U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16481 / March 23, 2000
Securities And Exchange Commission v. eConnect and Thomas S. Hughes, Civil Action No. CV 00 02959 AHM (C.D. Cal.)
The Securities and Exchange Commission ("Commission") today filed a complaint in the United States District Court for the Central District of California charging eConnect, a publicly traded corporation, and its president with a scheme to artificially inflate the value of eConnect's stock by disseminating fraudulent press releases, primarily over the Internet. The Commission simultaneously filed an emergency application seeking, among other things, an order temporarily restraining and preliminarily enjoining the defendants from committing the violations alleged in the complaint. Named in the complaint filed today are: eConnect, a Nevada corporation based in San Pedro, California, and Thomas S. Hughes ("Hughes"), eConnect's 52 year old president, who resides in Rancho Palos Verdes, California.
The complaint alleges that since February 28, 2000, eConnect has issued false and misleading press releases claiming: (1) eConnect and its joint venture partner had a unique licensing arrangement with PalmPilot; and (2) a subsidiary of eConnect had a strategic alliance with a brokerage firm concerning a system that would permit cash transactions over the Internet. In fact, eConnect has no licensing arrangement whatsoever with Palm, Inc., and the "strategic alliance" is no more than a letter of intent between a brokerage and a joint venture partner of eConnect. The complaint further alleges that the fraudulent press releases, which were disseminated through a wire service as well as by postings on internet bulletin boards, caused a dramatic rise in the price of eConnect stock from $1.39 on February 28 to a high of $21.88 on March 9, 2000, on heavy trading volume. The Commission suspended trading in eConnect's stock on March 13. The complaint alleges that despite the trading suspension and the Commission's related investigation, eConnect and Hughes continued to issue false and misleading statements concerning eConnect's business opportunities.
As a result of the foregoing, the Commission alleges that eConnect and Hughes committed securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. In addition to the interim relief sought in the application filed today, the Commission seeks a final judgment against eConnect and Hughes enjoining them from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and assessing civil penalties against them.