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U.S. Securities and Exchange Commission


Litigation Release No. 16506 / April 7, 2000


SEC Files Securities Fraud Complaint Against Enterprises Solutions, Inc., Herbert S. Cannon, and Dr. John A. Solomon and Obtains Freeze on $2.3 Million Proceeds From Related Stock Sales

On April 6, 2000, the Securities and Exchange Commission filed a securities fraud action against Enterprises Solutions, Inc. ("ESI"), Herbert S. Cannon, and Dr. John A. Solomon in the United States District Court for the Southern District of New York. The Commission also obtained an immediate asset freeze preventing the removal of more than $2.3 million in assets from the securities accounts of two Gibraltar companies, Rowen House Limited and Montville Limited, which are named in the complaint as relief defendants. According to the complaint, ESI is a Nevada corporation claiming to have its principal place of business at defendant Solomon's home in Canton, Massachusetts, and defendant Cannon resides in Boca Raton, Florida. ESI claims to be in the business of developing products and encryption technology for Internet security, and has reported $160,087 in total assets as of September 30, 1999 and $328 in total revenues since January 1, 1998.

The Commission's complaint alleges that ESI was established, and has been secretly controlled, by defendant Cannon, a Florida stock promoter who has been convicted of felony fraud violations on two separate occasions, enjoined by federal courts in two prior securities fraud cases brought by the Commission, and barred by the Commission from the securities industry. The complaint further alleges, among other things, that ESI, Cannon, and Solomon have fraudulently concealed from the investing public Cannon's control of ESI, and that they have knowingly or recklessly made false and misleading claims about ESI's products and customers. During the relevant period, according to the complaint, defendant Cannon controlled the securities accounts of several offshore entitities, including relief defendants Rowen House and Montville, through which he sold hundreds of thousands of shares of ESI stock into the market, some during a recent surge in the price and trading volume of the stock. After the price of ESI's stock rose from $3 per share in January 2000 to more than $20 per share on March 29, 2000, the Commission issued an order on March 30, 2000 temporarily suspending trading in ESI's stock until April 12, 2000. See Release No. 34-42593.

The Commission's complaint charges the defendants with securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks injunctions, disgorgement, and civil penalties, along with a constructive trust upon any and all proceeds from ESI stock sales being held in the brokerage accounts of the relief defendants.

The Commission acknowledges the assistance of NASD Regulation, Inc. in connection with this matter, and notes that its investigation is continuing.

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, visit the SEC's Microcap Fraud Information Center at http://www.sec.gov/news/extra/microcap.htm. Information on trading suspensions is available at http://www.sec.gov/enforce/tsuspend.htm.