United States Securities and Exchange Commission
Litigation Release No. 16884 \ January 31, 2001
SECURITIES AND EXCHANGE COMMISSION v. FRED CARTER AND WENDELL CARTER, U.S. District Court for the District of Columbia, Civil Action No. 99-2848(PLF) (D.D.C.)
SEC OBTAINS $1.3 MILLION FRAUD JUDGMENT AGAINST FRED CARTER IN WASHINGTON, D.C. BASED INTERNET TELEPHONY SCHEME
The Securities and Exchange Commission announced that on January 29, 2001, Judge Paul L. Friedman of the United States District Court for the District of Columbia entered an injunction prohibiting future securities fraud by Fred Carter, formerly president and chief executive officer of American Telephone and Telecommunications Corporation (ATTC), a District of Columbia corporation purportedly set up to establish a long distance telephone service using Internet telephony technology. The Court also ordered Fred Carter to disgorge $569,850 of investor monies, plus prejudgment interest, and pay a penalty of an equal amount, for a total judgment of $1,328,845.40. Carter did not appear in the proceeding and the judgment was entered by default.
The Court concluded, as the SEC's complaint, filed on October 27, 1999, alleges that Fred Carter violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5, by selling to the public ATTC stock and joint venture interests in a series of fraudulent offerings.
The complaint alleges that from October 1996 through October 1997, Fred Carter made material misrepresentations and omissions in promotional mailings and seminars to induce people to invest in ATTC. According to the complaint, the defendants falsely claimed, among other things, to have designed a revolutionary technology for routing phone calls using the Internet, that ATTC's stock price would at least triple within one year, and that ATTC had a strategic alliance with an Internet telephony product manufacturer that would help ATTC implement its telephone service. In fact, the complaint alleges, ATTC did not design any technology, but merely purchased Internet telephony products for use in investor demonstrations. In addition, there was no reasonable basis for ATTC's financial projections and there existed no alliance with an Internet telephony product manufacturer. Further, investors were not told that investor funds were largely being disbursed for Fred Carter's personal expenditures rather than being spent on bringing the promised telephone service to market.
The Court previously entered judgment, on September 14, 2000, by consent against co-defendant Wendell Carter, who is no relation to Fred Carter, but who was vice president of ATTC. Wendell Carter was also enjoined from any future securities fraud, and ordered to pay disgorgement.
For more information about this case see Litigation Release Nos. 16706 (September 18, 2000) and 16396 (December 29, 1999).