SG Limited ran a web site named StockGeneration, which included an interactive investment game where users sent money in exchange for “shares” in fantasy companies. Users then either made a gain or loss on their investment depending on the performance of these “shares”. The performance of the fantasy companies was entirely at the discretion of SG Limited. The web site attracted over 325,000 players from around 70 countries.
The SEC is looking to reimburse investors for their losses, and originally raised an action against SG Limited in June 2000, alleging that the web site amounted to a pyramid scam and violated US securities laws. However, because the web site did not trade in actual shares, presenting itself only as a game, the court said that the SEC had no authority to interfere.
The Appeals Court decision agreed with this in part, but did concede that the SEC may have some authority over the site due to the fact that it represented an investment contract of sorts to users. SG Limited has been ordered to suspend the web site and its assets have been frozen by the court until the matter is resolved.