CEO of EConnect Indicted in Fraud Case
Thomas Hughes, chief executive of EConnect Inc., was indicted by a federal grand jury Tuesday on charges he attempted to boost the Internet security company’s shares by distributing three false news releases.
The July releases falsely said that EConnect received a $20-million investment, was beginning a stock repurchase program and had received a $964,000 order, according to the U.S. attorney’s office in Los Angeles.
If found guilty, Hughes could face as much as 10 years in prison for the securities fraud charge and five years on the mail fraud charge. Hughes also is charged with criminal contempt for allegedly violating terms of an earlier settlement with securities regulators, prosecutors said.
Hughes “caused public statements to be made that EConnect was in a ‘strong financial position’ ” when in fact, “as Hughes well knew, EConnect was not in a strong financial position” and had been unable to pay employees’ salaries, according to the indictment.
Hughes, 52, couldn’t be reached for comment. He was arrested Aug. 7 and released on a $200,000 bond.
Officials at EConnect also couldn’t be reached to comment.
In a filing with the Securities and Exchange Commission last week, EConnect said it “believes the charges are unwarranted and intends to vigorously defend against them.”
This is the second time that Hughes has faced charges over issuing what federal officials said were false news releases. In 2000, Hughes settled SEC charges by agreeing to abstain from future violations.
EConnect, which sold shares to the public for the first time in 1993, makes a device that it says assures the security of Internet purchases. It has reported no revenue from operations as of March 31, while accumulating losses of $167.5 million.
The firm commanded a market value of more than $3 billion when its shares rose to a high of $21.88 on March 9, 2000, after the first set of news releases the SEC said were false and misleading.
The company claimed then it had business deals with Palm Inc. and a small Florida broker. The SEC charged that the releases helped EConnect shares rise to the record level from $1.39 on Feb. 28.
Shares of the San Pedro-based company were unchanged at 2 cents in over-the-counter trading.
Trading of EConnect shares was halted by the SEC from July 25 to Aug. 8.
