eTrouble for eConnect

20 March 2000
The Securities and Exchange Commission has put the freeze on eConnect. Trading of the California-based e-commerce company's stock was halted March 13 due to suspicion that the company was issuing false and misleading press releases to artificially inflate its share price. According to a Reuters story, suspicion arose after eConnect's announcement of a PalmPilot licensing arrangement--a strategic alliance with a brokerage firm to distribute an eConnect product, and the reported amount of revenue generated by one of eConnect's website.

eConnect recently entered into a joint venture agreement with Pilot Island to develop software that will control a system to enable wireless hand-held Internet terminal transactions, using Palm Inc.'s Palm VII device to upload transactional information to the Internet.

A re-dated copy of the agreement between eConnect and Pilot Island and related documents has been posted at A company press release explains the documents were posted to eliminate questions about whether the various agreements actually existed.

Additionally, the company has been hit with at least three class action lawsuits filed on behalf of shareholders who bought common stock between November 23, 1999 and March 13, 2000, including those who acquired their securities in exchange for shares, ADRs, or options in eConnect acquisitions.

A complaint filed by Wechsler Harwood Halebian & Fefffer LLP in the U.S. District Court for the Central District of California alleges that during the class period, eConnect made false and misleading statements and/or omissions concerning the financial condition and business prospects of the company, as well as the financial benefits that would endure to eConnect and its shareholders, while disregarding information which would have been of material importance to any reasonable shareholder.

Additionally, the plaintiffs allege that contrary to press release issued by eConnect, the company had never acquired Top Sports SA; that eConnect's PowerClick division's network of websites were not generating $10,000 per day; that eConnect did not have a strategic alliance with Empire Financial Group, Inc.; and that, contrary to information implied by the company's SEC filing, eConnect did not have an agreement for use of SafeTpay, an Internet cash payment system.

According to the complaint, since the disclosure of these and other adverse facts would have caused a severe decline in the price of eConnect's stock, the company attempted to conceal these facts to artificially inflate its stock price. Stock had been trading as high as $21 during early March, but saw a quick drop to about $10 following the trading suspension.

eConnect was not available for comment, but the company has released press releases to clarify the PalmPilot licensing arrangement. Additionally, eConnect announced that its accountants, Farber & Hass had been dismissed on March 8, prior to the SEC's trading halt. eConnect officials have also retained legal counsel and a public relations firm.

Eckstein vs. eConnect, Inc., Thomas S. Hughes, et al.