U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17694 / August 21, 2002

SECURITIES AND EXCHANGE COMMISSION v. eCONNECT, THOMAS S. HUGHES, RICHARD EPSTEIN, AND ALLIANCE EQUITIES, INC., Civil Action No. CV 02-6156 NM (MCx) (C.D. Cal.)

FEDERAL COURT ENTERS INJUNCTION AND CONTINUES FREEZE ON DEFENDANTS' ACCOUNTS IN EMERGENCY SEC ENFORCEMENT ACTION

On August 16, 2002, the Securities and Exchange Commission obtained a preliminary injunction against two repeat securities violators -- eConnect and Thomas S. Hughes, eConnect's CEO -- and one of eConnect's major shareholders. The Honorable Nora M. Manella, United States District Judge for the Central District of California, issued the preliminary injunction order and continued an asset freeze against eConnect on its illegal profits obtained from violating the federal securities laws. The Commission's complaint, filed on August 7, 2002, charged Hughes and eConnect in connection with a scheme to artificially inflate eConnect's stock price using false press releases and false statements on its websites. The Commission had previously sued both eConnect, based in San Pedro, CA (trading symbol: ECNT), and Hughes, age 54, of Rancho Palos Verdes, CA in 2000 for issuing false press releases.

The Commission's recent complaint alleges that since July 10, 2002, Hughes and eConnect have issued false and misleading press releases and posted false statements on eConnect's websites. Among other things, the statements misrepresented a purported $20 million investment in "AA" rated bonds eConnect claimed to have received, a stock repurchase program it claimed to have initiated, and a purported $964,000 purchase order for its key product (the eCashPad) it claimed to have received. The misrepresentations caused the price and trading volume of eConnect's stock to increase by over 500 percent. As a result of this conduct, the Commission suspended trading in eConnect stock on July 25, 2002.

The Commission's complaint also charged that two major shareholders -- Richard Epstein of Tampa, Florida and his company, Alliance Equities, Inc., of Coral Springs, Florida -- failed to report their recent sales of over 74 million eConnect shares although they were required to do so by the federal securities laws. Epstein and Alliance Equities obtained over $770,000 in profits from those trades, which the Court also froze in its preliminary injunction order.

The Commission charged Hughes and eConnect with securities fraud pursuant to Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(B), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5, and charged Hughes, Epstein and Alliance with failing to report to the Commission certain transactions in eConnect's stock pursuant to Sections 13(d) and 16(a) of the Exchange Act, 15 U.S.C. §§ 78m(d) and 78p(a), and Rules 16a-3, 13d-1 and 13d-2, 17 C.F.R. § 240.16a-3, 13d-1 and 13d-2. The Commission seeks disgorgement of trading proceeds and civil penalties against eConnect and Epstein, and civil penalties and an officer and director bar against Hughes.

In a related proceeding, Hughes was arrested on August 7, 2002 by the Federal Bureau of Investigation after the U.S. Attorney's Office for the Central District of California filed a criminal complaint against Hughes on August 7, 2002 that charged Hughes with securities fraud and criminal contempt.

This case is the product of an investigation by the Securities and Exchange Commission, the United States Attorney's Office in Los Angeles, and the Federal Bureau of Investigation, which received assistance from NASD Regulation, Inc.

http://www.sec.gov/litigation/litreleases/lr17694.htm