From the SEC complaint and with reference to the Skull Valley property...
THE DEFENDANTS
14. Michael J. Pietrzak, 53, of Carol Stream, Illinois, is licensed to practice law in Illinois.
15. On or about November 1, 1996, Pietrzak became general counsel, executive vice president, secretary and a director of HCCA.
16. On or about September 1997, Furlong appointed Pietrzak as HCCA's principal financial officer. In 1985, Pietrzak pled guilty to a crime in Illinois for aiding and abetting others in the misapplication of bank funds, for which he paid a fine.
17. Maurice W. Furlong, 54, of Reno, Nevada, has served as HCCA's chairman, president and CEO since November 1984.
18. Furlong has a long history of securities law violations. In 1977, the securities divisions of the states of Michigan and Wisconsin entered into agreements with Furlong that limited his ability to sell stock in those states.
19. On November 30, 1988, in a Commission action alleging offering fraud, the U.S. District Court for the Middle District of Tennessee entered a Final Judgment of Permanent Injunction against Furlong enjoining him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and in January 1989, entered a Final Judgment of Permanent Injunction against HCCA for the same violations.
20. In March 1994, the Commissioner of Commerce and Insurance for Tennessee ordered two predecessors of HCCA and Furlong to cease and desist violating various state securities laws, including its antifraud fraud provisions.
21. In December 1994, the State of South Carolina ordered HCCA and Furlong to cease and desist violating various state securities laws, including its antifraud and securities registration provisions.
22. Donald E. Jordan, 79, of Henderson, Nevada, is a registered assayer in Arizona.
23. An assayer specializes in analyzing the presence, absence, or quantity of components in mineral samples, but not the economic value of such minerals.
24. Jordan has a B.S. in chemistry and a Ph.D. in analytical chemistry.
25. Jordan issued reports in February 1996 and May and November 1997 stating that HCCA held ore valued at approximately $2.4 billion, and in August 1997 and December 1999 stating that HCCA held 500,000 tons of minerals worth more than $3 billion.
RELATED PERSONS AND ENTITIES
26. Hexagon Consolidated Companies of America, Inc. is a Nevada corporation headquartered in Reno, Nevada. HCCA was originally incorporated in Montana in 1967 as Cadgie Taylor Company. After a merger and various name changes, the company changed its name again in July 1999 from Health Care Centers of America, Inc. to Hexagon Consolidated Companies of America, Inc. HCCA's filings disclosed that it had no employees. HCCA never reported any revenues and is a development stage company.
27. HCCA's common stock, which is registered pursuant to Section 12(g) of the Exchange Act, was quoted on the OTC Bulletin Board until it was declared ineligible on February 24, 2000, for failing to meet the NASD's "eligible securities" criteria (Rule 6530). HCCA's stock continues to trade in the over-the-counter market.
BACKGROUND
28. Over the years, HCCA professed to be in various businesses, including mining, real estate investment, and operating health care centers; none of these "businesses" were ever operational.
29. HCCA represented to the public that its future success depended upon its ability to obtain funding to process its precious metals concentrate.
30. HCCA further disclosed that it anticipated obtaining such funding from the use or sale of the ore concentrates, television advertising time credit certificates, and real estate.
31. In fact, HCCA had no reasonable basis to expect any funding to come from these assets because the assets had little or no market value, or in some cases, it did not even own the assets.
HCCA'S ACCOUNTING IMPROPRIETIES
A. HCCA Improperly Recognized and Valued Mining Assets
i. Skull Valley, Arizona
32. On or about August 24, 1995, HCCA issued 100 million shares of stock to acquire a company whose only significant asset was a sublease.
33. HCCA claimed in its filings that the sublease, dated May 11, 1992, provided ownership to 500,000 tons of ore inventory located in Skull Valley, Arizona.
34. The underlying lease provided that the lease could not be sold or assigned or exploration and mining operations initiated without the approval of the State of Arizona. HCCA took no steps at the time to secure such approval. Pietrzak and Furlong, among others at HCCA, each received copies of the lease.
35. HCCA recorded this asset on its books and valued the ore at $200 million.
36. This valuation was a departure from generally accepted accounting principles ("GAAP").
37. Since HCCA failed to establish the fair value of any ore, or ownership of the ore, on the subleased land, there was no basis under GAAP to assign any value to such an asset in the books and records of the company.
38. HCCA never owned the ore and, accordingly, never should have recorded the ore as an asset.
39. The ore that HCCA valued at $200 million consisted of the tailings from a prior mining operation on the leased property.
40. Tailings are the materials that remain after the valuable minerals have been extracted from a mineral deposit.
41. HCCA's only interest in the tailings derived from the mineral lease, which merely gave HCCA the right to extract minerals, if any, from the ore. Arizona, as lessor, retained ownership of the ore.
42. Moreover, HCCA had no basis to value its interest in the mineral lease at $200 million.
43. HCCA never obtained an objectively determinable fair value for the ore.
44. On or about May 14, 1997, when the company's auditor was conducting his audit, he asked Furlong to engage an engineer or geologist to determine the value of the ore. Furlong refused and told the auditor to rely on an assay report.
45. On June 25, 1997, defendant Jordan, without a reasonable basis therefore, sent a report to the auditor stating that the value of the ore was approximately $4 billion.
46. Reliance on an assay report was improper because such reports only describe the mineral components of a substance, and do not describe the economic viability of extracting such minerals.
47. HCCA lacked any system to evaluate whether the value initially assigned to this ore asset, or its subsequent carrying value, conformed with GAAP.
48. For example, HCCA failed to obtain an appraisal or evaluation by a geologist to determine if it initially reported the asset at its fair value.
49. HCCA also failed to conduct any subsequent tests to determine whether the value of the ore had become impaired.
50. Pietrzak and Furlong shared responsibility to keep HCCA's books, records and accounts, and establish and maintain its internal accounting controls.
51. Pietrzak and Furlong each participated in recording this transaction by discussing and deciding how and when to book this asset. There was no basis to record or maintain this asset on HCCA's books.
52. This asset appeared in HCCA's March 1997, June 1997, September 1997, March 1998, June 1998, September 1998, March 1999, June 1999 and September 1999 reports on Form 10-QSB, the amendments to the March and June 1997 Forms 10-QSB, December 1997 Form 10-KSB, December 1998 Form 10-KSB and the December 1999 amendment thereto, and the August 1997 and December 1999 amendments to the Form 10-SB.
Complete details here...http://www.sec.gov/litigation/complaints/comp18016.htm |
