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U.S. Securities and Exchange Commission

U.S. Securities and Exchange Commission

Litigation Release No. 16642 / August 2, 2000

Securities and Exchange Commission v. Phoenix Telecom, L.L.C., Jerold Benjamin Clawson, Jerry Deland Beacham and H. Ellis Ragland, Jr., Civil Action File No. 1:00-CV-1970-JTC (N.D.Ga.)

The Securities and Exchange Commission ("Commission") announced that on August 2, 2000, it filed a civil law suit with an application for a temporary restraining order against Phoenix Telecom, L.L.C. ("Phoenix") and Jerold Benjamin Clawson ("Clawson") and other emergency relief against all of the defendants. The complaint seeks permanent injunctions against Phoenix, Clawson, and two other individual defendants, Jerry Deland Beacham ("Beacham") and H. Ellis Ragland, Jr. ("Ragland"). The complaint alleges that Phoenix, Clawson, Beacham, and Ragland engaged in fraud in the offer and sale of unregistered securities in the form of investment contracts. The Commission also announced that, on August 2, 2000, Judge Jack T. Camp of the United States District Court for the Northern District of Georgia entered a temporary restraining order against Phoenix and Clawson, appointed a receiver for Phoenix, and directed that assets of all of the defendants be frozen.

The Commission's complaint alleges that the defendants promoted a massive fraudulent scheme through the use of insurance agents and over the Internet, in which Phoenix raised more than $74 million from more than 2,000 mostly elderly investors. The complaint asserts that the scheme is based upon purported investments in customer owned, coin-operated telephones offered and sold in units, involving a telephone, site lease, lease/back agreement and buy/back agreement, that constitute securities. In addition, the lease/back agreements contain a provision that, under certain circumstances, would allow Phoenix to substitute shares of common stock for the securities. No registration statement was filed with the Commission in connection with these securities. The complaint also asserts that although Phoenix is the source of lease payments on the telephones and is the insurer of the investment, investors were not told that Phoenix was losing money, had a negative net worth, and was dependent on revenue from new investors to sustain its operations. It further contends that a prior securities law injunction and related criminal prosecution against Ragland was not disclosed, and that Phoenix failed to meet its monthly lease obligations to investors for the month of July 2000.

The complaint seeks preliminary injunctions against defendants Phoenix and Clawson and permanent injunctions against all defendants to prevent future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also seeks an accounting, disgorgement and prejudgment interest as well as civil penalties from the defendants.