United States Securities and Exchange Commission

Litigation Release No. 16396 / December 29, 1999

SECURITIES AND EXCHANGE COMMISSION v. FRED CARTER AND WENDELL CARTER, U.S. District Court for the District of Columbia, Civil Action No. 99-02848 (D.D.C. October 27, 1999) (PLF).

SEC SUES FRED CARTER AND WENDELL CARTER FOR FRAUDULENTLY SELLING SECURITIES OF INTERNET TELEPHONY COMPANY TO WASHINGTON, D.C. AREA RESIDENTS

On October 27, 1999, the Securities and Exchange Commission filed securities fraud charges against Fred Carter, president and chief executive officer of American Telephone and Telecommunications Corporation (ATTC), a District of Columbia corporation purportedly set up to establish a long distance telephone service using Internet telephony technology, and Wendell Carter, ATTC's vice president of corporate sales. The complaint, filed in the United States District Court in the District of Columbia, alleges the defendants violated the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, by selling to the public ATTC stock and joint venture interests in a series of fraudulent offerings targeted mainly to Washington, D.C. area residents.

The complaint alleges that from October 1996 through October 1997, Fred Carter and Wendell Carter, who are unrelated to each other, made material misrepresentations and omissions in promotional mailings and seminars used to induce people to invest in ATTC. According to the complaint, the defendants falsely claimed, among other things, to have designed a revolutionary technology for routing phone calls using the Internet, that ATTC's stock price would at least triple within one year, and that ATTC had a strategic alliance with an Internet telephony product manufacturer that would help ATTC implement its telephone service. In fact, the complaint alleges, ATTC did not design any technology, but merely purchased Internet telephony products for use in investor demonstrations. In addition, there was no reasonable basis for ATTC's financial projections and there existed no alliance with an Internet telephony product manufacturer.

The complaint further alleges that the defendants failed to disclose to investors, among other things, that, in 1989, Fred Carter was convicted of securities fraud in California for making similar misrepresentations about a computer technology company he owned. Fred Carter has been the subject of an outstanding arrest warrant since 1991 arising from that conviction. In addition, investors were not told that investor funds were largely being disbursed for the personal use of Fred Carter, his family, and Wendell Carter, rather than being spent on bringing the promised telephone service to market.

The Commission's action seeks a permanent injunction enjoining the defendants from future violations of the antifraud provisions of the Securities Act and the Exchange Act as well as disgorgement of investors' money with prejudgment interest and civil money penalties. In addition, the Commission seeks an order permanently barring Fred Carter from serving as an officer or director of any publicly held company.