SEC staff letter: Real Goods Trading Corporation

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549- '-'-n--~-"'- ..,,~..~-, ,''''. ","., , ct v~ kt L~. L \ e)~~-'-~~~_

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June 24, '1996:" .. " '. '~..~- --ow. no ','-' -J,+ .,' .- 0" Barr Reder, Esq.

Coblentz, Cahen,McCab & Breyer. LLP
222 Kearny Street
San Francisco, CA 94108-4510
Re: Real Goods Trading Corporation

Dear Mr. Reder;

Based on the facts presented in your letter dated June 21, 1996 ("Letter"), it is the view of: (i) the Division of Corporation Finance that the activities of Real Goods Trading Corporation ("RGTC") in connection with the establishment and maintenance of the System would not require that offers' or sales made through the System be registered under the Securities Act of 1933; and (ii) the Division of lnvestment Maement that RGTC may engage in the activities described in youf'letter'withoutregistng under the Investment Advisers Act of 1940.

On the basis of the facts presented in YOD Letter, the Division of Market Regulation wil not recommend an enforcement action to the Commission under Section 5, 6, or 15 of the

Securities Exchange Act of 1934 ("Exchange Act") if RGTC operates the System in the manner described in that Letter without registration a~ a national securities exchange under Section 6 or as a broker-dealer under Section 15 of the Exhange Act. This is a position of the Division of Market Regulation regarding enforcement action under Sections 5, 6, and 15 of the Exchange Act only, and does not express any legal conclusions regarding the applicabilty of Sections 5, 6, or 15 of the Exchange Act or other statutory or regulatory provisions of the federal securities laws. This no-action position is subject to chages in current law, regulation, and interpretations governng issuer-based bulletin boards; any change may require the Division of Market Regulation to reevaluate and revoke or modif this no-action position. In reaching these positions, the Divisions note the following: (1) RGTC wil provide the described notices regarding operation of and participation on the System that wil be set fort

or contained on the screens and/or hard copy by which System information is provided; (2) RGTC is a Section 12 registrant and wil retain that status or, if it should cease to bea Section 12 registrant, otherwise undertake to make publicly available the information required by Section

Barr Reder

June 24, 1996

13(a) of the Exchange Act In'thesae maer that Participants wil obtain access to the System ~, electronic mail, facsimile, mail, RGTC's World-Wide Web site, etc.); (3) RGTC wil

keep records of all quotes entered into the system and make those records available to the Commission and the Pacific Stock Exchange (or any other regulated market on which RGTC ..~,_o securities are listed) upon reasonable request; (4) RGTC's advertising wil comply with the .0 representations set fort in your letter; (5) neither RGTC nor any affiliate of RGTC wil use the System, directly or indirectly, to offer to buy or sell securities, except in compliance with the securities laws, including any applicable registration requirements (abs91t an available exemption therefrom); and (6) neither RGTC nor any yfiliate of RGTC wil (irreceive any compensation for o/eating or maintaining the System; (ii(recive any compensation for the use of the System; (iiìt be invòlved in any purchase or sale negotiations arising from the System; (i~rovide information regarding the advisabilty of buying or sellng Common Stock or any other securities; or (v) 'Feive, transfer, or,hold fuds or securities as an incident of operating the System. Because these positions are based on the representations made to the Divisions, any different facts or conditions might require different conclusions. ' Sincerely, ¿¿~£ Catherine McGuire Associate Director (Chief Counsel) Division of Market Regulation ~ Lu.lfn \a~w. Murphy )

Associate Director (Chief Counsel)
Division of Investment Management
~~~£., /:ß~~
Martin P. Dunn
Chief Counsel
Division of Corporation Finance
Attachment
CM/dn

... . - ... . .. .". _.....
COBLENTZ, CAHEN~ MCCABE & BREYER, LLP
ATTORNEYS AT LAW OF COUNSEL
~ONATHAN R. BAS
..U:F'F'RY A. BERNSTEIN
CHARLES R. BREYER
ALLEN E. BROUSSARD
SUSAN J. PA$SOVY
RICHARD R. PATCH
BARRY REDER
JOSEPH C. SPERO
222 KEARNY STREET, 7TH FLOOR
SAN FRANCISCO, CALIFORNIA 94108-4510
DONALD M. CAHEN
WILLIAM T. HUTTON
WILLIAM tc. COBL£N1Z
VIRGINIA A. CRISP
PAMELA $. Durn flUL ESCOBOSA
JON R. TANDLEA
JACOUELH£ So COIU
TELEPHONE: (4l5) 391-4800
FACSIMJJ (4J5) 989-1663
SPECIAL COUNSEL
JEFFREY B. MASO
PHIL1P 8. ,.£LDMAN
LOUIS .J. GIRAUOO
SUSAN K. .JAMISON
JOHN.. DECAIRE
RACHELL£ L. DESVAUX
J. KEITH EVANS"ORVILLE
TEVIS JACOB mI06-197.'
WILLIAM F. McCABE (1939-1983'
ANN E. JOHNSTON EOWARD .J. FINLEY II
JE,.'REY G. KNOWLES
STEPHEN ~ LANCTOT
ALAN C. GENNIS
LAURA ,.. LEE June 21, 1996 MICJii L. MEYERS AUDREY R. OGAWA BARBARA A. MILANOVICH CYNTHIA R. ROWLAND ~AMES P. MITCHELL DAN.EL,J.. STROMBERG HARM o-RIEf SUSAN L. SULUYAN WU.I.'AM H. ORRICK, III TAY c. VIA VIA FEDERAL EXPRESS VIA FEDERAL EXPRESS

Catherine McGuire Marin P. Dun
Associate Director/Chief Counsel Chief Counsel Division of Market Regulation Division of Corporation Finance Securities and Exchange Commission Securities and Exchange Commission 450 Fifth Street, NW, Mail Stop 3-3 450 Fifth Street, NW, Mail Stop 5-10 Washington, D.e. 20549 Washington, D.C. 20549 VIA FEDERAL EXPRESS ....;.71.~: 0- r.Vl~- "',...."" v.:L, jr ..Ill', - ...i 1..1..'.,,_ I.;, ,"'-L

Jack W. Murhy JUN ~ Z 1996
Associate DirectorfChief Counsel
.
Division of Investment Management L I; i~HJ:: Lr r,l.u.ul'i~-I C¡;"."'.;ti l-":,,.-. I. ,il L n..~"JÚ i';". ExJi-ane.e Common 450 Fifth Street, NW, Mail Stop 10-6 Washington, D.C. 20549 Securities ..d

Re: Real Goods Trading C1)rporation

Securities Exchange Act o( 1934 (Sections 5, 6 and 15); Investment Advisers Act of 1940 (Section 203(a)); Securities Act of 1933 (Section 5) Dear Ms. McGuire, Mr. Murhy and Mr. Dun:
We are counsel to Real Goods Trading Corporation ("RGTC"), a Californa corpration. Its stock is tradd on the Pacifc Stock Exchange and registered under Section

12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). RGTC sells alternative energy ànd conservation products primarily though mail order. As par of its

mission, RGTC encourages the use of solar power devices permitting its customers to live "off the grid," i. e., without traditional power sources.
I. BACKGROUND

On October 1, 1991, RGTC commenced its initial offering of 200,000 shares of common stock ("Common Stock") pursuant to Rule 504 under the Securities Act of 1933, as

COBLENTZ, CAHEN, McCABE & BREYER, LLP
Catherine McGuire
Marin Dun
Jack Murhy

amended (the "Securties Act"). The offering was fully subscribed. On Februar 26, 1993, RGTC commenced an offeri of up to 600,000 shares of Common Stock under Regulation A

under the Securties Act. That offenng also was fully subscribed. Both offerings were made as direct offerings with only lited use of sellng agents. The shares of RGTC Common the Exchange Act on March 25, 1994, and have Stock became registered under Section 12 of

been traded on the Pacific Stock Exchange since April 7, 1994'y U.S. Stock Transfer Corporation is the transfer agent of the Common Stock. Trading in th Common Stock is extrmely light and the market for it is very iliquid. Assuming 21 trading days per month, its average daily trading volume during 1995 was fewer than 850 shares. The share price for the Common Stock was primarily in the $5.00 to $7.00 range in 1995. More than 17% of the transactions were in odd lots. During 1995 there were approximately 325 -trctns perday-oll average, including odd lot trades. Consistent with the mission of its business and its direct public offerings, RGTC proposes to establish an "off the grid" trading system (the "System") for the Common Stock. The System would function as a passive "bulletin board" providing information to prospective sellers and bùyers of Common Stock ("Parcipants"). The information to be listed in the System weuld includ.: (i) the names, address, and telephone numbers (or other contact

mechanisms, suc,ase1tron.mi address) of interested buyers and sellers; (ii) the number of shares of Common Stock offered for sale or desired to be purchased; (ii) the price

at which the Common Stock is offered for sale or desired to be purchased; and (iv) the date

on which the information was entered into the System. Paricipants would transmit the above information either (i) by diect intedace using RGTC's World Wide Web site or (ii) by telephone, facsimle, mail or electronic mail directed to RGTC, which would enter the data into the System. The inormation would remain in the System until such time as a Paricipant indicates that a transaction was completed or the Paricipant no longer is interested in buying or sellng, although RGTC alo may put a 1ie limit on how long the information will be posted. RGTC anticipates that Paricipants will obtain access to the System primarily by electronic mail, although information may also be relayed by telephone, facsimile, mail or any other method, including via RGTCs World Wide Web site. No transactions would be effected by the System itself, and RGTC will have no role in effecting transactions between Paricipants; rather all transactions would be effected only by direct contact between the Paricipants. Although RGTC would have no transaction records, it wil retain records of the quotations listed for not less than thee years and make them J! RGTC may at some future time list its shares on a different national securities exchange or on NASDAQ. In our view, the same result obtains without regard to whether the Common Stock is listed on the New York Stock Exchange, the American Stock Exchange, the Pacific Stock Exchange, any other national securities exchange, or NASDAQ.

COBLENTZ, CAHEN, McCABE & BREYER, LLP
Catherine McGuire
Marin Dun
Jack Murhy

available to the staff of the Securties and Exchange Commission (the "Commission") and to the Pacific Stock Exchange (or any other reguated market on which the shares are listed) on reasonable request therefor. ,Each Paricipant would be required to rely on its own exemption under the Securities Act including, without limitation, Section 4(1) thereof. Though its otherwse, RGTC proposes to advertise to shareholders and other members of the public the availabilty and possible benefi of the System. The System may be free standing or may be integrated into RGTC's World Wide Web site or both. newsletters an Neither ROTC nor any affiiate of ROTC will (i) receive any compensation for creating or maintaining the System; (ii) receive any compensation for the use of the System; (ii) be involved in any purchase or sale negotiations arising from the System: (iv) give advice

regarding the merits or shortcomings of any particular trade; (v) use the System, directly or indirectly,-to-offer..t,buyor,sellseuritis, except in compliance with the securities laws,

including any applicable registration requirements (absent an available exemption therefrom)Y; ~r (vi) receive, transfer or hold funds or securities as an incident of operating

the System.

The screens and hard copy by which the System data is provided to Paricipants will include the .following inormaton; , o Identification of the national securities exchange or other regulated securities

market that lists RGTC Common Stock;
Ð 'ROTC is not a registered national securities exchange, securities information processor, broker, dealer or investment adviser; o The information set fort on the System does not consist of firm quotes, but rather is merely a list of the names, addresses and telephone numbers of interested sellers and buyers, the number of shares of Common Stock offered or desired to be purchased, and the price at which the proposed transaction, would occur. ROTC does not assu that any paricular transaction will occur as to any paricular number of shaes or at any paricular price. All transactions y Offers and sales of nonrestricted securities by persons other than RGTC or affliates of RGTC could be made in reliance upon the exemptions from registration provided by Sections 4(1),4(3) or 4(4), as appropriate. Offers and sales of controlled or restricted securities may be made through a registered offering or in reliance upon an exemption from registration, such as the Section 4(1) exemption, if the requirements of Rule 144 are satisfied. In this regard, it is recognized that the "manner of sale" requirements of Rule 144 would be applicable to such transactions. Offers or sales of securities by RGTC may be made either in registered transactions or in accordance with an available exemption, such as Regulation A or Rule 504 of Regulation D under the Securities Act.

i
COBLENTZ, CAHEN, McCABE & BREYER, LLP
Catherine McGuire
Marin Dun
Jack Murhy between Parcipants must be executed by the Paricipants independent of RGTC or any of its afliates 01 All applicable state and fedel securities laws (including the anti-fraud and anti-mapulation provisions) apply to any offer made or transaction consumated using the System; o / The name, address and telephone number of RGTC's transfer agent;

o i/ ~y person that is a broker-de~ler, an associated person of a broker-dealer, or

who has a state securities license is responsible for identifying that fact; o i/ "Two;.sidedquotes" in which a person indicates a bid to buy at one price and an offer to sell at a higher price are prohibítedll;

o V Th~ registration requirements of the federal securities laws apply to all offers and saes though the System, absent an available exemption. Offers and sales of contrlled or restncted seurities may be made in reliance upon the Section

exemption if the requirements of Rule 144, including the "maner of salell ..equiemen, Me satisfied. Please note that the public information, volume, maner of sale and notification requirements of Rule 144 do not apply to 4(1) trantions that satify the l'.equirements of Rule 144(k).

RGTC may make anouncents i-elating to, and advertise or otherwse publicize, the existence and availabilty of the System. and provide information about the use and benefits of the System. RGTC communica with shareholders primarily though a quarerly publication which is distributed to both its shareholders and certain customers who pay a modest fee to receive both special publications and a discount on purchases of goods sold by RGTC. Although RGTC would initially plan to make its shareholders and other members of the public aware of the System though th newsletter, RGTC may use any other mechanism for providing information about the System. In its communcations with the public, RGTC will not characteriz itslfor the Syst as being a "broker," a "dealer," or an "exchange." To the

same extent as required of any company whose securities are traded on a national securities exchange or NASDAQ, RGTC will be mindful of the statutory provisions relating to solicitations of an offer to buy. If RGTC provides information about RGTC or the System 'l RGTC may in the future permit two-sided quotes. If RGTC chooses to permit two-sided quotes, the screens and hard copy by which the System data is provided to Participants wil include a statement that: Any person providing "two-sided quotes" in which a person indicates a bid to buy at one price and an offer to sell at a higher price may, in certain circumstances, be considered a dealer who is required to register with the SEC and comply with applicable provisions of the federal securities laws.

._-- COBLENTZ, CAHEN. McCABE & BREYER, LLP
Catherine McGuire
Martin DuIU
Jack Murphy

during an offering of its securities that is registered with the Commission, RGTC also will be sensitive to and abide by the general limitations of the federal securities laws regarding publicity by a eopany that is .niii registration." Of course, all informatioii provided by RGTC regarding either the System or RGTC wil be consistC!lt with the antifraud and antinianipulation requirements of the federa securities laws. \Ve respectfully request that the staff (the "Staff") of the COllUiiIssion concur with our view that RGTC may establish and operate the System as described herein without (i) RGTC registering as an t'iiivestment adviser" under Section 203(a) of the Investment Advisers Act of 1940, as amended (the "Advisers Act"); (ii) RGTC, or any of its personnel who wil manage and operate the System, registering as a "broker" 'and/or "dealer" under Section 15(a) of the Exchange Act;.(il) .the iegistratoii of the System as a "national securities exchange" under
Section 6 of the Excbange Act; or (iv) the registration of offers and sales made through the
System under the Securities Act.
II. REGISTRATIÇ)N ISSUES

ßrolter ,andDwcr
Subject to ceitaiii exceptions, Section i 5
(a) of the Exchange Aet requires registration of any 'broker or dealer. Section 3(a)(5) of the Exchange Act defines a "dealer" as "any person engaged in the business of buying and sellng securities for his own account." Section 3(a)(4) defines a ~brokerl1 as "any person engaged in the business of effecting transactions in securities for the account of others. ..." RGTC wil not be engaging in any activities requiring it to register as a broker or dealer under Section 15(a). This conclusion is consistent with the Stafrs determination regarding a system similar to the System in Farmland Industries, Inc. (August 26, 1991). Requiring RGTC to register as a broker-dealer would not provide the Paricipants with any additional protection. Because ROTC wil not handle or hold funds or shares of Common Stock of any Participant, a minimu capil requirement is unnecessary. Any financial failure of RGTC would result only in the loss of the Paricipants' access to the System, and not a loss of their funds. F.urthermore, the costs of compliance with the record keeping and periodic reporting requirements would far outweigh any benefits. .

National Securities Exchmigc
Section 5 of the Exchange Act provides that it is unlawful for an exchange to effect
any transaction in a security unless SUc11 exchange is registered as a national securities exchange under Section 6 of the Exchange Act or is exempte,d from such a registration upon application to the Commission.

COBLENTZ, CAHEN, McCABE & BREYER, LLP
Catherine McGuire
Marin Dun
Jack Mury

~
~ Section 3(a)(1) of the Exchange Act defines an "exchange" as:
any organization, association or group of persons, whether incorporated or unncorporated, which constitutes, maintains, or provides a market place or facilties for bringing together purchasers and sellers of securities or for otherwse perfoning with respect to securities the fuctions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilties maintained by such exchange. Based on the law and the foregoing facts, we are of the opinion that the System would not be an "exchange" within the meaning of the Exchange Act. In addition, RGTC notes that it is a Section 12 registrant and will retain th status or, if it should cease to be a Section 12 registrant, otherwse undertake to make publicly available the information required by Section 13(a) of the Exchange Act in the same maner that Paricipants will obtain access to the System (e.g., electronic mail, facsimile, mail, RGTC's World-Wide Web site, etc.). regarding the necessity of providing information to System Paricipants. Consequently, there.are,no isues raied,

Investment Adviser
Subject to certn exceptions, Section 203(a) of the Advisers Act requires the

registration of an investment adviser. Section 202(a)(II) of the Advisers Act defines an "investment adviser" as:
any person who, for compensation, engages in the business of advising others, either directly or through publications or wrtings, as to the value of securities or as to the advisabilty of investing in, purchasing, or sellng securities, or who, for compensation and as par of a regular business, issues or promulgats analyses or reports concernng securities. . . As indicated above, neither RGTC nor the System will provide information regarding the advisabilty of buying or sellng Common Stock or any other securities. Similarly, RGTC wil not receive any compensation for operating the System. The System will merely provide a passive medium for Paricipants to obtain information regarding other Paricipants who are interested in buying or sellng Common Stock. Thus, RGTC will not be engaging in any activities requiring registration as an investment adviser under the Advisers Act. Ths conclusion is consistent with the Staffs determination regarding a system similar to the System in Farmland Industries, Inc., supra.

....-..... ..- ..." . ... .... _........... .... .:.__. COBLENTZ. CAHEN. McCABE & BREYER. LLP Catherine McGuire Marin Dun Jack Murhy ...1..-. Securities Act of 1933
Section 5 of
the Securties Aet makes it unawfl for any person to offer, sell, or solicit an offer to purchase any semi uness a registtion sttement has been fied with respect to that securty~ absent an avaable exemption. In view of the maner in which the System will be established and operated, RGTC believes that the operation of the System does not constitute an offer to sell or the solicitation of an offer to buy RGTC Common Stock on the par of RGTC. As such, RGTC's activities in connection with the establishment and maintenance of the System wouldoot require 'Securities Act registration of offers or sales made though the System.
III. CONCLUSION

For the foregoing reasons, we request that the Staff concur with our view that RuTC may establish and operate the System without (i) RGTC registering as an "investment adviser" , under Section 203(a) of the Advisers Act; (ii) RGTC, or any of its personnel who will manage and opeate tI System, regising as a "broker" and/or "dealer" under Section 15(a)

of the Exchange Act; (ii) the registtion of the System as a "national securities exchange"

under8ection 6 of the Exl!hanee Act; or (iv) i-egisteg offer and sales made though the

Systemunde1h ~ites Ac

In the event that the Staff does not concur with any of our views, we kindly request an opportty to discuss the matter prior to any final decision thereon. If you have any questions or wih to receive any furer infoïation, please contact me at (415) 391-4800.

Very trly yours,

COBLENTZ, CADE, MCCABE & BREYER, LLP
~~/~
BRlpjw cc: John Schaeffer

Dictated but not read.
Signed in Mr. Reder's absence to avoid delay. n:\user\bar\sec\corresp\sec4.1tr