San Diego — To Jay Lacny, it was a simple plan designed to promote his new financial website and "raise the eyebrows" of his online competitors. The effort succeeded in raising eyebrows, all right. Unfortunately, they belonged to securities regulators rather than rivals. Now things aren't so simple.

Lacny, owner of local Internet-access provider Simply Internet, was looking to create some visibility for his latest site, www.simplystocks.com, an online database where investors can sift through the balance sheets and income and cash-flow statements of thousands of U.S. companies. It's a crowded field, with competitors like Market Guide, Zacks, Media General, and S&P Comstock already up and running. The challenge for the local man was separating himself from the pack.

So Lacny came up with a marketing idea. It was a contest that would use the promise of quick riches, a familiar enough lure on the Internet, to attract visitors to his fledgling site. The prize would be something more coveted than gold in the wired, waning days of the 20th Century: Internet stock, specifically, shares in Lacny's startup. The rules would be simple: Anyone who visited www.simplystocks.com and registered during its first six months of operation would be entered into a drawing. At the end of the six months, five names would be drawn; each would win a 1 percent stake in the company. "This FREE STOCK could be worth a substantial amount of $$$$," Lacny said in an e-mail sent late last month to some potential customers. "Market Guide is our most similar competitor and they offer the same products as us and have a market cap of $56,868,000."

But then regulators learned of the offer, and things have been up in the air ever since. In fact, the only thing that hasn't changed is the hoopla surrounding the deal, most of it generated by Lacny, a 33-year-old Canadian native with no experience as a financial analyst but an obvious penchant for sales.

"The people who are going to get this free stock, or however we cut this deal, are going to have a huge potential to make, you know, a good upside if we can do a tenth of what [Market Guide] is at," says Lacny. "I'm going to blow [Market Guide] out of the water, to tell you the truth. The bottom line is that I am going to proceed with this somehow, some way. We'll find some way to abide by the rules and regulations and still move this forward."

That isn't proving to be very easy. It turned out that Lacny's contest as originally conceived required the blessing of the Securities and Exchange Commission, the Federal Trade Commission, and the attorneys general of all 50 states.

In the beginning, the biggest stumbling block was the SEC, the federal agency that looks out for investors by overseeing the purchase and sale of stocks and bonds. According to the SEC, the Simplystocks.com offer wasn't free at all. In a letter sent to the company in early February, the commission said the contest actually constituted the sale of securities, which meant Lacny would need to register the stock with the feds and disclose a lot of information about his company -- a time-consuming and costly process. The SEC's thinking? By requiring visitors to provide their names, street, and e-mail addresses, and social security and telephone numbers -- personal information that is the coin of the realm on the Internet -- Simplystocks.com was extracting a kind of payment, or, in legal parlance, consideration from them in order to qualify for the drawing.

Michael Hyatte, the SEC attorney who wrote the opinion, goes further. "If what Simplystocks.com is handing out really is stock," Hyatte says, "then the giveaway is, by definition, a sale. The corporation statutes, the statutes in every state under which businesses organize themselves as corporations all provide that a company has the power to issue its common stock only against value. So if Simplystocks.com is saying registration on the site isn't payment, that it doesn't have value, then the answer that is being invited is that what the company is giving in return isn't stock."

Simplystocks.com isn't the first U.S. company -- or even the first U.S. Internet company -- to try to generate interest in itself through a stock promotion like this.

"People are crazy for the idea," the SEC's Hyatte says. Within the past few months, at least two other companies, including a Florida brewer and Texas firm that sells autos over the web, have asked the SEC to allow them to hold similar contests. In both cases, the SEC said no. Lacny, however, seems to be the most persistent, willing to modify the contest -- so much so that its latest incarnation bears little resemblance to the original game -- just so it passes legal muster. "The plan is we are going to proceed with this somehow, some way, in some fashion," he says.

Now, the biggest stumbling block to the promotion's success may be the promotion itself, which, as a result of all the changes, has become so complicated and confusing -- part contest, part chain letter -- that only a regulator could love it.

Gone are the five lucky winners, each getting a 1 percent stake in the company. Instead, Lacny says he will give away the whole 5 percent stake -- or $50,000 cash -- to one winner. But he's not sure yet. "I still haven't made a final decision."

To get the 49 states to sign off on the deal -- "North Carolina's out," Lacny says. "They want to charge me 2000 bucks just to register." -- Simplystocks.com is going to require the winner to pay the company for the stock it awards. Sound confusing? It gets worse. The amount paid will depend on the state the winner lives in and could, Lacny says, "be anything from nothing at all to $25."

Lacny explains the new plan in a letter he is sending to state regulators.

My name is Jay Lacny, President of Simplystocks.com. You may recognize our name from being featured by the Associated Press, Bloomberg, Business Week, etc.

We want to offer Stock in Simplystocks.com for "Free" in your state. Do you have a minimum dollar value that must be placed on "each" stock.... May we Register some way that will comply with your guidelines yet accomplishes our "Free" Stock giveaway? The SEC has issued an opinion to Simplystocks.com that one's visiting a website and registering for "Free" Stock would constitute consideration. Simplystocks.com disagrees with this position.

Simplystocks.com intends to register, fully comply and disclose whatever we need to make this happen. Our team has invested well over $1,000,000 into the development of our product and we anticipate that the offering will draw a lot of traffic to our website. I have drawn up a full disclosure...but the question still needs to be answered whether we may offer the Stock for "Free" in your state or if we need to put a minimum dollar value on the Stock.

Simplystocks.com has taken the (SEC's) Edgar Database, put the financial information into a "standardized" format and built a front end so the Personal Investor who has limited knowledge of financials may now make informed investment decisions. The vision of our website is to protect the Investor from buying Stocks that are over valued or 'scams.' I understand that your time is valuable and would appreciate if you would advise me of how to proceed with Registration while fully complying.

Lacny isn't twiddling his thumbs as he waits for the regulators to get back to him. He and his technical support team are busy preparing the company's web servers for what they believe will be a contest-inspired crush.

"We're anticipating somewhere between 10 million and 15 million people subscribing to this free stock offering," Lacny says. "So we're building redundant servers and moving our servers onto a different backbone." And there's the work of building the database, which Lacny says already contains 30 million records but will be expanded to give investors five years of data for any given company. That work, which involves reformatting data publicly available from the 10Qs and 10Ks companies file with the SEC, is being handled by an unnamed third-party vendor, which Lacny says has already devoted more than 330,000 hours to the task.

In the short term, Simplystocks.com's objective, according to a draft disclosure statement sent to Simply Internet users, is to "generate traffic to its website and develop a branding of its name. We do not expect to generate a profit in the first or second year."

In the longer term, Simplystocks.com wants either to form a strategic alliance or be purchased outright by another company. Names thrown around in the company's statement include its four up-and-running competitors as well as Intuit, the Mountain View-based personal-finance software company whose Turbo Tax operations are based in San Diego. For now, with the contest on hold and the site still under development, there's just the pre-launch hype.

Earlier this month, Lacny was confident the contest, and the website's debut, were just weeks away. Now he's not so sure. "I doubt it's all going to come together quickly," he says. "I've got a couple of letters from a couple states telling me that, you know, as long as I register, everything's just hunky dory." Lacny hopes to generate visits to his website by awarding people who refer their friends with extra entries in the stock contest. And to make those referrals even easier, Lacny has drafted a sample e-mail that he hopes people will soon be chain-mailing around the Internet.

Not everyone's crazy about the stock giveaway. Tom Taulli, an Internet analyst in Newport Beach and the author of Investing in IPOs, is the most blunt. In a recent Inter@active Investor story, Taulli said that spending money to give away a part of a company "doesn't sound too smart." Taulli wrote, "If a company is giving away stock in itself, what does this imply about management's perception of the value of the company? Do you think Jerry Yang would give away, say, 100,000 shares of Yahoo to boost traffic? Maybe if he went insane."

But Lacny defends the plan.

"I'm giving away an interest because I intend to dominate the marketplace," Lacny says. "Anyone who wants to tell me differently, let's talk in six months."