SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 16232/ August 2, 1999

Accounting and Auditing Enforcement Release No. 1148/ August 3, 1999

SECURITIES AND EXCHANGE COMMISSION v. AMERICAN TELEPHONE + DATA, INC., WILLIAM POSNETT LYNAS, III, JANEEN HAUXHURST-LYNAS, AND DANIEL W. KRATOCHVIL, Civil Action No. SACV-99-98AHS(ANx) (C.D. Cal. August 2, 1999).

SEC Sues Operators of Southern
California Microcap Company for Fraud

The Securities and Exchange Commission filed a complaint in federal district court in Los Angeles against the former operators of an Orange County-based public company, charging them with committing financial fraud and insider trading, as well as looting more than $900,000 in investor funds to finance their lavish lifestyles. The Commission's complaint alleges that William Posnett Lynas, III, and his wife, Janeen Hauxhurst-Lynas, both of Newport Beach, California, controlled American Telephone + Data, Inc. (AT+D), a Costa Mesa company purportedly engaged in telecommunication businesses. The complaint alleges that during 1993 Lynas and Hauxhurst-Lynas filed with the Commission a series of materially false and misleading financial statements. Those financial statements included fictional assets, which resulted in the overstatement of the company's total assets by between 74% and 87%. Chief among these bogus assets were certain purported licensing rights to a high-speed facsimile transmission system that were valued on AT+D's balance sheets at $10 million. The licensing rights did not exist.

The Commission's complaint also alleges that Lynas and Hauxhurst-Lynas misappropriated at least $900,000 of the company's corporate funds to pay personal expenses, including $46,000 for a GMC Suburban and $87,000 for personal vacation travel. The stolen funds represented, for the most part, the proceeds of sales of AT+D warrants and common stock to the investing public. The complaint also alleges that, from October 1993 to January 1994, the Lynases sold more than 45,000 shares of AT+D common stock at prices ranging from $8.00 to $9.50 per share, realizing at least $400, 000 in illegal profits. During the time of these sales, AT+D's publicly-filed financial statements materially overstated the company's assets.

The Commission's complaint charges the Lynases with violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1 thereunder, and the company they controlled, AT+D, with violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of Exchange Act and Rules 10b-5, 13a-1, 13a-11, 13a-13, and 12b-20. The Commission is seeking to permanently enjoin Lynas, Hauxhurst-Lynas and AT+D from violating the above provisions of the federal securities laws and to permanently bar Lynas and Hauxhurst-Lynas from serving as officers or directors of public companies . The Commission also seeks an order requiring the Lynases to disgorge all moneys obtained from their illegal activities, plus prejudgment interest.

Simultaneously with the filing of the Commission's complaint, a fourth defendant, Daniel Kratochvil of Tacoma, Washington, consented, without admitting or denying the Commission's allegations, to an order permanently enjoining him from violating the anti-fraud provisions of the securities laws, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The complaint alleges that Kratochvil, who served as AT+D's acting chief financial officer from November 1993 to January 1994, filed with the Commission false and misleading quarterly reports that materially overstated the company's assets.

In a separate proceeding, the Commission today instituted public administrative proceedings, pursuant to Section 12(j) of the Securities Exchange Act of 1934, to determine whether to revoke AT+D's registration.

In another related administrative proceeding filed today, Gerald R. Hinshaw, CPA, of Minooka, Illinois, consented, without admitting or denying the allegations in the order instituting proceedings, to an order barring him from appearing or practicing before the Commission as an accountant, pursuant to Rule 102(e) of the Commission's Rules of Practice. The Commission's order finds that Hinshaw, a certified public accountant licensed in Illinois and Michigan, engaged in improper professional conduct by issuing unqualified audit opinions on AT+D financial statements that were filed with the Commission in 1993. Among other things, Hinshaw failed to comply with applicable auditing

This enforcement action is part of the Commission's four-pronged approach to attacking microcap fraud: enforcement, inspections, investor education and regulation. For more information about the SEC's response to microcap fraud and the litigation release for this case, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm.