2 States Order Irvine Firm to Cease Activities
American Wireless Systems Inc., a developer of so-called wireless cable-TV networks, has been ordered by the states of Hawaii and South Dakota to stop selling unlicensed securities there.
Hawaiian securities regulators issued the cease-and-desist order April 26 after investigating the Irvine-based start-up company, said Neal Aoki, a lawyer with the Securities Enforcement unit of the Hawaii Department of Commerce and Consumer Affairs.
South Dakota authorities followed suit last week, and officials in Illinois, Michigan and Kansas also are investigating, the president of American Wireless confirmed Friday.
The company denies that it is selling unlicensed securities, saying that it is raising money through general partnerships that do not require official registration as a securities sale under the states’ laws. In Hawaii, Aoki said, the company has requested and been granted an appeals hearing that is set for June 17.
Jeffrey D. Howes, president of American Wireless, said, “We are not guilty of violating any laws. We’re concerned about how these orders could affect us.”
American Wireless, in its attempt to compete with cable-TV companies, has been raising money for the past two years to build microwave radio systems that would be able to broadcast as many as 33 pay-TV channels into homes without installing cables and hardware.
The company is a new player in the wireless-cable industry, which has about 70 systems across the nation that together have more than 450,000 subscribers.
Howes said American Wireless will continue to move forward with a plan to launch its first wireless cable network in Fort Worth, Texas, on June 22.
In commercials aired on Hawaiian television, American Wireless sought investors by pitching a stake in a general partnership. Aoki said his office determined that the TV pitch, together with materials issued by the company and the statements of its telephone salespeople, constituted securities sales.
Last year, Hawaiian authorities issued a cease-and-desist order against Applied Cable Technologies Inc., the predecessor of American Wireless. A state commission overturned that order after ACT appealed the ruling.
Howes, who also headed ACT, said company attorneys demonstrated that ACT was selling general partnerships, which differ from licensed securities because investors are treated like managers of the business and are sophisticated enough to understand the business and have legal rights to control it.
“We’re going to have to go through the drill in Hawaii again,” Howes said. “I just got through making several conference calls with our management committees in several states, and we can provide transcripts.”
When the company began doing business under the new name, Aoki’s office again issued the cease-and-desist order, which bars the company from raising money in the state.
Aoki said the general partnerships offered by American Wireless were different from ACT’s, but he said he believes that, even under the revised partnerships, investors will not have practical control of the company.
The order alleges that American Wireless salespeople say the company plans to launch a wireless cable operation in Pittsburgh, Pa., that will have a value of $239.4 million within five years. Each potential investor is invited to purchased a small share of the general partnership. But according to the cease-and-desist order, the investor actually has little to say about how the company is run.
In Kansas, American Wireless has also drawn the attention of state regulators. The company is under investigation for possible violation of securities laws, said James Parrish, the state’s top enforcer of securities laws.
“Just because they call it a general partnership doesn’t mean that it is one,” Parrish said. “We haven’t reached a conclusion yet.”
