SG Limited ran a web site named StockGeneration, which included
an interactive investment game where users sent money in exchange
for “shares” in fantasy companies. Users then either made a gain or
loss on their investment depending on the performance of these
“shares”. The performance of the fantasy companies was entirely at
the discretion of SG Limited. The web site attracted over 325,000
players from around 70 countries.
The SEC is looking to reimburse investors for their losses, and
originally raised an action against SG Limited in June 2000,
alleging that the web site amounted to a pyramid scam and violated
US securities laws. However, because the web site did not trade in
actual shares, presenting itself only as a game, the court said
that the SEC had no authority to interfere.
The Appeals Court decision agreed with this in part, but did
concede that the SEC may have some authority over the site due to
the fact that it represented an investment contract of sorts to
users. SG Limited has been ordered to suspend the web site and its
assets have been frozen by the court until the matter is
resolved.
