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U.S. Securities and Exchange Commission

Litigation Release No. 16659 / August 18, 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 14, 2000, Judge Jack T. Camp of the United States District Court for the Northern District of Georgia entered a preliminary injunction against Phoenix Telecom, L.L.C. ("Phoenix") and Jerold Benjamin Clawson ("Clawson") and continued previously ordered emergency relief against all of the defendants. The Commission did not seek a preliminary injunction against the defendants other than Phoenix and Clawson. However, Judge Camp directed that the receivership for Phoenix would remain in place, that an accounting be provided, and continued an earlier order freezing assets of all of the defendants.

The complaint, filed on August 2, 2000, 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, and 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 Court found that the scheme was 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, and further concluded that no registration statement was filed with the Commission in connection with these securities. The Court found that although Phoenix was the source of lease payments on the telephones and was 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. The Court also found that a prior securities law injunction and related criminal prosecution against Ragland was not disclosed to investors.

The complaint seeks permanent injunctions against defendants Phoenix, Clawson, Beacham and Ragland 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.

See also: L.R. 16642 (August 2, 2000)