U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17709 / September 4, 2002

United States v. Thomas S. Hughes CR-02-M-1648 (USDC C.D. Cal)

THOMAS S. HUGHES INDICTED FOR SECURITIES FRAUD AND CONTEMPT

The Commission announced today that, on August 27, 2002, Thomas S. Hughes was indicted by a grand jury impaneled by the United States Attorney's Office for the Central District of California on seven criminal charges, including three counts of fraud under the Securities Exchange Act of 1934, three counts of wire fraud and one count of contempt. The indictment alleges that, since at least July 19, 2002, Hughes has engaged in a fraudulent scheme by issuing false and misleading public statements - specifically press releases and website content - that artificially inflated the price of eConnect, whose stock was then publicly quoted on the Over-The-Counter Bulletin Board. The press releases and website content falsely claimed that eConnect had received a $20 million investment in "AA" asset-backed bonds, that eConnect had begun a stock repurchase program of its shares and that eConnect had received a $964,000 purchase order for its principal product, suggesting that a legitimate company had a relationship to the company that actually placed the order. In reality, the indictment alleged: (1) the bonds were not "AA" rated or registered so that they could be traded publicly; (2) there was no stock repurchase program; and (3) there was no relationship between the company that placed the $964,000 purchase order and the legitimate company identified in the press release. The indictment also charges Hughes with criminal contempt of a permanent injunction against him obtained by the Commission in April 2000 in the case SEC v. eConnect and Thomas S. Hughes, Civil Action Number CV-00-2959 MMM (RCx)(C.D. Cal.)(Lit. Rel. No. 16481).

In a related proceeding, the Commission obtained emergency relief against Hughes and others, including an asset freeze, in Los Angeles federal court on August 8, 2002, based on its prima facie showing that Hughes and others violated the federal securities laws based upon the scheme described above. On August 16, 2002, the Honorable Nora M. Manella, United States District Judge for the Central District of California, granted the Commission's request for a preliminary injunction and continued the asset freeze. The Commission's complaint charges Hughes with violations of Sections 10(b) and 16(a) of the Exchange Act and Rules 10b-5 and 16a-3 thereunder.

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.

For further information, please see Litigation Release Nos. 17670 and 17694.

http://www.sec.gov/litigation/litreleases/lr17709.htm