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United States Securities and Exchange Commission

LITIGATION RELEASE NO. 17614 \ July 15, 2002

SECURITIES AND EXCHANGE COMMISSION v. AMERICAN AUTOMATION, INC., KENDYLL R. HORTON, HAZEL A. HORTON, et al., Civil Action No. 3:98-CV-01596-D, USDC ND/TX (Dallas Division)

On May 31, 2002, the Honorable Sidney A. Fitzwater, United States District Judge, Northern District of Texas (Dallas), entered a final judgment in a $4.48 million-dollar offering fraud scheme against Kendyll R. Horton (Borger, Texas) and his mother Hazel A. Horton (Borger, Texas). The judgment orders the Hortons to disgorge $4.48 million, together with $1.4 million in prejudgment interest, to a court-appointed receiver for the benefit of defrauded investors, orders each of the Hortons to pay a $110,000 civil money penalty, and enjoins the Hortons from violating the registration and antifraud provisions of the federal securities laws (Sections 5(a) and (c) and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder).

The Commission's complaint alleged that the Hortons defrauded investors in connection with the offer and sale of common stock of American Automation, Inc. Judge Fitzwater determined that, among other things, the Hortons were responsible for misrepresentations: that American Automation had completed development of software which would permit consumers to purchase automobile insurance on the Internet or from free-standing kiosks and was actually operating such kiosks; that American Automation would generate gross sales of approximately $122 million and profits of nearly $100 million by its third year of operation; and that American Automation was planning an initial public offering ("IPO") and its shares would soon rise from $1 per share to as much as $20 per share. Judge Fitzwater also determined that the Hortons were responsible for failing to inform investors: that American Automation had no marketable software and no agreements with insurance companies by which to market insurance at kiosks; that American Automation paid its sales representatives a salary and a commission for selling American Automation shares; that American Automation transferred investor funds to other corporations owned by the Hortons; that the Hortons used investor funds for personal use; and that American Automation had taken no meaningful steps to effectuate an IPO.

Earlier, the Commission obtained judgments enjoining two other participants in the scheme, Merle B. Gross and Jayne Roose. The Court waived disgorgement from Gross because of his demonstrated financial inability to pay, but ordered $61,206 in disgorgement from Roose. American Automation is presently in bankruptcy.


http://www.sec.gov/litigation/litreleases/lr17614.htm

Modified: 07/16/2002