No stranger to IAR press, Hitsgalore.com Inc. this week issued a statement
saying that the recent class action lawsuits filed against the company are
“without merit” and appear to be based upon certain “false and misleading”
statements in a news story.
The company said the statements were contained in a May 11 Bloomberg News
article entitled “Hitsgalore.com Omitted Founder’s Link to Fraud in SEC
Filing.” That story was widely picked up in the Internet community and the
company’s stock tanked.
“We are aware of three lawsuits filed against Hitsgalore.com in the past few
weeks that allege violations of the federal securities laws and that request
class action treatment,” said Steve Bradford, CEO of the company. “Although
we believe that these lawsuits are entirely without merit, we wouldn’t be
surprised if there were others similarly based on the misinformation
contained in Mr. (David) Evans’ story,” Bradford said.
A Bloomberg spokesman said the company
stands by its story.
Bloomberg had reported that the founder and majority shareholder of
Hitsgalore.com, Dorian Reed, spent 10 months in a federal prison after being
convicted of wire fraud in 1992. Earlier it was reported that a federal judge
ordered Reed and his wife Audrey to pay $613,110 to 100 customers they
defrauded at another Internet company two years ago. The Reeds were sued by
the Federal Trade Commission.
Bloomberg said the company was founded by Reed last July. In March, Reed and
minority shareholders merged it with Systems Communications Inc., a
Florida-based shell company, in exchange for 37.7 million Systems
Communications shares. The surviving company is called Hitsgalore.com.
The 10-K said Reed was unaware of the FTC’s judgment against him until he
learned about it through news reports. Reed maintains he filed an answer to
the FTC’s complaint in April 1998 and assumed the matter was over, Bloomberg
Reed has left the company, but not before the stock took a steep nose-dive.
The stock closed yesterday at 5 3/16; at one time it had traded in the $20
The company, which operates a porn-free search engine, has claimed on its Web
site that customers can invest as little as $99 and make up to 400 percent
“Often times, what you see in the situation where a publicly traded company’s
stock price drops significantly after the release of a negative news article
about the company is that several different lawsuits are filed by various
class action attorneys within days of the story, which lawsuits are based
solely upon the assumption that the statements and inferences made in the
news release are truthful and accurate,” said Carl F. Schoeppl, a Boca Raton,
FL attorney hired by Hitsgalore.com to defend against the lawsuits. The
company also said it has filed a $20 million lawsuit against litigation
against certain Internet posters for allegedly defamatory statements made on
electronic bulletin boards.
Schoeppl stated in the company’s press release that: “Unfortunately, in many
instances the news article allegedly reporting negative information about a
company and which spurs the filing of class action lawsuits is itself based
on false and misleading information. That appears to be the situation here.”
“Although Dorian Reed was appointed as a director of Hitsgalore.com on March
31, 1999, after the merger with Systems Communications was completed, Mr.
Reed was not an officer, director or employee of the company in February
1999, when the Form 8-K and the merger agreement were filed,” Bradford said.
“Any statements made by Mr. Evans or anyone else implying that Hitsgalore.com
lied about or intentionally failed to omit the FTC’s civil action against
Dorian Reed in SEC filings, press releases or other public statements are
simply false. We believe that the company will be successful in proving the
falsity of the claims that Hitsgalore.com somehow violated the federal
securities laws, both through the defense of the class action lawsuits as
well as the successful prosecution of the company’s recently filed defamation
suit against the individuals who published and republished these false and
negative statements on the Internet bulletin boards.”