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Register on the website below and youÕll get 5 free shares. If you recommend it to other people and they register then you get 3 extra shares per person.
In response to offers like the above, the Australian Securities and Investment Commission (ASIC) announced in a media release of 24 August 1999 that it was joining the US Securities Exchange Commission’s (SEC’s) campaign to stop Internet based free share offers.
ASIC explains in its media release that such offers could breach several Australian laws including:
- requirements that people offering, or issuing invitations to subscribe for, securities in a corporation must lodge a prospectus with ASIC and, in certain circumstances, have that prospectus registered
- restrictions on hawking securities
- prohibitions on the issue of, or invitation to subscribe for, securities of a corporation that has not been formed
- restrictions on publishing notices offering, or issuing an invitation to subscribe for, securities
- the prohibition on referral selling which occurs where a corporation induces someone to acquire financial services, including securities, by representing that the person will receive a benefit in return for assisting the corporation to supply financial services, including securities, to other people.
Offers like this are appearing on the Internet with increasing frequency. More and more companies are offering free shares to people who both register on the company’s website and convince others to register. One only has to type the words ‘free shares’ into an Internet search engine to discover just how many companies are currently making such offers.
Reports 1 indicate that in July 1998 Travelzoo.com made such an offer to induce people to register on Travelzoo.com’s Web site. Within weeks 700 000 people had accepted the offer by registering at the site. The traffic through the site soon attracted advertisers and, due largely to revenue from these advertisers, the quarter ending 30 September 1998 was Travelzoo.com’s first profitable quarter.
Travelzoo.com’s success soon became legend, galvanising other companies to implement similar plans. Promises of free shares as a marketing ploy is not new. What is new is the use of the Internet to make such offers. The nature of the new medium has meant that Internet-based free share offers are more popular than offers made outside the Internet. Offers can reach more people because of the millions of people with access to the Internet. Further, more offers are being made both because of the huge potential audience and the fact that offers can be made cheaply and quickly.
The popularity of these Internet based free share offers attracted the attention of the SEC, the United States equivalent of ASIC. The SEC soon indicated that such offers potentially breach provisions of the United States Securities Act and threatened to prosecute companies offering free shares over the Internet for breaches of this Act.