FOCUS-SEC files fraud charges against eConnect
Thu Mar 23 20:10:00 EST 2000
By Jeremy Pelofsky
WASHINGTON, March 23 (Reuters) - The Securities and
Exchange Commission said on Thursday it has filed fraud charges
against eConnect and its president, Thomas Hughes,
for allegedly issuing false statements about the company's
business opportunities.
The SEC accused the company of issuing press releases that
made false claims about the company and a joint venture partner
having a "unique licensing arrangement with PalmPilot," the
handheld devices made by Palm Inc. .
Additionally, false and misleading press releases were
issued regarding a subsidiary of eConnect and a purported
alliance it had with a brokerage firm concerning a system that
would permit cash transactions over the Internet, the SEC said.
"The fraudulent press releases mispresented eConnect's
potential business opportunities, thereby causing a dramatic
rise in the price of eConnect's stock from $1.39 on Feb. 28 to
a high of $21.88 on March 9 on heavy trading volume," the SEC
said.
The securities regulator is seeking a temporary restraining
order against the company and Hughes from violating fraud
provisions of securities laws as well as civil penalties and
permanently enjoining them from violating securities laws.
The SEC halted trading in eConnect on March 13, citing
questions about the accuracy of publicly released information.
The company's shares, which last traded at $10.25, were halted
from trading on the Bulletin Board through March 24.
The securities regulator said that even after the trading
halt was imposed, the company, based in San Pedro, Calif., and
Hughes continued to issue false and misleading statements about
business opportunities.
A lawyer representing the defendants did not return a call
seeking comment. A spokesman for the company was not
immediately available for comment.
PRESS RELEASES
The company issued a press release on March 3 that said it
and Pilot Island Publishing Inc., a subsidiary of International
Digital Holding Inc. that develops products for the
Palm-Top market, had established an arrangement with PalmPilot
for enabling wireless Internet transactions, according to the
complaint filed on Thursday in U.S. District Court for the
Central District of California.
The SEC said, in reality, eConnect and Pilot Island entered
into a joint venture whereby Pilot Island would provide the
relationship with Palm and its former parent 3Com Corp.
.
"The agreement made no mention of any license or agreement
with Palm, much less a unique one," the complaint said.
The SEC said Pilot Island was at most a registered solution
provider of Palm which allows participation in Palm's technical
and marketing programs as well as discounts on development
hardware.
Hughes allegedly knew that there was no unique arrangement
with Palm and yet caused eConnect to issue the misleading press
release, the securities regulator said.
eConnect also posted the press release on an Internet
message board and the company's share price rose 18 percent on
that day to $4.66 a share from $3.94 per share, the SEC said.
Even after the halt in trading of eConnect shares, the SEC
said a statement released by the company to try to clarify the
arrangement "minimized that purported corrective purpose by
continuing to post the earlier false and misleading release on
its website," according to the complaint.
As for the strategic alliance with a broker-dealer, the SEC
said eConnect issued a press release on Feb. 28 that it had
entered into an alliance through one of its subsidiaries with
Empire Financial Group Inc. to provide a mechanism for the
broker's customers to transfer funds from a bank account to a
brokerage account through the Internet using an ATM card.
Instead, Empire signed a "nonbinding letter of intent with
a joint venture partner of eConnect," the SEC complaint said.
Hughes was also the head of the company when it was known
as Betting Inc., a company that ran into trouble with the SEC
in March 1999 for failing to file quarterly and annual reports.
REUTERS
Rtr 20:10 03-23-00
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