JFax.com’s E-Mail May Have Broken SEC Rules

JFax.com Inc. said Tuesday that an e-mail informing subscribers of an opportunity to participate in the Internet messaging company’s initial public offering might have violated federal securities laws.

The Los Angeles-based company sent the e-mail offer this month to about 150,000 subscribers and then sent a second e-mail telling 3,000 subscribers that they had been randomly selected to buy shares. That might have violated Section 5 of the Securities Act of 1933, the firm disclosed Tuesday in a registration statement filed with the Securities and Exchange Commission.

The filing suggests that the SEC may be scrutinizing e-mail lottery-type arrangements for the purchase of IPO shares.

At issue is whether JFax.com promoted the stock sale before it could legally do so.

JFax.com, whose products allow customers to receive faxes and voicemail messages as e-mail, sold 8.5 million shares last week at $9.50 each. The share price fell $1.25 on Monday in the first day of trading and another 22 cents on Tuesday to close at $8.03 on Nasdaq.

People who received JFax.com’s e-mail and then acquired shares through the IPO could seek to recover subsequent losses on their investment from the company, according to securities experts.

In general, companies that file for an IPO can provide information on the offering only through a prospectus until the SEC clears the disclosure provided in the document. Once that happens, companies are limited to explanations that are based on material included in the prospectus.

JFax.com declined to comment.

The SEC filing said the extent of liability the firm faces depends on “the number of shares purchased by the recipients” of the 150,000 e-mails.