The Golden Lounge

[XV19]

eCONNECT CEO PLEADS GUILTY TO SECURITIES FRAUD


The former CEO of eConnect pleaded guilty today to federal securities fraud charges for orchestrating a scheme to distribute false information designed to boost the stock price of the publicly traded company.

Thomas S. Hughes, 55, of Rancho Palos Verdes, pleaded guilty this afternoon to three counts of securities fraud for issuing false press releases and making false statements on the company’s website.

Both eConnect, which was based in San Pedro (symbol: ECNC), and Hughes were sued by the United States Securities and Exchange Commission in 2000 for issuing false press releases. In April 2000, to resolve the SEC action, Hughes agreed to a permanent injunction barring him from future violations of federal securities laws. In court today, Hughes also pleaded guilty to one count of criminal contempt of court for spreading misleading information about eConnect in violation of this injunction.

By pleading guilty, Hughes avoids a trial that was scheduled to begin on August 19 in federal court in Los Angeles.

Hughes is scheduled to be sentenced by United States District Judge Nora M. Manella on December 1, at which time he faces up to 30 years in prison for the securities fraud charges and an indefinite maximum sentence for the contempt count.

The SEC suspended trading in eConnect stock on July 26, 2002. At the same time as the criminal case was filed on August 7, 2002, the SEC filed a second civil lawsuit charging Hughes, eConnect and others with various federal securities law violations. After resolving the case against the other defendants, the SEC will ask Judge Manella to grant summary judgement against Hughes at a hearing scheduled for September 22.

United States Attorney Debra W. Yang said: “Manipulation of the markets will not be tolerated. Along with the FBI and the SEC, my office is committed to swiftly exposing any securities fraud scheme and to bringing perpetrators to justice. That commitment only increases when a defendant acts in violation of a court order intended to prevent these fraud schemes from recurring.

“The cases jointly filed by my office and by the SEC demonstrate our willingness and ability to work together to quickly protect the victims of unscrupulous executives,” Yang continued.

Ronald Iden, Assistant Director in Charge of the FBI in Los Angeles, stated: "We will investigate all credible allegations of corporate fraud and, working with our investigative partners and the U.S. Attorney, bring violators to swift and certain

justice to restore the trust of the American people in the marketplace."

In July 2002, Hughes oversaw the issuance of false and misleading press releases that claimed:

· eConnect had received a $20 million dollar investment in "AA"-rated, asset-backed bonds from another issuer;

· eConnect had begun a stock repurchase program; and

· eConnect had received a purchase order to sell $964,000 worth of its key product, the eCashPad.

In fact, the so-called “AA” bonds were not rated and had little value and there was no stock repurchase program. The press release regarding the nearly $1 million sale of eCashPads was misleading because it caused the public to believe the purchase orders came from a company that had no knowledge of eConnect.

This case is the product of an investigation by the Federal Bureau of Investigation, which received assistance from the Securities and Exchange Commission and NASD Regulation, Inc.



Release No. 03-112

http://www.usdoj.gov/usao/cac/pr2003/112.html