SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17398 / March 6, 2002
Accounting and Auditing Release No. 1515 / March 6, 2002
United States v. Jon Jeffrey King, et al, Criminal No. SA-00-CR-154-OG (W.D. Texas)
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.).
The Commission announced that on February 7, 2002, a judgment of criminal conviction was entered against Jon Jeffrey King of San Antonio, Texas in the United States District Court for the Western District of Texas. U.S District Judge Orlando Garcia sentenced King to ten years imprisonment, ordered him to pay a $10 million fine and to forfeit all proceeds from a scheme to defraud investors in several domestic business ventures including American Telephone + Data, Inc. and Cash Can, Inc. The Court also sentenced King's wife, Patricia L. King, to three years probation for her role in the scheme that defrauded over $10 million from investors. The convictions result from an extensive investigation conducted with the participation of the Commission, the Federal Bureau of Investigation, and the Internal Revenue Service - Criminal Investigation.
On June 25, 2001 Jon King pleaded guilty to one count of conspiracy to commit securities, wire and mail fraud and one count of conspiracy to launder money. That same day Patricia King pleaded guilty to three misdemeanor counts of providing false information on her 1993, 1994, and 1995 income tax returns.
Other defendants charged in the criminal case include Jon King's son, Michael J King, of Austin, Texas, Patricia King's sister, Elizabeth Ward Moore, of San Antonio, Texas; Roger Patterson Lund of Salt Lake City, Utah; and Herbert Dale Carver of New Orleans, Louisiana. On December 3, 2001 Moore pleaded guilty to one count of conspiracy to commit securities, wire and mail fraud. As a result, she faces up to five years in federal prison and a maximum $250,000 fine. On December 12, 2001, Michael King pleaded guilty to conspiracy to commit money laundering. As a result, he faces up to seven years in prison. Lund and Carver each face charges of conspiracy to commit securities, wire and mail fraud and conspiracy to launder money. No trial date has been scheduled.
In a related civil enforcement matter, the Commission announced that the United States District Court for the Central District of California entered a Final Judgment of Permanent Injunction and Other Relief against American Telephone + Data, Inc., William Posnett Lynas, III and Janeen Hauxhurst-Lynas. The judgment, entered by U.S. District Judge Virginia A. Philips on July 28, 2000 after the defendants' default, permanently enjoins all three defendants from violating the antifraud provisions of the federal securities laws: Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The judgment also enjoins American Telephone + Data, Inc. from violating the periodic reporting, books and records and internal controls provisions of the securities laws: Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(b) and Rules 12b-20, 13a-11 and 13a-13 thereunder. It also enjoins William Posnett Lynas, III and his wife, Janeen Hauxhurst-Lynas, from violating the accounting controls provisions of the securities laws, Section 13(b)(5) and Rule 13b2-1 thereunder, permanently bars both of them from acting as an officer or director of a public company, pursuant to Section 21(d)(2) of the Exchange Act, and orders them to pay disgorgement and prejudgment interest of $1,679,669.07, for which they are jointly and severally liable.
The default judgment was entered on the Commission's complaint alleging that William Posnett Lynas, III, and his wife, Janeen Hauxhurst-Lynas, both of Newport Beach, California, controlled American Telephone + Data, Inc., a Costa Mesa company purportedly engaged in telecommunication businesses. The complaint alleged 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 the company's balance sheets at $10 million. The licensing rights did not exist. The complaint also alleged that Lynas and Hauxhurst-Lynas misappropriated corporate funds to pay personal expenses and engaged in insider trading.
The Commission's 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/divisions/enforce/microcap.htm.
For further information see Litigation Release No. 16232 (August 2, 1999), Accounting and Auditing Enforcement Release Nos. 1147 and 1148 (August 2, 1999), and Exchange Act Release Nos. 41681 and 41680 (August 2, 1999) and 42009 (October 19, 1999).