SEC Charges EConnect With Fraud

The Securities and Exchange Commission said Thursday that it has filed fraud charges against EConnect Inc. and its president, Thomas Hughes, for allegedly issuing false statements about the company’s business opportunities.

The SEC accused the San Pedro-based company of issuing news releases that made false claims about the company and a partner having a “unique licensing arrangement with Palm Pilot,” the hand-held devices made by Palm Inc.

Additionally, false and misleading news 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 misrepresented 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 prohibiting them from violating fraud provisions of securities laws as well as civil penalties and a permanent injunction against violating securities laws.

The SEC halted trading in EConnect on March 13, citing questions about the accuracy of publicly released information. Shares, which last traded at $10.25, were halted from trading on the Bulletin Board through today.

A lawyer representing the defendants did not return a call seeking comment. A spokesman for the company was not immediately available for comment.

The company issued a news release March 3 that said it and Pilot Island Publishing Inc., a subsidiary of International Digital Holding Inc., had established an arrangement with Palm for enabling wireless Internet transactions, according to the complaint. 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.