UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

COMPLAINT

Plaintiff Securities and Exchange Commission ("Commission") alleges:

SUMMARY

1. This matter involves improper conduct by Defendant Stephen D. Price ("Price") in causing CAIS Internet, Inc. ("CAIS") to materially overstate its financial results for the third quarter ended September 30, 2000. In September 2000, Price, then CAIS's Vice President of business development, negotiated a million-dollar sale, which accounted for approximately nine percent of CAIS's revenue for the quarter. In connection with that sale, Price entered into an oral agreement with the purchaser, Logic Solutions Inc. ("Logic") that allowed it to return the merchandise if CAIS did not make a multi-million dollar investment in Logic's business. Price knew that Logic would not keep the merchandise if CAIS did not invest in Logic. In December 2000, Logic returned the merchandise after CAIS decided not to invest. Because of Logic's right of return, CAIS should not have recorded the sales revenue in the third quarter ended September 30, 2000 under Generally Accepted Accounting Principles. Price's failure to inform CAIS's senior management and independent auditors about the side agreement caused CAIS to materially overstate its financial results and file a false and misleading Form 10-Q with the Commission. As a result, Price violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder.

JURISDICTION

2. This Court has jurisdiction pursuant to Section 27 of the Exchange Act [15 U.S.C. § 78aa].

DEFENDANT

3. Defendant Price, age 31, was the Vice President of Business Development for CAIS from March 1999 until February 2001, when he resigned. Price is a resident of Bronxville, New York.

RELEVANT ENTITIES

4. CAIS was, during the relevant time, a Delaware corporation with its principal place of business in Washington, D.C. CAIS's securities were registered with the Commission pursuant to Section 12(g) of the Exchange Act. In 2001, the company filed for bankruptcy protection, and is now known as Ardent Communications, Inc.

5. Logic Solutions, Inc. ("Logic") is a privately-held software consulting company whose principal offices are located in Ann Arbor, Michigan.

FACTS

6. In 2000, CAIS was a provider of high-speed Internet network services and a manufacturer of stand-alone Internet computer kiosks and software. CAIS operated two wholly-owned subsidiaries, CAIS Software Solutions Inc., and Business Anywhere USA Inc. CAIS Software, based in San Diego, developed software and other computer products that were incorporated into the Internet kiosks.

7. In early 2000, Price met the President of Logic, who at the time was seeking a venture capital investor. By September 2000, Price began discussing possible business ventures between CAIS and Logic. On or about September 22, 2000, Price received an e-mail from Logic requesting that CAIS invest $3.5 million in the company. The e-mail also suggested that, if CAIS made the investment, Logic would use part of the money to purchase $1.5 million worth of Internet kiosks from CAIS. Specifically, the e-mail stated: "If you can commit to the funding to Logic that we have discussed we can commit to purchase and transfer your kiosks."

8. On or about September 28, 2000, Price visited Logic's office in Michigan to discuss the proposal. While there, Price agreed to arrange a $3-4 million investment if Logic purchased $1 million of CAIS Internet kiosks. Price also agreed that Logic could use the money from CAIS's investment to pay for the kiosks.

9. On or about September 29, 2000, Logic's Chief Financial Officer signed a purchase order to buy 110 CAIS Internet kiosk units for $1,012,500. Although CAIS normally required its customers to pay for merchandise within 30 days, Price amended the purchase order to allow Logic 60 days to pay for the equipment, knowing that Logic would not have the money to pay for the kiosks until the proposed investment was finalized. Price believed that 60 days would be enough time to close the transaction and supply Logic with the money to pay CAIS. On the same day, CAIS shipped the equipment and recorded the $1,012,500 sale.

10. When Logic submitted the purchase order, Price knew that Logic would not pay for the kiosks without the proposed investment from CAIS. The purchase order and associated documents did not refer to any investment by CAIS, or to Logic's right to return the equipment in the event that CAIS failed to provide funding.

11. During October 2000, before CAIS filed its Form 10-Q with the Commission, CAIS's CFO heard a rumor that Logic did not intend to pay CAIS for the kiosk equipment. The CFO questioned Price about the rumor, and Price told him that Logic would pay for the equipment under the terms set forth in the purchase order. Price failed to tell the CFO that Logic could not pay for the kiosks without CAIS's investment and would return the merchandise if the investment did not occur. Moreover, Price specifically told the CFO that there were no contingencies preventing CAIS from recording the sale in the third quarter.

12. On or about October 31, 2000, Logic's President sent an e-mail to Price asking about the status of CAIS's proposed investment in Logic. Logic's President emphasized the need for the investment and proposed that CAIS acquire ten percent of Logic. Regarding the kiosk purchase, he wrote:

The other thing that I want to clarify is that our [agreement to purchase] the Kiosks hinges on the investment itself. . . . Only if the investment actually happens, [does it] make sense for us to take [possession of the Kiosks]. If there is no agreement in sight any time soon, we have to talk about how to [return] those Kiosks back to you.

The following day, Price responded: "I received your e-mail. I will try to call you by the end of the week to discuss." In a subsequent phone call, Price told Logic's President that he believed CAIS would make the investment, but it would take some more time to complete the deal.

13. On or about November 6, 2000, CAIS issued a press release announcing its results for the third quarter ended September 30, 2000. CAIS reported total net revenues of $11,082,000. The reported results included $1,012,500 of revenue from the sale to Logic, which accounted for approximately nine percent of CAIS's revenue for the quarter.

14. On or about November 14, 2000, Price met with Logic's President and others to negotiate the terms of a possible $3 million investment by CAIS in Logic. At the meeting, Price and Logic's President again confirmed that if CAIS did not invest in Logic, Logic could return the kiosks without paying for the equipment. On that same day, CAIS filed a Form 10-Q with the Commission for the quarter ended September 30, 2000. CAIS included the Logic sale in its reported numbers, increasing its revenue and accounts receivable by $1,012,500.

15. In mid-November, Price was told by CAIS's senior management that the company lacked cash for any investment in Logic.

16. On or about December 5, 2000, after learning from Price that CAIS would not invest in Logic, Logic's CFO sent a notice to CAIS canceling the purchase order and terminating the September 29 kiosk purchase. Price countersigned the notice on CAIS's behalf, confirming that other than returning the equipment, Logic would have no further obligations to CAIS, and that Logic was released from a duty to pay for the equipment.

17. In connection with the sale to Logic, CAIS's recognition of revenue was in contravention of Generally Accepted Accounting Principles.  Specifically, Statement of Financial Accounting Standards No. 48, Revenue Recognition Where Right of Return Exists, precludes revenue recognition on sales to resellers where the buyer is not obligated to pay the seller or where the buyer lacks the financial ability to pay apart from financing provided by the seller. Here, Price's promised investment and acknowledgement that Logic could return the equipment if the funding did not materialize prohibited CAIS from recognizing the revenue from the Logic sale in the third quarter ended September 30, 2000. As a result of his concealing the oral side agreement with Logic, Price caused CAIS to overstate its revenue and to file a materially false and misleading Form 10-Q with the Commission.

CLAIM

Violation of Sections 10(b) and 13(b)(5) [15 U.S.C. §§ 78j(b) and 78m(b)(5)] of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2
[17 C.F.R. §§ 240.10b-5, 240.13b2-1 and 240.13b2-2] thereunder

18. Plaintiff realleges and incorporates by reference paragraphs 1 through 17 above.

19. By reason of the foregoing, Price violated Sections 10(b) and 13(b)(5) [15 U.S.C. §§ 78j(b) and 78m(b)(5)] of the Exchange Act, and Rules 10b-5, 13b2-1 and 13b2-2 [17 C.F.R. §§ 240.10b-5, 240.13b2-1 and 240.13b2-2] thereunder.

PRAYER FOR RELIEF

20. The Commission respectfully requests that this Court enter a Final Judgment against Price ordering him to pay a civil penalty pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. §78t(d)].

Dated: __________________

http://www.sec.gov/litigation/complaints/comp18345.htm