U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18620 /March 11, 2004
UNITED STATES v. THOMAS S. HUGHES, Case No. CR-02-M-1648 (C.D. Cal.)
FORMER eCONNECT CEO SENTENCED TO OVER 8 YEARS IN PRISON FOR SECURITIES FRAUD AND CRIMINAL CONTEMPT
The Securities and Exchange Commission ("Commission") announced today that on March 1, 2004, the Honorable Nora M. Manella, United States District Judge for the Central District of California, sentenced Thomas S. Hughes, 56, of Rancho Palos Verdes, California, to 97 months in federal prison. Hughes pleaded guilty on August 11, 2003, to three counts of securities fraud and one count of criminal contempt.
Hughes was charged by the United States Attorney's Office for the Central District of California with orchestrating a fraudulent securities scheme. Specifically, Hughes was accused of issuing false and misleading public statements in July 2002 - press releases and website content - that artificially inflated the price of eConnect, whose stock was then publicly quoted on the Over-The-Counter Bulletin Board. The press releases and website content falsely claimed that eConnect had received a $20 million investment in "AA" asset-backed bonds, that eConnect had begun a stock repurchase program of its shares, and that eConnect had received a $964,000 purchase order for its principal product, suggesting that a legitimate company had a relationship to the company that actually placed the order. In reality, the indictment alleged: (1) the bonds were not "AA" rated or registered so that they could be traded publicly; (2) there was no stock repurchase program; and (3) there was no relationship between the company that placed the $964,000 purchase order and the legitimate company identified in the press release. Hughes was also charged with criminal contempt of a permanent injunction against him obtained by the Commission in April 2000 in the case SEC v. eConnect and Thomas S. Hughes, Civil Action Number CV-00-2959 MMM (RCx)(C.D. Cal.)(Lit. Rel. No. 16481).
In a related proceeding, the Commission obtained emergency relief against Hughes and others, including an asset freeze, in Los Angeles federal court on August 8, 2002, alleging that Hughes and others violated the federal securities laws based upon the scheme described above. On September 4, 2003, Judge Manella entered judgment against Hughes pursuant to his consent. The court ordered Hughes to pay a civil penalty in the amount of $120,000, and permanently enjoined him from future violations of the insider transactions reporting provisions of the federal securities laws, Section 16(a) of the Securities Exchange Act of 1934 and Rule 16a-3 thereunder. The Court also prohibited Hughes from acting as an officer or director of a publicly-traded company. The Commission's complaint charged Hughes with violations of Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder.
This case is the product of an investigation by the Securities and Exchange Commission, the United States Attorney's Office in Los Angeles, and the Federal Bureau of Investigation, which received assistance from NASD Regulation, Inc.