of 72 licenses at $25 million each. (Tr. 143.) Unfortunately, Matson s confidence in himself and in his company is not justified, and it cannot form the basis for the kind of statements he made to investors. His statement that investors could have researched the matter themselves and "ma[d]e their own decisions as to the value of [Home Link's] licenses" demonstrates that Matson does not understand how the securities laws work. (Tr. 143, 193.) The Commission's complaint alleged that Matson fraudulently told one investor that Home Link had "$360 million in assets and no liabilities." (DX-8 at Bates 501; DX-11 at Bates 612.) This fourth allegation is true. Home Link never had assets remotely approaching this amount. Even with Home Link's fraudulent inclusion of $6 million from the sale of preferred shares, it never even claimed to have assets in excess of $6.5 million. (DX-6 at Bates 306-17.) I do not credit Matson's response to this evidence. Matson testified at the hearing that the investor witness had lied in his sworn declaration, and had since recanted his declaration. (Tr. 145-47, 193.) Matson claimed that he only told this investor that Home Link had no liabilities and that his statement about $360 million in assets concerned Gateway Communications (Gateway). (Tr. 193-94.) Even if Matson had made this statement about Gateway, it would have been inaccurate because Matson testified that the $360 million was "in [equipment] that no longer is any good to anyone." (Tr. 194.) Matson did not explain why he would have discussed Gateway with this Home Link investor. Matson presented no other evidence to support his claim that this Home Link investor had recanted his sworn declaration. The Commission's complaint alleged that Matson had fraudulently claimed that Home Link was presently receiving revenue. (DX-8 at Bates 501-02.) This fifth allegation is true. Home Link's private placement memoranda dated May 1, 1996, claimed that "proprietary software programs make up a portion of the day to day revenues the Company enjoys in the licensing program." (DX-3 at Bates 86, 125.) However, Home Link never had any revenues from any source, including the licensing of proprietary ======END OF PAGE 7====== software. (DX-7, receiver's report, at Bates 460.) Home Link's independent auditor testified that, as of June 30, 1996, Home Link had no sales and no customers. (DX-6 at Bates 216-17.) In response, Matson claimed that the statement from Home Link's private placement memorandum was taken out of context and that it was only meant to suggest was that, once implemented, Home Link's software programs would provide day-to-day revenue. (Tr. 148-51.) Matson's attempt to justify this representation demonstrates again that in communicating with the investing public Matson did not distinguish his hopes, dreams, and aspirations for Home Link from reality. Later in the hearing, Matson introduced a $72,400 check dated July 30, 1996, the day after the Commission filed suit, from one Home Link company to another to show that Home Link had revenues. (Tr. 195-96; RX-2.) Evidence of an inter-company transfer among companies that report on a consolidated basis, however, does not contradict the Division s proof. (DX-6 at Bates 306-17.) The Commission's complaint alleged that Matson made misrepresentations concerning Home Link's listing on NASDAQ. (DX-8 at 502-03.) This sixth allegation is true. In press releases, letters to shareholders, and verbal representations to existing and potential investors, Matson variously represented that Home Link had already applied, or imminently would successfully apply, for a NASDAQ listing. (DX-3 at Tabs 4, 5, 8, 9, 10; DX-6 at Bates 326, 331, 333; DX-11 at Bates 555.) This was a fraudulent misrepresentation. Home Link did not have updated financial statements, a prerequisite for NASDAQ listing. (DX-6 at Bates 346-47.) Home Link also failed to meet the NASDAQ listing requirement that companies have $4 million in assets and that their stock be registered pursuant to Section 12(g) of the Exchange Act or the equivalent. (DX-6 at Tabs 21, 22.) Additionally, Home Link never applied for a NASDAQ listing. (DX-6 at Tab 21.) As a result, there was no reasonable basis for Matson to claim that Home Link shortly would be listed on NASDAQ. Matson blamed Home Link's attorney for his misstatements and introduced a letter indicating that Matson had instructed the attorney to file for a NASDAQ listing. (Tr. 199-200; RX-3.) The letter is dated August 5, 1996, just days after the Commission obtained emergency relief in the underlying case, and it begins, "To revise my letter of August 1, 1996." Matson, however, did not introduce or explain the original August 1, 1996, letter. The Commission filed its complaint against Matson and Home Link on July 29, 1996, and the court entered a temporary restraining order and other relief on July 31, 1996. (DX-8; DX-9 at Bates 513.) I find that the letter was written as a defense against the underlying case. Before Matson affirmatively represented to the investing public that Home Link had filed with, and was listed on, NASDAQ, he had a duty to take reasonable steps to confirm that his representations were true. It is clear that Matson failed to discharge this duty; if Matson had simply called the attorney prior to making his statements to the investing public, he would have learned that no application with NASDAQ had been filed. Hence, at a minimum, Matson was reckless in representing to the investing public that Home Link had been accepted for a NASDAQ listing. ======END OF PAGE 8====== Finally, the Commission's complaint alleged that Matson made fraudulent representations and omissions to the investing public concerning his background. (DX-8 at 503-04.) This seventh allegation is true. In Home Link's offering materials, Matson represented to prospective investors that since 1972 he had a long history of success in the computer field. (DX-3 at Bates 47-48, 92-93, 131-32.) In addition, Home Link's offering materials did not suggest that Matson had suffered any business failures. (Id.) One purported success touted in Home Link's offering materials was a "video-text network" that Matson claimed to have operated in a three-state area from 1988 through 1991, "years ahead of Internet's success"; Matson claimed that this network was the beginning of Home Link. (Id.; Tr. 165.) Home Link's offering materials failed to disclose that this business failed, ending with fraud charges against Matson. According to a lawsuit by defrauded investors, in 1989-90, Matson was head of a California company called Data-Tel Video Text, Inc. (Data-Tel). (Tr. 162-63; DX-6 at Tab 23.) Data-Tel bore a striking similarity to Home Link. Like Home Link, Data-Tel claimed to have created a computer network over which goods and services could be sold. (DX-6 at Tab 23.) Matson's investors sued, claiming that, contrary to Matson's assurances, the network was not operational. (Id.) Matson's licensees lost the entirety of their investments and sued Matson for fraud, deceit, and breach of fiduciary duty. (Id.) Matson's licensees obtained a default judgment against him on January 15, 1991, for $212,301.15 in compensatory and $100,000 in punitive damages. (DX-6 at Tab 24.) Matson later testified that the Data-Tel network subsequently became Home Link. (Tr. 227.) Matson testified that he did not believe that it was important to disclose the Data-Tel judgment in light of the outcome of the litigation. (Tr. 164.) Matson's testimony concerning the outcome of the litigation was ambiguous. Matson, however, did say that in light of certain additional litigation concerning Data-Tel in which he was involved, he was "amazed" that the judgment had been entered against him. (Tr. 167.) Matson accused the attorney who represented him in the Data-Tel litigation of concocting falsified documents so that the Internal Revenue Service (IRS) would look to Matson to collect money that the attorney actually owed to the IRS. (Tr. 168.) Matson testified that the attorney was disbarred in Nevada and is now serving time in jail. (Tr. 169.) For reasons that he did not explain, Matson views these alleged circumstances as justification for his failure to disclose the Data-Tel litigation to Home Link investors. Matson was the chief executive of another California computer company called Unique Integrated Applications (UIA). Matson did not disclose that this company also failed and was liquidated in a bankruptcy that was filed on or about May 31, 1989. (DX-6 at Tab 25, 26.) Matson blamed the failure of UIA on his licensee who decided to shut the business down after realizing that her sons, whom she put in the business, were not working. (Tr. 170-71.) Matson pointed out that his licensee in this venture never got a case against him. (Tr. 171.) Matson testified that it simply never occurred to him to disclose to Home Link's investors that UIA failed in bankruptcy. (Tr. 171.) Later, Matson appeared to blame this non- ======END OF PAGE 9====== disclosure on his attorney and then attempted to minimize its significance. (Tr. 207-08.) Conclusion The public interest demands a penny stock bar. In determining whether an administrative sanction is necessary in the public interest, I am guided by the factors articulated in Steadman v. SEC, 603 F.2d 1126, 1140 (5th Cir. 1979), aff'd on other grounds, 450 U.S. 91 (1981). See also, SEC v. Koch, SEC Docket 1616 (May 20, 1997) (imposing a penny stock bar). These factors include "the egregiousness of the defendant's actions, the isolated or recurrent nature of the infraction, the degree of scienter involved, the sincerity of the defendant's assurances against future violations, the defendant's recognition of the wrongful nature of his conduct, and the likelihood that the defendant's occupation will present opportunities for future violations." Steadman, 603 F.2d at 1140. Matson's infractions were egregious and recurrent. As set forth above, Matson committed a variety of fraudulent acts in connection with his promotion of Home Link's stock, including making multiple false statements to the financial press and the investing public and fraudulently altering Home Link's financial statements intending that they be published. Thus, Matson's infractions were both egregious and recurrent. Matson also acted with a high degree of scienter. In order to induce investments in Home Link, Matson knowingly committed the above-described infractions. Because there was no reasonable basis for Matson's numerous fraudulent misrepresentations to the investing public, Matson knowingly made these misrepresentations with a high degree of scienter. Moreover, Matson's deliberate and fraudulent alteration of Home Link's financial statements, intending that they be published by Standard & Poors, evinces the very highest degree of scienter. Matson's scienter in committing these fraudulent acts is further demonstrated by his purchase of cashier s checks with nearly all of Home Link s treasury funds between the time he received notice that the Commission was suing him and the hearing on the Commission's motion for emergency relief. (DX-9, SEC v. The Home Link Corp., Emergency Motion for Appointment of Receiver, No 96-6860-CIV- Gonzalez (S.D. Fla. Aug. 1, 1996).) Moreover, Matson failed to give any meaningful assurance against future violations. When asked what he did wrong in connection with Home Link, Matson responded: If I had it all to do over again, I would not try to do as much as a sole individual that I did, and I would dot the I's and cross the T's a little more thoroughly than I did, and I would have got a far better attorney than what I had representing me. (Tr. 184.) In light of the gravity of his acts, Matson's statement does not give any comfort that he will not commit similar fraud in the future. On the contrary, Matson's testimony demonstrates that he fails to understand the wrongful nature of his conduct. Matson repeatedly described ======END OF PAGE 10====== the Commission's underlying proceedings against him as a "rush to conviction without reason." (Tr. 145, 151, 184, 242, 292, 295, 297, 300, 310, 314, 336, 340, 345, 347, 351, 353, 399.) Additionally, Matson blamed his legal problems on the Commission, accusing a Commission staff attorney of being vindictive and "out to get him." (Tr. 299-300, 310, 336, 341, 351, 353.) Matson also blamed and accused virtually everyone involved in the entire Home Link saga. He blamed his former attorney for not presenting his side of the case and he attempted to shift "total responsibility" for his press releases and his letters to investors from himself to the attorney who had reviewed them. (Tr. 184, 218.) Matson accused the receiver of falsifying his report to the federal district court and of looting the receivership estate. (Tr. 184, 300, 308, 313-14, 336-37, 344, 347, 396-97.) Matson claimed that Bloomberg Business News falsified information on the trading activity in Home Link's stock and that Standard & Poors submitted a false affidavit in order to cover up its own mistake in publishing Home Link's unaudited financial statements. (Tr. 126-33, 307- 08.) Matson accused the market makers in Home Link's stock of engaging in a manipulation that was responsible for running up its price. (Tr. 326, 334- 37.) He accused a witness of having lied in his sworn declaration and his attorney of having falsified documents. (Tr. 145-47, 168, 193.) Matson blamed the failure of UIA on his licensee's decision to shut the business down after realizing that her sons were not working. (Tr. 170-71.) Finally, Matson blamed the very investors he defrauded for not researching the matter themselves and "[making] their own decisions as to the value of [Home Link's] licenses." (Tr. 143, 193.) Matson's failures to recognize the wrongfulness of his conduct, coupled with his accusations against others, provide no assurance that Matson will not commit similar violations in the future. Matson's occupation will present opportunities for future violations. One of the most salient factors to come out in the two days of Matson's testimony is that he is, at his very core, a promoter. Indeed, as Matson candidly admitted: I am a promoter. I'm an entrepreneur. . . . I will continue to promote my products. . . . I will make back my money. . . . . . . . I will continue to be a promoter. That's my life. I'll continue to be an entrepreneur. That's what I am. You can't change the spots. (Tr. 404, 406.) In fact, Matson is presently promoting Home Link's technology with money from many of the same investors whom he defrauded in Home Link. Matson now works for a company called "PC Cube," which is trying to bring ======END OF PAGE 11====== to market a product that is the "end result of what Home Link had started." (Tr. 179, 285; See DX-13.) Matson described the product as "the Jetson phone," stating that he got the idea from the Jetsons on television. (Tr. 287.) Most of PC Cube's investors had previously invested in Home Link. (Tr. 236, 280.) One "heavy investor" was with Matson in Data-Tel and in Home Link, and now is chairman of the board of PC Cube. (Tr. 225-26.) Not only has there been some continuity in Matson's investors over the years, but there has also been considerable continuity in the projects on which Matson has worked. Matson testified about having worked on essentially the same project for the last fourteen years, apparently under a number of corporate guises. (Tr. 260, 344.) It is clear that Matson's promotional activities on behalf of high technology companies will present additional opportunities for future violations. Indeed, Matson's present efforts on behalf of PC Cube will present such an opportunity. The board of directors of PC Cube has asked him to review public companies for a merger candidate. (Tr. 182.) The press has reported that any such merger might enable PC Cube to issue stock to the investing public. (DX-13.) Matson is a promoter who cannot change. Unless he is barred from participating in offering penny stocks, Matson will continue to have opportunities to commit future violations. Matson contends that Home Link was a viable business that the Commission unfairly attacked. Matson made a number of claims about Home Link s prospects. For instance, Matson claimed that Home Link had signed leases for a nationwide fiber optic network and had obtained contracts with Service Merchandise, 1-800 Flowers, with 25 or 30 casinos in Las Vegas, the Olive Garden restaurant chain, and Neiman Marcus. (Tr. 70-71, 256-57, 259, 266, 290.) Matson also claimed that Home Link or PC Cube had a contract with a company for a product that produces three dimensional images from a standard game CD. (Tr. 289.) However, Matson introduced no contracts or leases to corroborate his claims, and nothing in the record supports them. Therefore, I reject Matson s contentions as to the viability of Home Link. I also reject Matson s contention that his defrauded former investors in Home Link, on their own, formed PC Cube. He testified: The shareholders from Home Link hired me to bring this all back up again. . . . . . . . [T]he shareholders got together to form PC Cube Corporation, funded it, got hold of me, hired me, and we started operation . . . . (Tr. 285-86.) Matson also testified that these investors "put up a total of roughly 200,000 cash since October in this business . . . . (Tr. 214.) The record, however, shows that not all of Matson's Home Link investors were happy with him. One former Home Link investor filed a federal class action against Matson alleging essentially the same fraudulent acts as alleged by the Commission. (DX-14, Cooperman v. Reff, Class Action ======END OF PAGE 12====== Complaint, No. 96-7206-CIV-Davis (S.D. Fla. Oct. 21, 1996).) Furthermore, it became clear during the hearing that Matson's business plans are not realistic. Matson testified that PC Cube is selling gold- plated computers for $75,000 each and that he expects Caesar s casino to be able to sell them to the public for $100,000 each. (Tr. 284.) In Matson's estimation, at that price, "they'll sell them like hot cakes." (Tr. 284.) His plan for three dimensional holographic images generated in front of a computer screen is similarly amorphous. (Tr. 291.) Matson's propensity to conflate hopes and dreams with reality is a dangerous character trait in someone who deals with the investing public. SUMMARY For the above reasons, it is in the public interest that Respondent Matson be barred from participating in the offering of any penny stock, including acting as a promoter, finder, consultant, agent, or other person who engages in actions with a broker, dealer, or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock. CERTIFICATION OF RECORD Pursuant to Rule 351(b) of the Commission's Rules of Practice, 17 C.F.R.  201.351(b), I hereby certify that the record includes the items set forth in the record index issued by the Secretary of the Commission on September 8, 1997. ORDER Based on the findings and conclusions set forth above, I ORDER, pursuant to Section 15(b) of the Securities Exchange Act of 1934, that Matt Matson be and he hereby is barred from participating in the offering of any penny stock, including acting as a promoter, finder, consultant, agent, or other person who engages in actions with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock. This Order shall become effective in accordance with and subject to the provisions of Rule 360 of the Commission's Rules of Practice, 17 C.F.R.  201.360 (1996). Pursuant to that rule, a petition for review of this initial decision may be filed within twenty-one days after service of the decision. It shall become the final decision of the Commission as to each party who has not filed a petition for review pursuant to Rule 360(d)(1) within twenty-one days after service of the initial decision upon them, unless the Commission, pursuant to Rule 360(b)(1), determines on its own initiative to review this initial decision as to any party. If a party timely files a petition for review, or the Commission acts to review as to a party, the initial decision shall not become final as to that party. ======END OF PAGE 13====== ___________________________ Lillian A. McEwen Administrative Law Judge ======END OF PAGE 14======