U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17670 /August 9, 2002
SECURITIES AND EXCHANGE COMMISSION v. eCONNECT, THOMAS S. HUGHES, RICHARD EPSTEIN, AND ALLIANCE EQUITIES, INC., Civil Action No. CV 02-6156 NM (MCx) (C.D. Cal.)
SEC, FBI AND U.S. ATTORNEY'S OFFICE COORDINATE TO CHARGE ECONNECT AND ITS CEO WITH SECURITIES FRAUD
On August 7, 2002, the Securities and Exchange Commission and the United States Attorney's Office for the Central District of California announced today the filing of civil and criminal charges against Thomas S. Hughes, CEO of eConnect, and civil charges against eConnect - both repeat securities law violators - for fraud in connection with a scheme to artificially inflate eConnect's stock price using false press releases and false statements on its websites. The filings were the result of investigations conducted by the Securities and Exchange Commission, the United States Attorney's Office, and the Federal Bureau of Investigation. Both eConnect, based in San Pedro, CA (symbol: ECNT), and Hughes, age 52, of Rancho Palos Verdes, CA, were previously sued by the SEC in 2000 for issuing false press releases.
The United States Attorney's Office's two-count criminal complaint, filed August 7, 2002 in Los Angeles federal court, charges Hughes with criminal contempt and securities fraud. The complaint alleges that Hughes committed criminal contempt by violating the terms of a permanent injunction issued against him in April of 2000 in the prior SEC case; that injunction prohibited Hughes from committing any future securities fraud violations. The complaint also alleges that Hughes committed securities fraud by issuing false and misleading press releases on behalf of eConnect for the purpose of fraudulently increasing the value of eConnect's stock. Hughes was arrested by FBI special agents made his initial appearance in federal court on August 7, 2002. If convicted of the securities fraud charge in the complaint, Hughes faces a maximum sentence of 10 years in federal prison and a $1,000,000 fine.
The SEC's complaint charges Hughes, eConnect, and major eConnect shareholders Richard Epstein of Tampa, Florida and Alliance Equities, Inc, of Coral Springs, Florida with various federal securities law violations. The SEC simultaneously filed an emergency action seeking over $770,000 from Epstein and Alliance Equities, over $70,000 from eConnect, and a bar against Hughes from acting as an officer or director of a publicly-traded company. The SEC previously suspended trading in eConnect stock on July 25, 2002.
The SEC alleges that since July 10, 2002, Hughes and eConnect have issued false and misleading press releases and posted false statements on eConnect's websites claiming that:
In addition, the SEC's complaint alleges that:
In the present action, filed in United States District Court in Los Angeles, the Commission charged Hughes with violating the antifraud and insider transactions reporting provisions of the federal securities laws, eConnect with violating the antifraud provisions of the securities laws, and Epstein and Alliance Equities with violating the insider transactions and stock sale reporting provisions of the federal securities laws. Today, August 8, 2002, the Court granted the Commission's request for injunctions and asset freezes. The preliminary hearing is scheduled for August 16, 2002. The Commission also seeks disgorgement of trading proceeds, civil penalties, and an officer and director bar against Hughes.
This is the third criminal contempt proceeding brought in the past year by the United States Attorney's Office in Los Angeles in conjunction with the SEC's Pacific Regional Office. In August 2001, Job Kjell Hovik was charged with criminal contempt and mail and wire fraud for violating an SEC injunction and defrauding investors in a purported weight loss business. In November 2001, Cary S. Greene was charged with criminal contempt and securities fraud for violating an SEC injunction and soliciting investors in a purported broadband business.
This case is the product of an investigation by the Securities and Exchange Commission, the United States Attorney's Office in Los Angeles, and the Federal Bureau of Investigation, which received assistance from NASD Regulation, Inc.