Global Equity International, Inc.
23 Frond "K" Palm Jumeirah
Dubai, UAE
April 26, 2012
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, NE
Washington, D.C. 20549
Attention: Jennifer Gowetski, Senior Counsel
Sandra B. Hunter, Staff Attorney
Kevin Woody, Accounting Branch Chief
Mark Rakip, Staff Accountant
Kyle Ahlgren, Division of Investment Management
Re: Global Equity International, Inc.
Amendment No.3 to Form 10-12G
Filed March 22, 2012
File No. 000-54557
Form 10-K for Fiscal Year Ended December 31, 2011
Filed March 30, 2012
File No. 000-54557
Dear Madam or Sir,
This letter is in response to your letter to me of April 12, 2012,
regarding the above referenced matter ("Comment Letter"). Our revised filing is
attached.
Our responses to the Comment Letter follow:
GENERAL
1. WE REFERRED YOUR RESPONSE LETTER DATED MARCH 21, 2012 TO THE STAFF OF THE
DIVISION OF INVESTMENT MANAGEMENT (THE "IM STAFF"). THE IM STAFF APPRECIATES THE
ADDITIONAL ANALYSIS YOU PROVIDED WITH RESPECT TO THE QUESTION OF WHETHER THE
COMPANY MAY BE AN "INVESTMENT COMPANY" FOR PURPOSES OF THE INVESTMENT COMPANY
ACT OF 1940. THE IM STAFF CANNOT, HOWEVER, MAKE A DEFINITIVE DETERMINATION THAT
THE COMPANY IS NOT AN INVESTMENT COMPANY BASED ON THE INFORMATION PROVIDED TO
DATE. IN PARTICULAR, THE IM STAFF BELIEVES THAT THE COMPANY'S ASSET COMPOSITION
WILL CLOSELY RESEMBLE THAT OF A POOLED INVESTMENT VEHICLE, AND THE VALUE OF THE
COMPANY'S SHARES WILL DEPEND CRUCIALLY ON THE COMPANY'S ABILITY TO SELECT
CLIENTS WHOSE SHARE PRICES PERFORM WELL OVER TIME. UNDER THESE CIRCUMSTANCES, IT
SEEMS THAT REASONABLE INVESTORS MAY BELIEVE THAT AN INVESTMENT IN THE COMPANY IS
AKIN TO AN INVESTMENT IN A POOLED INVESTMENT VEHICLE AND WILL BE SUBJECT TO THE
SAME OR SIMILAR ADVANTAGES AND RISKS. AS SUCH, WE SUGGEST THAT YOU INCLUDE AN
APPROPRIATE REGULATORY RISK FACTOR IN YOUR FORM 10 AND IN FUTURE PUBLIC FILINGS.
Response:
While we continue to believe that we are not an investment company, in
response to this comment, we have added the following new risk factor to our
amended filing:
"WE MAY BE SUBJECT TO FURTHER GOVERNMENTAL REGULATION, INCLUDING THE
INVESTMENT COMPANY ACT OF 1940, WHICH COULD ADVERSELY AFFECT OUR OPERATIONS.
As part of our business model, GEP sometimes accepts equity securities in
our clients as partial compensation for our services. Historically, 40% or more
of our income has been derived from the receipt of equity securities and more
than 40% of our assets are comprised of equity securities that we have received
in exchange for some of our services.
Although we do not believe we are engaged in the business of investing,
reinvesting or trading in securities, and we do not currently hold ourselves out
to the public as being engaged in those activities, it is possible that we may
be deemed to be an "inadvertent investment company" under section 3(a)(1)(C) of
the Investment Company Act of 1940, as amended ("ICA"), if more than 40% of our
future income and/or more than 40% of our assets are derived from "investment
securities" (as defined in the ICA), and if we are deemed to be, or perceived to
be, primarily engaged in the business of investing, reinvesting or trading in
securities.
If we were deemed or found to be an investment company by the Securities
and Exchange Commission or a court of law, then we would face dire consequences
and a maze of additional regulatory obligations. For example, registered
investment companies are subject to extensive, restrictive and potentially
adverse regulation relating to, among other things, operating methods,
management, capital structure, dividends and transactions with affiliates. If it
were established that we are an unregistered investment company, there would be
a risk, among other material adverse consequences, that we could be become
subject to monetary penalties or injunctive relief, or both, in an action by the
SEC, that we would be unable to enforce contracts with third parties or that
third parties with whom we have contracts could seek to obtain rescission of
transactions with us undertaken during the period it was established that we
were an unregistered investment company."
2. IN RESPONSE TO THE IM STAFF'S REQUEST THAT YOU PROVIDE A DETAILED ANALYSIS AS
TO WHETHER THE COMPANY IS SUBJECT TO REGULATION AS AN INVESTMENT ADVISER UNDER
THE INVESTMENT ADVISERS ACT OF 1940 (THE "IAA"), YOUR LETTER OF MARCH 21, 2012
RECITES THE STATUTORY DEFINITION OF "INVESTMENT ADVISER" AND ASSERTS THAT THE
COMPANY DOES NOT MEET THIS DEFINITION. AGAIN, A MORE DETAILED AND FACT-BASED
ANALYSIS WOULD BE REQUIRED IN ORDER TO ALLOW THE IM STAFF TO DETERMINE THAT THE
COMPANY IS NOT SUBJECT TO REGULATION UNDER THE IAA. FOR EXAMPLE, IT WOULD SEEM
THAT THE COMPANY'S CORPORATE RESTRUCTURING AND MANAGEMENT BUY-OUT SERVICES MAY
INCLUDE ADVISING OTHERS AS TO THE VALUE OF SECURITIES OR AS TO THE ADVISABILITY
OF INVESTING IN, PURCHASING, OR SELLING SECURITIES. AS SUCH, WE URGE YOU TO
INCLUDE AN APPROPRIATE REGULATORY RISK FACTOR IN YOUR FORM 10 AND IN FUTURE
PUBLIC FILINGS.
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Response:
In response to this comment we do not believe that we are subject to regulation
as an investment adviser. See our disclosure on page 1 of our amended filing
under Item 1. Business - Background wherein we state:
"Presently, GEP is our only operating business. Global Equity
International's present operations are limited to insuring compliance with
regional, state and national securities regulatory agencies and organizations.
In addition, GEI is charged with (i) handling our periodic obligations under the
Securities Exchange Act of 1934; (ii) managing our investor relations; and (iii)
raising debt and equity capital necessary to fund our operations and enhance and
grow our business. GEI does not offer or conduct any consulting or advisory
services, as such services are performed solely by our foreign subsidiary, GEP."
If the IM Staff were to determine that Global Equity Partners, Plc ("GEP")
is an investment advisor, we believe that GEP could claim that it is a "foreign
private adviser" within the definition contained in section 202 (30) of the
Investment Advisers Act of 1940 based on the following factors:
(A) GEP has no place of business in the United States;
(B) GEP has, in total, fewer than 15 clients and investors in the United States
in private funds advised by the investment adviser;
(C) GEP has aggregate assets under management attributable to clients in the
United States and investors in the United States in private funds advised
by the GEP of less than $25,000,000, or such higher amount as the
Commission may, by rule, deem appropriate in accordance with this title;
and
(D) GEP neither holds itself our generally to the public in the United States
as an investment adviser nor acts as an investment company registered under
the Investment Company Act of 1940.
We have added the following new risk factor to our amended filing:
"WE COULD BE SUBJECT TO THE INVESTMENT ADVISERS ACT OF 1940, WHICH WOULD BE
DETRIMENTAL TO OUR BUSINESS.
Although we do not believe we are engaged in the investment advisory
business and we do not hold ourselves out to be investment advisers, it is
possible that the SEC could deem or find us to be an unregistered investment
adviser due to the types of consulting services offered by us. If we were deemed
or found to be an investment adviser by the Securities and Exchange Commission
or a court of law, then we would face dire consequences and a maze of additional
regulatory obligations. For example, registered investment advisers are subject
to extensive, restrictive and potentially adverse regulation relating to, among
other things, operating methods, fees, management, capital structure, dividends
and transactions with affiliates. If it were established that we are an
unregistered investment adviser, there would be a risk, among other material
adverse consequences, that we could be become subject to monetary penalties or
injunctive relief, or both, in an action by the SEC, that we would be unable to
enforce contracts with third parties or that third parties with whom we have
contracts could seek to obtain rescission of transactions with us undertaken
during the period it was established that we were an unregistered investment
adviser."
3
BACKGROUND, PAGE 1
3. WE NOTE YOUR DISCLOSURE ON PAGE 1 THAT YOU HAVE OFFICES IN THE UNITED STATES,
DUBAI, LONDON AND MARBELLA (SPAIN). WE ALSO NOTE YOUR RESPONSE TO COMMENT 7 OF
OUR LETTER DATED MARCH 1, 2012 THAT YOU NO LONGER USE MR. BALDASSARRE'S HOME AS
A U.S. OFFICE.
PLEASE REVISE TO CLARIFY IF YOU HAVE A U.S. OFFICE AND DISCLOSE ITS LOCATION.
Response:
In response to this comment, we do not have a U.S. office.
NEW BUSINESS TRANSACTED IN 2011, PAGE 4
4. WE NOTE YOUR RESPONSE TO COMMENT 5 OF OUR LETTER DATED MARCH 1, 2012 AND WE
REISSUE OUR PRIOR COMMENT IN PART. PLEASE REVISE TO CLARIFY WHETHER SHELL
COMPANIES ARE PART OF YOUR STRATEGY.
Response:
In response to this comment, we have added the following disclosure to the
section of our amended filing entitled "Corporate Restructuring Services" on
page 2:
"We do not presently recommend and we do not intend in the future to
recommend that our clients merge or be acquired by shell companies."
5. WE NOTE YOUR DISCLOSURE REGARDING YOUR GROSS REVENUES FOR THE PERIOD ENDED
SEPTEMBER 30, 2011. PLEASE BALANCE THIS DISCLOSURE ON PAGE 4 AND ELSEWHERE AS
APPROPRIATE BY QUANTIFYING YOUR NET LOSS FOR THE YEAR ENDED DECEMBER 31, 2011
AND INCLUDING A DESCRIPTION OF YOUR BUSINESS EXPENSES FOR THE PERIOD, INCLUDING
QUANTIFYING THE COMMISSIONS YOU PAID IN CONNECTION WITH THIS REVENUE. IN THIS
REGARD, WE NOTE THAT YOU GENERATED $56,531 IN REVENUES FROM ARROW CARS SL, BUT
APPEAR TO HAVE PAID $71,275 TO OSCAR ALARIO, WHO INTRODUCED YOU TO ARROW CARS
SL, AND $50,000 IN STOCK TO PILAR TARDON FOR INTRODUCING YOU TO ARROW CARS SL.
Response:
In response to this comment, we have substantially revised our disclosures in
Items 1 and 2
4
OUR BUSINESS IN 2012, PAGE 6
6. WE NOTE YOUR RESPONSE TO COMMENT 6 OF OUR LETTER DATED MARCH 1, 2012. PLEASE
REVISE YOUR DISCLOSURE THROUGHOUT THE DOCUMENT TO PROVIDE A BREAK-DOWN OF THE
ESTIMATED EXPENSES THAT MAKE UP THE MONTHLY CASH BURN RATE. PLEASE ALSO REVISE
YOUR DISCLOSURE ON PAGES 8, 10 AND 16 TO CLARIFY THAT THE ESTIMATED MONTHLY CASH
BURN RATE OF $15,000 DOES NOT INCLUDE THE $33,333 YOU ARE ACCRUING FOR SALARIES
FOR YOUR MANAGEMENT TEAM. FINALLY, GLOBAL EQUITY INTERNATIONAL, INC. PLEASE
CLARIFY WHAT YOU MEAN BY "REVENUES SUFFICIENT TO COVER" THE ACCRUED SALARIES,
INCLUDING QUALIFYING HOW MUCH MONTHLY REVENUE YOU WOULD REQUIRE BEFORE PAYING
ANY OF THE ACCRUED SALARIES.
Response:
In response to this comment, we have substantially revised our disclosures in
Items 1 and 2
EMPLOYEES; IDENTIFICATION OF A SIGNIFICANT EMPLOYEE, PAGE 8
7. WE NOTE YOUR FORM 8-K FILED MARCH 20, 2012 AND YOUR RESPONSE TO COMMENT 7 OF
OUR LETTER DATED MARCH 1, 2012 IN WHICH YOU INDICATE THAT MR. BALDASSARRE
RESIGNED FROM HIS POSITION AS SECRETARY. WE ALSO NOTE THE COMPLAINT NAMING MR.
BALDASSARRE FILED DECEMBER 7, 2011 IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF NEW YORK ALLEGING MARKET MANIPULATION, INCLUDING VIOLATIONS
OF SECTION 17(A) OF THE SECURITIES ACT AND SECTION 10(B) OF THE EXCHANGE ACT AND
RULE 10B-5. PLEASE TELL US WHETHER YOU CONSIDERED DISCLOSING SUCH INFORMATION
AND WHETHER MR. BALDASSARRE IS INVOLVED IN THE COMPANY IN ANY CAPACITY.
Response:
Prior to Mr. Baldassarre's resignation from the office of Secretary, we
were not aware of litigation described in comment 7. When Mr. Baldassarre told
us about the litigation, he decided that it would be in the best interest of the
company if he resigned from the office of Secretary and we accepted his
resignation. We also determined that we would not utilize his office for our
U.S. office.
At the present time, Mr. Baldassarre is not an agent, consultant, employee,
officer, director, shareholder or landlord of the company. He is not associated
with us in anyway.
If we would have known about Mr. Baldassarre's litigation, we would have
disclosed it in our filing. However, since he told us about the problem and
resigned as Secretary, he was not an officer of the company when we filed our
subsequent amendment to our Form 10 and the disclosure of his litigation was
moot.
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ITEM 2. FINANCIAL INFORMATION, PAGE 12
LIQUIDITY AND CAPITAL RESERVES, PAGE 15
8. WE NOTE YOUR DISCLOSURE THAT YOU HAVE RECENTLY SIGNED CONTRACTS WITH THREE
NEW CLIENTS THAT ARE VALUED AT $767,000 IN CASH FEES BETWEEN 2011 AND 2012.
PLEASE REVISE TO BREAK DOWN THE CASH FEE AMOUNT DUE FROM EACH CONTRACT AND STATE
HOW MUCH OF THESE FEES HAVE BEEN RECEIVED. IN ADDITION, PLEASE BALANCE THIS
DISCLOSURE WITH CORRESPONDING DESCRIPTION OF THE COSTS ASSOCIATED WITH THESE
CONTRACTS, INCLUDING COMMISSIONS TO BE PAID OR THAT HAVE BEEN PAID BY YOU IN
CONNECTION WITH EACH NEW CLIENT.
Response:
In response to this comment, we have substantially revised our disclosures
under "Liquidity and Capital Reserves" and throughout our amended filing.
FUTURE PLANS, PAGE 16
9. WE NOTE YOUR RESPONSE TO COMMENT 9 OF OUR LETTER DATED MARCH 1, 2012 IN WHICH
YOU HAVE REVISED YOUR DISCLOSURE ON PAGES 7 AND 16 TO INDICATE THAT YOU EXPECT
THE CONTRACTS WITH THE THREE NEW CLIENTS WILL EACH PROVIDE YOU WITH AN
ADDITIONAL $10,000 TO $20,000 PER MONTH IN REVENUES. WE ALSO CONTINUE TO NOTE
THAT YOU CANNOT GUARANTEE THAT YOU WILL RECEIVE ANY REVENUES FROM NEW CLIENTS.
AS YOU DO NOT HAVE ANY WRITTEN AGREEMENTS, THERE DOES NOT APPEAR TO BE A
REASONABLE BASIS FOR THE EXPECTATION OF AN ADDITIONAL $10,000 TO $20,000 IN
REVENUES PER MONTH PER NEW CLIENT. PLEASE REMOVE THE STATEMENT OR ADVISE. IN
ADDITION, PLEASE PROVIDE DETAILS OF YOUR SPECIFIC PLAN OF OPERATIONS, INCLUDING
DETAILED MILESTONES, THE ANTICIPATED TIME FRAME FOR BEGINNING AND COMPLETING
EACH MILESTONE, THE ESTIMATED EXPENSES ASSOCIATED WITH EACH MILESTONE AND THE
EXPECTED SOURCES OF SUCH FUNDING.
Response:
In response to this comment, we have removed the language about our
expected revenues of and additional $10,000 to $20,000 and we have added
detailed disclosures in new tables showing the revenue we expect to receive over
the next 12 months from our existing clients and based on the contracts we
currently have with our clients.
ITEM 6. EXECUTIVE COMPENSATION, PAGE 22
10. WE NOTE YOUR RESPONSE TO COMMENT 10 OF OUR LETTER DATED MARCH 1, 2012. WE
REISSUE OUR
PRIOR COMMENT, IN PART. PLEASE REVISE TO PROVIDE NARRATIVE DISCLOSURE TO YOUR
SUMMARY COMPENSATION TABLE. FOR EXAMPLE PURPOSES ONLY, PLEASE REVISE YOUR
DISCLOSURE TO DISCUSS MR. SMITH'S SALARY INCREASE FROM 2010 TO 2011, INCLUDING
HOW THE INCREASE WAS DETERMINED. PLEASE REFER TO ITEM 402(O) OF REGULATION S-K.
Response:
In response to this comment, we have added a narrative disclosure regarding
Mr. Smith's salary increase following the footnotes to the Summary Compensation
Table on page 33 of our amended filing.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES, PAGE 27
11. WE REISSUE COMMENT 13 OF OUR LETTER DATED JANUARY 12, 2012, IN PART. PLEASE
REVISE YOUR DISCLOSURE TO PROVIDE MORE DETAILS AS TO THE SERVICES RENDERED TO
THE COMPANY BY MS. TARDON VALUED AT $50,000. TO THE EXTENT THAT THESE SHARES
WERE ISSUED AS A COMMISSION FOR INTRODUCING YOU TO ARROW CARS SL, PLEASE ALSO
REVISE YOUR DISCLOSURE ON PAGE 14 REGARDING THE COMMISSIONS PAID TO VARIOUS
INDIVIDUALS. IN THIS REGARD, YOU SHOULD DISCLOSE EVERY COMMISSION YOU HAVE PAID
WHETHER IN CASH OR STOCK, IDENTIFY EACH INDIVIDUAL AND QUANTIFY EACH COMMISSION
PAID.
In response to this comment, we have revised our disclosures on pages 8, 19, 21,
23, 24 and 37 of our amended filing.
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FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2011
12. WE NOTE YOUR REFERENCE ON PAGE 3 TO SECTION 27A OF THE SECURITIES ACT OF
1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. IT IS NOT CLEAR
THAT YOU ARE ABLE TO RELY UPON SUCH SAFE HARBORS. THESE SECTIONS APPLY TO AN
ISSUER THAT IS SUBJECT TO THE REPORTING REQUIREMENTS OF SECTION 13(A) OR SECTION
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 AND EXCLUDE FROM THE PROTECTIONS OF
THE SAFE HARBOR COMPANIES THAT ISSUE PENNY STOCK. PLEASE REVISE YOUR DISCLOSURE
REGARDING FORWARD LOOKING STATEMENTS ACCORDINGLY.
Response:
In response to this comment, we are filing an amendment to our Form 10-K to
delete the language about Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act.
We are also amending our Form 10-K by adding the revised disclosures
contained in Amendment No. 4 to our Form 10 registration statement.
ITEM 9A. CONTROLS AND PROCEDURES, PAGE 25
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING, PAGE 26
13. PLEASE TELL US HOW YOUR CURRENT DISCLOSURE COMPLIES WITH THE REQUIREMENTS OF
ITEM 308(A)(2) AND (3) OF REGULATION S-K. IT APPEARS THAT YOU HAVE INCLUDED A
CONCLUSION OF THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES IN
ACCORDANCE WITH ITEM 307 OF REGULATION S-K, AND NOT A CONCLUSION FOR INTERNAL
CONTROL OVER FINANCIAL REPORTING. FURTHER, IT IS NOT CLEAR THE FRAMEWORK USED BY
MANAGEMENT TO EVALUATE THE EFFECTIVENESS OF YOUR INTERNAL CONTROL OVER FINANCIAL
REPORTING. PLEASE ADVISE.
Response:
In response to this comment, we will add a conclusion for the internal control
over financial reporting in Amendment No. 1 to our Form 10-K, which we are
filing after this amended filing is made.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A) (1) FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARKETABLE SECURITIES
(A) CLASSIFICATION OF SECURITIES
COST METHOD INVESTMENTS, PAGE F-9
14. IN JUSTIFYING YOUR EXEMPTION TO ESTIMATING THE FAIR VALUE AND RELATED
IMPAIRMENT OF YOUR COST METHOD IMPAIRMENT, YOU REFER TO A NON-EXISTING ASC
TOPIC. PLEASE TELL US THE ACCOUNTING LITERATURE RELIED UPON FOR YOUR EXEMPTION
OF FAIR VALUING SUCH ASSET. FURTHER, PLEASE TELL US HOW YOU CONSIDERED ASC
325-20-35-1A IN EVALUATING YOUR INVESTMENT FOR IMPAIRMENT AT THE BALANCE SHEET
DATE.
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Response:
In response to this comment, we have revised our disclosures on page F-27 of our
amended filing to correct the ASC topic. Further, we have considered ASC
325-20-35-1A and have determined that cost equals market value. In additional,
we do not have the ability to exert significant influence in connection with our
investment. No known indicators of impairment currently exist.
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
15. GIVEN THAT YOU INDICATE THAT YOUR MARKETABLE SECURITIES ARE DESIGNATED AS
HELD-FOR-SALE AT DECEMBER 31, 2011, PLEASE TELL US HOW YOU VALUED THE SECURITIES
AND HOW YOU HAVE DETERMINED THAT THESE ASSETS SHOULD BE FAIR VALUED ON A
NON-RECURRING BASIS. FURTHER, IT IS UNCLEAR HOW YOU DETERMINED THAT YOUR COST
METHOD INVESTMENT WAS DETERMINED TO BE A LEVEL 3 ASSET IN THE FAIR VALUE
HIERARCHY. PLEASE ADVISE.
Response:
In response to this comment, we have revised our disclosure on page F-33 of our
amended filing to describe the valuation methodologies the Company uses to
measure financial instruments at fair value.
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General Amendments to Our Filing
In addition to the amendments and revisions described above, we have
included the audited financial statements fro the fiscal year ended December 31,
2011, deleted the interim (unaudited) financial statements for the nine months
ended September 30, 2011, and we have made various minor updating revisions to
the dates of information in some of the tables and other sections in the filing,
added a new going concern risk factor and we have corrected a few typographical
errors.
Acknowledgement
We acknowledge that:
(a) the Company is responsible for the adequacy and accuracy of the
disclosure in the filing;
(b) staff comments or changes to disclosure in response to staff comments
do not foreclose the Commission from taking any action with respect to
the filing;
(c) the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission from taking any action with
respect to the filings; and
(d) the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
Please address any further comments to our attorney, David E. Wise, Esq.
Mr. Wise's contact information is set forth below:
Law Offices of David E. Wise, P.C.
Attorney at Law
The Colonnade
9901 IH-10 West, Suite 800
San Antonio, Texas 78230
Telephone: (813) 645-3025
Facsimile: (210) 579-1775
Email: wiselaw@verizon.net
Sincerely,
By: /s/ Enzo Taddei
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Enzo Taddei
Chief Financial Officer