The Securities and Exchange Commission today announced that an attorney, two audit firms, and seven audit professionals have agreed to settle SEC charges filed in January alleging that they engaged in a microcap scheme that the agency stopped in its tracks when it suspended the registration statements used for sham offerings of stock in 20 purported mining companies.
In the January 2015 SEC order instituting proceedings, the Enforcement Division alleged that Canadian attorney and stock promoter John Briner orchestrated the microcap scheme that entailed creating shell companies supposedly exploring mining activities. Briner previously had been suspended from appearing or practicing before the SEC on behalf of regulated entities so he recruited others to become figurehead executives of companies that he secretly controlled. The companies’ registration statements falsely stated that each CEO was running the company when in fact Briner was making all material decisions. The SEC settled charges against certain of these CEOs in January (AP Rel. Nos. 33-9700, 33-9701, 33-9702).
Briner has agreed to settle the charges and consent to an order prohibiting him from acting as an officer or director of any issuer, barring him from participating in any offering of a penny stock, and suspending him from appearing and practicing before the Commission as an attorney. He has also agreed to pay $21,820.94 in disgorgement and prejudgment interest and $50,000 in civil penalties.
“Briner unsuccessfully sought to conceal his recidivist past and his role as the de facto CEO of the mining companies in the alleged scheme by acting through figurehead executives,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “Today’s sanctions against Briner are broader in scope and permanent, and make clear that repeat offenders will not be tolerated.”
In the January 2015 SEC order, the Enforcement Division further alleges that Briner engaged a Nevada-based audit firm De Joya Griffith LLC and its partners Arthur De Joya, Jason Griffith, Philip Zhang, and Chris Whetman, and a Texas-based audit firm M&K CPAS PLLC and its partners Matt Manis, Jon Ridenour, and Ben Ortego, to audit the financial statements of the mining companies. The audits they conducted were allegedly so deficient that they effectively amounted to no audits at all and the auditors allegedly ignored red flags suggesting that Briner was engaging in fraud.
Both firms and each of their above named partners agreed to settle the charges against them without admitting or denying the findings, on the terms set forth below:
- De Joya Griffith LLC consented to an order suspending it from appearing and practicing before the Commission as an accountant for a minimum of five years. The firm also agreed to pay nearly $60,000 in disgorgement, prejudgment interest, and penalties. Arthur De Joya, Jason Griffith, and Philip Zhang agreed to be suspended from appearing and practicing before the Commission as accountants for varying periods ranging from a minimum of three to five years. De Joya and Griffith each agreed to pay a $15,000 penalty and Zhang agreed to pay a $25,000 penalty. Chris Whetman agreed to settle the charges in this matter and those relating to another issuer, Idle Media Inc., and consented to an order suspending him from appearing and practicing before the Commission as an accountant for a minimum of five years. Whetman also agreed to pay a $15,000 penalty.
- M&K CPAS PLLC consented to an order censuring it and requiring it to refrain from accepting new public audit clients for 12 months or until an independent consultant certifies that the firm has completed the undertakings specified in the order, whichever is later. The firm also agreed to pay more than $103,000 in disgorgement, prejudgment interest, and penalties. Matt Manis and Jon Ridenour agreed to be permanently barred from appearing and practicing before the Commission as accountants and to pay a penalty of $20,000 and $15,000, respectively. Ortego consented to an order suspending him from appearing or practicing before the Commission as an accountant for a minimum of three years. Ortego also agreed to pay a civil penalty of $50,000.
“The sanctions against these auditors reflect the gravity of the misconduct and betrayal of the trust placed in them by the investing public to serve as gatekeepers in protecting the integrity of our markets,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office.
The SEC’s investigation was conducted by Jason W. Sunshine, James Addison, and Lara Shalov Mehraban in the New York Regional Office, and the litigation is being handled by Jack Kaufman, David Stoelting, Mr. Sunshine, Jorge Tenreiro, and Raymond R. Chan. The case is being supervised by Mr. Wadhwa.