O.C. Pair Accused of Bilking Investors in Internet Provider
In its first investor fraud case against an Internet service provider, a federal regulator accused two Orange County men and their company of raising nearly $1.1 million for an online access firm that may not have existed.
The Securities and Exchange Commission alleges in a lawsuit, filed Wednesday in U.S. District Court in Los Angeles, that Steven P. Hevell and Jim D. James sold unregistered securities to at least 56 investors.
Hevell of Newport Beach and James of Fountain Valley used American Internet Partners to promise investors that their money would be used to buy and develop an Internet service provider in San Jose, according to the SEC complaint.
Instead, the agency alleges, the company used the money to pay sales commissions and to cover company and personal expenses of its executives. Hevell is the company’s former president; James is the current president.
Attorneys for the company and its staff denied the SEC’s charges Thursday.
“We’re starting to see more and more cases of fraud over the Internet, but this is a first for the commission” to allege fraud in raising investor funds for an online access company, said Lisa Gok, assistant regional director for the SEC.
“It’s unclear to us if the Internet service provider ever even existed,” she said, even though $300,000 of the money raised allegedly was used for computer equipment.
The suit is the second one that the SEC has filed against Hevell and James. In September, the agency accused them and others of operating a Ponzi scheme--taking money for new investors to pay off earlier ones--in raising $4.25 million for MicroWest Industries Inc. in Irvine. The firm was going to make computer equipment for the medical industry. The case is pending.
Wednesday’s action also names as defendants American Internet Partners, its San Jose division of the same name and ConnecTel Communications Inc. in Irvine. ConnecTel was allegedly going to market and manage the online service.
The SEC charged that American Internet and its subsidiaries raised the money from at least 56 investors nationwide. The privately held companies sold securities but failed to register as broker dealers, the suit alleges.
Starting last July, the company allegedly told investors that they could invest in the San Jose operation in $5,000 increments. The company solicited investors through cold calls, its site on the World Wide Web and a 1997 advertisement in the Wall Street Journal, according to the complaint.
The complaint charges that the defendants spent some of the money on sales commissions, but that Hevell used $4,300 to pay for his cellular telephone bills and his go-cart racing hobby.
Hevell’s attorney, Dennis Perluss, said his client was aware that American Internet Partners was being investigated by the SEC.
“We’ll be responding with our own court filings,” Perluss said.
Neither James nor his attorney could be reached Thursday.
