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'Click here for free stock'

July 17, 1998
Web posted at: 11:30 AM EDT

by Scott Kirsner

(IDG) -- Sure, you've heard of Web companies handing out frequent flier miles or CyberCash to surfers who visit their sites. But the founders of online bargain-vacation finder Travelzoo are pioneering a new technique in Web site promotion: giving away three free shares of company stock to anyone who stops by and signs up. Refer friends to the site, and earn up to seven additional shares.

Unfortunately for Travelzoo's shareholders, the start-up, whose Web site launched in April, isn't traded on any public market in the U.S. or elsewhere. And the company doesn't issue actual stock certificates, though it provides the "registration numbers" of each share via e-mail.

Though Travelzoo is based in the Bahamas, its stock offering is still subject to Securities and Exchange Commission regulation because it is making the offering to U.S citizens. The SEC has taken steps to more closely monitor securities offerings from offshore Web sites. In March, it issued an "interpretive release" stating that the SEC "will take appropriate enforcement action whenever we believe that fraudulent or manipulative Internet activities have ... placed U.S. investors at risk."

SEC spokesman Duncan King declined to comment on Travelzoo specifically. is the brainchild of Mark Foster and Ralph Bartel Internet Ventures, a San Jose company which holds Travelzoo's domain registration. The site aims to aggregate travel bargains on the Web, though currently most of the site's content consists of links to other online travel services such as Preview Travel and American Airlines, and text-based ads from small travel agencies.

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The company says it will dole out shares to 700,000 individuals who register at its site; so far, Travelzoo boasts more than 235,000 shareholders, who Foster says will soon be able to attend online shareholder meetings and even elect a new president (Foster, Travelzoo's current president, says he is serving only on a temporary basis.) Ultimately, Web users will own 70 percent of the company.

"By giving away shares and making Netsurfers part of the company, hopes to build an increased level of loyalty with its customers and users," Foster wrote in an e-mail. "[We hope that] will attract higher interest with advertisers, which could eventually generate new revenues and higher profits, which wants to share with all its co-owners."

Foster says the company is based in the Bahamas because an offshore headquarters "gives us the freedom and flexibility of exciting new business concepts."

Freedom and flexibility indeed tracking down the founders proved challenging. One e-mail signed, "Greetings from the sunny Bahamas, Mark," was followed the next day by a message signed by Bartel from Foster's e-mail address, saying that Mark "is currently on vacation in Europe." Dave Becker, a San Jose-based employee of Ralph Bartel Internet Ventures who sells advertising on the Travelzoo site, explained that Foster lives in Germany but was on vacation in England. "This is really an international company," Becker said.

Shareholders have been circulating e-mails and building Web pages to encourage others to register for Travelzoo shares, which will in turn increase the referrer's holdings. One such page listed the benefits of obtaining these shares: "You will be eligible to receive dividend payments," and "Once the company goes publick (sic) you can sell your shares." Another shareholder who has built a page dedicated to Travelzoo, seems to be under the impression that the company is already publicly traded.

He and the other shareholders might be disappointed to learn that the company's handful of advertisers mostly small travel agencies pay just $10 per week to appear on the site. The site's marquee sponsor, Premier Cruises, pays nothing for its prominent spot on the home page, and in fact never gave Travelzoo permission to run the ad. "We received a proposal from them, but never responded," says Tom Carchia, manager of consumer marketing at Miami-based Premier. At the same time, Carchia says doesn't object to travel sites offering him free advertising.

Consumer advocates aren't so sure. "I've never heard of stockholders not getting certificates, unless your broker holds them," says Audri Lanford, publisher of the e-zine ScamBusters. "I can't imagine what their auditors would say if they actually did decide to go public. I'm not a laywer or a tax accountant, but it seems to me that free stock would create all sorts of problems."

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