Penny Stock Lawyers, Auditors & Nominees Charged by SEC
On January 15, 2015, the Securities and Exchange Commission (SEC) announced charges against penny stock lawyers, auditors, and others allegedly involved in a microcap scheme involving bogus Form S-1 registration statements filed with the SEC. According to the SEC, John Briner, a Canadian Attorney and stock promoter caused the companies to file 20 bogus Form S-1 registration statements with phony cookie cutter business plans. According to the SEC, because John Briner had been suspended from practicing law before the Commission, he recruited clients and associates to become nominees while he secretly controlled the companies from behind the scenes. The registration statements falsely stated that each CEO was solely running the company when in fact Briner was making all material decisions.
The SEC Enforcement Division further alleges that none of the companies had any intention of pursuing mining, and mineral claims purportedly owned by each company were never actually transferred to them. The registration statements falsely claimed that each company was capitalized by the CEO’s $30,000 purchase of issuer stock when in fact it was Briner who was funding the companies.
The SEC’s stop order proceedings last year enabled the subsequent suspension of the registration statements for the 20 microcap companies before any investors purchased the stocks, which were ripe for pump-and-dump schemes.
The SEC Enforcement Division alleges that several gatekeepers including lawyers and auditors helped Briner perpetrate his scheme. They, along with Briner, are named in the order instituting a litigated administrative proceeding:
- Colorado-based Securities Attorney Diane Dalmy allegedly provided opinion letters for 18 of the mining companies in which she falsely stated that she conducted an investigation of the companies’ stock issuance.
- Nevada-based audit firm De Joya Griffith LLC and partners Arthur De Joya, Jason Griffith, Philip Zhang, and Chris Whetman were engaged by Briner for the purpose of auditing the financial statements of some of the mining companies. The audits they conducted were allegedly so deficient that they amounted to no audits at all, and they ignored red flags that Briner was engaging in fraud.
- Texas-based audit firm M&K CPAS PLLC and partners Matt Manis, Jon Ridenour, and Ben Ortego were similarly engaged by Briner for the purpose of auditing the financial statements of some of the mining companies. The audits they conducted also were allegedly so deficient that they amounted to no audits at all, and they ignored red flags that Briner was engaging in fraud.
The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate. The Enforcement Division alleges that Briner, Dalmy, and the auditors violated the antifraud provisions of the Securities Act of 1933 and that the auditors violated Rule 2-02(b)(1) of Regulation S-X and engaged in improper professional conduct under Rule 102(e) of the Commission’s Rules of Practice.
In separate orders instituting settled administrative proceedings, three of the figurehead CEOs installed by Briner agreed to settlements for their involvement in the scheme. Without admitting or denying the SEC’s findings, they each agreed to be barred from serving as an officer or director of a public company or from participating in penny stock offerings. They also agreed to give up money paid to them by Briner as “consulting” fees and pay additional penalties:
- Stuart Carnie of Ocala, Fla., was installed as the purported sole CEO of three of the companies. He participated in the offerings of their securities and signed false and misleading registration statements. Carnie must pay disgorgement of $6,000 plus prejudgment interest of $337.85 and a penalty of $12,000 for a total of $18,337.85.
- Charles Irizarry of Peoria, Ariz., was installed as the purported sole CEO of three of the companies. He participated in the offerings of their securities and signed false and misleading registration statements. Irizarry must pay disgorgement of $6,000 plus prejudgment interest of $337.85 and a penalty of $12,000 for a total of $18,337.85.
- Wayne Middleton of Salt Lake City, Utah, was installed as the purported sole CEO of two of the companies. He participated in the offerings of their securities and signed false and misleading registration statements. Middleton must pay disgorgement of $4,000 plus prejudgment interest of $225.24 and a penalty of $8,000 for a total of $12,225.24.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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