Also one of Mr. Eiten's "picks" was Gold Standard Mining Corp., a California company that was purportedly mining in Russia. In an Oct. 15, 2010, report, Mr. Eiten said that Gold Standard was "now producing $9.5 BILLION of pure gold -- and you can get in around $2 a share!" The report predicted that the company's revenues would reach $42-million that year and $120-million in the next three years, but the company actually had no expectations of such revenue, the SEC said.
SEC seeks $644,081 (U.S.) penalty for Boston tout sheet
2012-05-24 14:16 ET - Street Wire
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Leslie J. Hughes, Colo. Bar No. 15043
HughesLJ@sec.gov
Securities and Exchange Commission 1801 California Street, Suite 1500 Denver, Colorado 80202 Telephone: (303) 844-1000 Fax: (303) 844-1068
Local Counsel: Molly M. White, Cal. Bar No. 171448
WhiteM@sec.gov
Securities and Exchange Commission 5670 Wilshire Boulevard, 11th Floor Los Angeles, California 90036 Telephone: (323) 965-3998 Fax: (323) 965-3908
Attorneys for Plaintiff United States Securities and Exchange Commission
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION
SECURITIES AND EXCHANGE ) COMMISSION,
| )
| Case No.:
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| Plaintiff
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| v.
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| COMPLAINT FOR
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| VIOLATIONS
| Gold Standard Mining Corp.,
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| OF THE FEDERAL
| (formerly known as Fluid Solutions Inc.),
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| SECURITIES LAWS
| Panteleimon Zachos,
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| Kenneth G. Eade,
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| Edward Randall Gruber, CPA,
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| Gruber & Company, LLC,
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| Defendants.
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The Plaintiff United States Securities and Exchange Commission (“SEC”) alleges the following facts in support of its Complaint:
1.
From approximately May 2009 through April 2011, defendant Gold Standard Mining Corporation (“Gold Standard”), and its chief executive officer, defendant Panteleimon Zachos (also known as Pantelis Zachos) (“Zachos”) made false and misleading statements and omitted material facts in periodic and current reports filed with the SEC, about the assets and operations of the company and the company’s purported acquisition of a Russian gold mining company. Gold Standard and Zachos made misrepresentations and omitted facts regarding the company’s failure to register the acquisition with Russian regulatory authorities, an agreement to pay certain profits from the acquired mining company to the former Russian owner, and the company’s financial activities because the company’s financial statements were not prepared in conformance with generally accepted accounting principles (“GAAP”).
2.
Gold Standard filed periodic and current reports with the SEC on at least eight occasions from May 2009 through April 2011 that contained inaccurate and misleading information about the company’s activities in Russia. The company also failed to make and keep books and records, and implement internal controls necessary to provide accurate information about the financial activities occurring in its Russian subsidiary.
3.
Defendant Kenneth G. Eade (“Eade”), the company’s corporate counsel at the time and major shareholder, drafted the false and misleading periodic and current reports and some of the financial statements at issue. To spark interest in the company, Eade misrepresented the company’s financial activities by initially representing that the Russian mining interests were worth more than $1.3 billion.
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4.
Zachos, a Greek citizen and resident, gave Eade authority to conduct activities of the corporation and authorized Eade to submit Zachos’ electronic signatures on periodic and current reports and certifications filed with the SEC.
5.
Eade engaged defendant Gruber & Co. LLC (“Gruber & Co.”), a public accounting firm to audit Gold Standard’s financial statements. Gruber & Co. and its sole member and engagement partner, defendant Edward Randall Gruber (“Gruber”) a certified public accountant, failed to conduct the audit in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”). Gruber & Co. and Gruber misrepresented in SEC filings that it had audited the financial statements in accordance with PCAOB standards and that the financial statements were fairly presented in conformance with GAAP.
6.
The defendants, directly or indirectly, have engaged in, and unless restrained and enjoined by this Court will continue to engage in, transactions, acts, practices and courses of business that violate the following provisions of the federal securities laws:
(a)
Gold Standard, Zachos, and Gruber & Co. violated, and Eade and Gruber aided and abetted violations of, Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5(b), 17 C.F.R. § 240.10b-5(b) and in the alternative Gruber is liable for Gruber & Co’s. violations as a control person under Section 20(a) of the Exchange Act, 15
U.S.C. § 78t(a);
(b)
Gold Standard violated, and Zachos, Eade, Gruber & Co. and Gruber aided and abetted violations of, Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Rules 12b-20, 13a-11 and 13a-13, 17 C.F.R. §§ 240.12b-20, 240.13a-11, 240.13a-13;
(c)
Gold Standard violated, and Zachos aided and abetted violations of, Section 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; and
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Zachos violated Section 13(b)(5) of the Exchange Act, 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(2)(B), 78m(b)(5);
(d)
Zachos violated Rule 13a-14 of the Exchange Act, 17 C.F.R. § 240.13a-14; and
(e)
Gruber & Co. and Gruber violated Section 10A(a) of the Exchange Act, 15 U.S.C. § 78j-1(a).
7. The SEC seeks a judgment permanently enjoining all defendants from future violations of the federal securities laws alleged and brings this action pursuant to authority conferred upon it by Sections 21(d) and 21(e) of the Exchange Act, 15 U.S.C. §§ 78u(d) and 78u(e). The SEC seeks disgorgement of ill-gotten gains, with prejudgment interest. The SEC also seeks civil penalties against Zachos, Eade, Gruber & Co. and Gruber pursuant to Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d). Further the SEC seeks an order pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 78u(d)(2), permanently prohibiting Zachos and Eade from acting as officers or directors of a public company.
JURISDICTION AND VENUE
8.
This Court has jurisdiction over this action pursuant to Sections 21(d), 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(d), 78u(e) & 78aa.
9.
Defendants Gold Standard, Zachos, Eade, Gruber & Co. and Gruber have, directly and indirectly, made use of the means or instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities exchange, in connection with the transactions, acts, practices and courses of business alleged in this Complaint.
10.
Venue is proper in this district pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, because Gold Standard, Zachos, Eade, Gruber & Co. and Gruber engaged in certain of the transactions, acts, practices and courses of conduct constituting violations of the federal securities laws occurring
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within this district, and Gold Standard maintained its principal executive office at Eade’s law office which is located in this district.
DEFENDANTS
11.
Defendant Gold Standard Mining Corporation (“Gold Standard”) was incorporated in Nevada on December 11, 2007 under the name Fluid Solutions Inc. (“Fluid Solutions”) and on or about July 31, 2009, changed its name to Gold Standard. (The company is referred to by the name it used at the time of each event). Its principal place of business was the law office of Defendant Kenneth Eade in Beverly Hills, Los Angeles, or Agoura Hills, California. Beginning on or about April 2009, Gold Standard’s securities were quoted on the over-the-counter bulletin board under the symbol “GSTP”. The company’s common stock was a “penny stock” as the term is defined by Rule 3a51-1 of the Exchange Act.
12.
Defendant Panteleimon Zachos (also known as Pantelis Zachos) (“Zachos”) is a Greek citizen who resides in Greece. He was the chief executive officer of Gold Standard at all times relevant to this Complaint and became the company’s chief financial officer in or about May 2010.
13.
Defendant Kenneth G. Eade (“Eade”) is an attorney licensed to practice law in California and maintained an office in Beverly Hills, Los Angeles, or Agoura Hills, California during times relevant to this Complaint. Eade was the general counsel for Gold Standard until March 2011, when he resigned. While the false and misleading information about Gold Standard was available to investors, Eade sold 24,750,000 shares of Gold Standard held in the name of his corporation Kenata Corporation for approximately $172,000 during 2010.
14.
Defendant Gruber & Company LLC (“Gruber & Co.”) is a public accounting firm organized as a Missouri limited liability company with its principal place of business in Lake St. Louis, Missouri. Gruber & Co. is
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registered with the PCAOB. Gruber & Co. served as Gold Standard’s outside auditor for 2007, 2008 and 2009.
15.
Defendant Edward Randall Gruber (“Gruber”) is a certified public accountant licensed in Missouri and the sole managing member of Gruber & Co. He resides in Lake St. Louis, Missouri. Gruber was the engagement partner on the Gold Standard audit and was responsible for supervising the engagement and signing of the audit report for Gruber & Co. Gruber traveled to Los Angeles, California in connection with the audit engagement.
STATEMENT OF FACTS
A. Eade Created a Public Shell Company.
16.
Eade incorporated Fluid Solutions in Nevada on December 11, 2007, and listed Zachos as its director. At the time, it was a shell company with no business operations.
17.
On September 22, 2008, Eade prepared and caused Fluid Solutions to file with the SEC a Form 10 registration statement under Section 12(g) of the Exchange Act, 15 U.S.C. § 78l(g), to register its securities and become a public company required to file periodic and current reports with the SEC. The company disclosed it had a plan to bottle and sell natural mineral water, but retained only $5,739 of the original cash raised from its securities sales to carry out its business plan after spending the rest on operating expenses. At that time, it employed only one management level employee.
18.
By April 2009, Eade arranged for a brokerage firm to make quotes on the over-the-counter bulletin board to create a market for the purchase or sale of Fluid Solutions’ securities. As part of the process, Fluid Solutions disclosed it was a shell company as defined in 17 C.F.R. § 240.12b-2, which meant it had no or nominal operations, and nominal assets consisting solely of cash.
B. Eade Acquired Control of a Russian Mining Company.
19. In late 2008 or early 2009, Eade learned about a Russian gold mining
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company, Ross Zoloto Ltd. (“Ross Zoloto”), which was owned by Araik Khachatrian (“Khachatrian”), a Russian citizen. Khachatrian claimed Ross Zoloto was making $17 million to $18 million per year from current operations, but wanted to develop hard rock deposits that were worth substantially more. He was looking for financing to build a factory that could process the hard rock deposits. Eade agreed to help secure financing from public investors by creating a U.S. company with securities that would trade on the over-the-counter bulletin board.
20.
In furtherance of the plan to raise money from investors, Eade created a Wyoming corporation, Gold Standard Mining Corp. (”GSMC”), which he incorporated on February 6, 2009. GSMC was a separate and distinct entity from defendant Gold Standard, which was originally incorporated in Nevada under the name Fluid Solutions. Eade formed GSMC to acquire Ross Zoloto in exchange for securities. The acquisition occurred in or about February 19, 2009.
21.
In or about March 2009, Eade persuaded Zachos that Fluid Solutions should acquire GSMC and its subsidiary Ross Zoloto in a second combination and change Fluid Solutions’ business plan from selling bottled water to gold mining in Russia. Eade told Zachos that as part of the agreement to acquire GSMC and its subsidiary Ross Zoloto, Khachatrian was to keep the profits from the alluvial mining operations, and any investors who purchased the securities of Fluid Solutions would only receive future profits from the hard rock mining, which the company needed to raise $40 million to $100 million to develop.
22.
Zachos did not personally conduct any due diligence on Fluid Solution’s acquisition of GSMC and its subsidiary Ross Zoloto, and did not visit the mining properties in Russia. Rather he relied on Eade to conduct negotiations and perform the due diligence.
23.
On May 6, 2009, Eade prepared an agreement in which Fluid Solutions was to acquire GSMC, which was owned by Khachatrian, Agata
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Gotova, who was Eade’s wife at the time, and another Russian citizen, in exchange for shares of Fluid Solutions.
24.
Eade set the closing for the agreement at his office in Beverly Hills, California on May 9, 2009, and the parties agreed that any legal dispute would be resolved in federal court in California. Zachos signed the agreement on behalf of Fluid Solutions.
25.
On or about May 8, 2009, Fluid Solutions directed its transfer agent in the United States to issue shares to Khachatrian, Eade’s wife, and another Russian citizen as part of the acquisition.
26.
Eade and his wife agreed to split the shares she received. In July 2009, Gold Standard also issued 24,750,000 shares to Kenata Corporation, a corporation owned and controlled by Eade.
C. Eade Began Promoting Fluid Solutions’ Stock in False and Misleading SEC Filings.
27.
As part of the acquisition of Ross Zoloto, Eade obtained documents from Ross Zoloto including geologic reports, maps, and financial statements prepared under Russian Accounting Principles (“RAP”), which he had translated from Russian into English.
28.
Eade prepared an executive summary for Gold Standard and a business plan describing Ross Zoloto’s gold mining business, which he planned to use in raising money for the company. Gold Standard hired a consultant to introduce them to investment banking firms and help provide financing for the company. Eade also prepared a private placement memorandum for the sale of 400,000 shares of Fluid Solutions at $10 per share.
1. Defendants Filed a False Form 8-K on May 8, 2009.
29.
To spark interest in the purchase of the securities Fluid Solutions, Eade prepared a Form 8-K, or current report, filed on May 15, 2009 (“Financial 8-K”), which made misleading statements and omitted material facts about the
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assets and operations of the combined entities and the purported acquisition of Ross Zoloto. The Financial 8-K was signed by Zachos and filed by Fluid Solutions.
30.
The Financial 8-K contained unaudited pro forma consolidated financial statements that contained financial data from the Russian mining operations and represented that Fluid Solutions had acquired, among other things, alluvial mineral interests worth $277,321,643 and placer mineral interests worth $1,086,330,000. These amounts were material facts because they represented an increase to Fluid Solutions’ total assets reported in the financial statements from approximately $3 to $1,379,555,681.
31.
In the Financial 8-K, Fluid Solutions, Zachos and Eade failed to disclose the material facts that Fluid Solutions’ acquisition of Ross Zoloto was not complete until Ross Zoloto registered the exchange agreement and received approval of Russian regulatory authorities, and that there was an oral agreement for Khachatrian to keep the profits from the alluvial mining operations.
32.
Eade knew, and Zachos knew or were reckless in not knowing, that GSMC and Ross Zoloto had not registered the transfer of ownership of Ross Zoloto from Khachatrian to Fluid Solutions with the local Russian regulatory authorities, and that Khachatrian was to keep the profits from the alluvial mining operations.
33.
In the Financial 8-K, Fluid Solutions, Zachos and Eade also misrepresented that the financial statements were prepared in conformance with GAAP, when they were not. Fluid Solutions, Zachos and Eade improperly valued the mineral properties based on a historical contract price without conducting an impairment analysis. Fluid Solutions did not hire an accountant to convert Ross Zoloto’s financial statements from RAP into financial statements prepared in conformance with GAAP.
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34.
Eade knew, and Zachos knew or was reckless in not knowing, that Fluid Solutions was required to prepare its financial statements in conformance with GAAP. Eade knew, and Zachos knew or was reckless in not knowing, that the company had not hired an accountant to convert Ross Zoloto’s financial statements from RAP into financial statements prepared in conformance with GAAP. In addition, Eade knew, and Zachos knew or was reckless in not knowing, that the value assigned to the assets were based on historical information without an impairment analysis to assess whether the carrying value exceeded the fair value.
2. Defendants Filed a False Form 10-Q for June 30, 2009.
35.
In furtherance of the plan to raise money for the company through securities sales to public investors, Eade wrote the text of the report and prepared the financial statements contained in the Form 10-Q, or periodic report, for the quarter ending June 30, 2009 (“June 2009 10-Q”), which Zachos signed and certified, and Gold Standard filed on August 17, 2009. This filing also contained misleading statements and omitted material facts concerning Gold Standard’s operations, its acquisition of Ross Zoloto, and preparation of its financial statements in conformance with GAAP.
36.
Gold Standard, Zachos and Eade misrepresented in the June 2009 10-Q that “The Company, through its subsidiary, Ross Zoloto, is engaged in the business of exploration, development, and production of gold [from] alluvial and hard rock mineral deposits located in the Amur region in the far east of the Russian Federation.” But they failed to disclose the material fact that Fluid Solutions’ exchange agreement with Ross Zoloto was pending required review and approval by the Russian regulatory authorities, and that there was an oral agreement for Khachatrian to keep the profits from the alluvial mining operations.
37.
Gold Standard, Zachos and Eade also misrepresented in the June 2009 10-Q that the financial statements had been prepared in conformance with
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GAAP. Contrary to this representation, the value of Gold Standard’s Property, Plant and Equipment(“PPE”) at $391,460,000 was not presented in conformance with GAAP, because they failed to disclose the basis for the material change in the value assigned to the PPE which was inconsistent the value previously reported in the Financial 8-K. Information about a change in value is required to conform with GAAP under ASC 250.10.50.4 Accounting Changes and Error Corrections; and ASC 360.10.35 Property, Plant, and Equipment: Impairment or Disposal of Long-Lived Assets.
38.
During May and June 2009, Gruber & Co., with Gruber as the engagement partner, began the audit of the financial statements for Ross Zoloto. As part of the audit, Gruber travelled to Russia in June 2009 to review the company’s books and records and mining and other operations.
39.
While in Russia, Eade met with Gruber who was staying in a hotel owned by Ross Zoloto. During the course of the audit, Gruber raised concerns with Eade about the value of Ross Zoloto’s assets listed in the financial statements, including that the hotel and other assets were overvalued, that some of the buildings claimed as assets located at the mining sites did not exist, and that the proven reserves could not be booked as assets on the balance sheet without confirmation by an independent engineer.
40.
On June 18, 2009, Fluid Solutions announced that it had appointed Earl T. Williams (“Williams”) as its new Chief Financial Officer.
41.
On August 1, 2009, Eade sent an email to Williams, Gruber, a consultant hired to raise money for the company, and others stating “This is the schedule of what needs to be done in order to secure our financing.”
42.
Later on August 4, 2009, Eade sent an email to Gruber stating he wanted everything on the financial statements resolved during that week because the audit was past due and the company wanted to send him to New York for a finance meeting.
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43.
During the preparation of the June 2009 10-Q, Eade exchanged several emails and telephone calls with Williams, who put Eade in contact with a Russian-speaking accountant in Los Angeles, California (the “hired accountant”), who agreed to assist with preparing the June 2009 10-Q financial statements.
44.
The hired accountant raised several issues with Eade including: that the exchange agreement had not been registered with Russian regulatory authorities, as required; that the hotel and other assets were overvalued and should be valued based on an appraisal; that the books and records provided did not include production expenses and use of profits; and that the company had paid out most of its retained earnings to Khachatrian as of June 30, 2009.
45.
On August 17, 2009, the day Fluid Solutions was to file its quarterly report, Eade received an email from Williams requesting a telephone call to discuss his concerns with him certifying the statements in the June 2009 10-Q. Shortly after that email, Eade sent an email to Zachos advising that Eade had fired Williams.
46.
Proceeding without the oversight of the company’s CFO, Eade finalized the financial statements to be filed with the June 2009 10-Q, and omitted material facts when he deleted footnotes 1 and 15 written by the hired accountant. These footnotes had disclosed that Ross Zoloto was still owned 100% by Khachatrian, and that “[t]he exchange transaction is pending review and approval by the Russian regulatory authorities.”
47.
Eade made these deletions even though he knew the hired accountant had repeatedly asked for copies of an amended charter for Ross Zoloto, which was required to be filed with the Russian regulatory authorities, to demonstrate that ownership to the mining assets had passed from Ross Zoloto to Gold Standard. Eade was unable to provide the amended charter, instead falsely claiming that “we will get it in six days.”
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48.
Eade also knew from his emails and discussions with Gruber and the hired accountant that the value of the PPE reported in the company’s financial statements was “unreasonabl[y] high compared to market” and that the hired accountant had advised using a “reasonable valuation reserve to get to a true fair value”.
49.
In addition, Eade knew that the value of the PPE on the Consolidated Balance Sheet included non-mining assets consisting of a hotel, night club, farm and related infrastructure that were valued at approximately $188,236,000. But he knew from his June 2009 visit to the properties, that these assets were grossly overvalued. During the visit, he discussed with Gruber that some of the buildings identified did not exist, and that the hotel and other properties were in a state of disrepair. Again on August 8, 2009, Eade was alerted by the hired accountant that the value for the buildings and facilities was unreasonably high compared to market value. In one email message, the hired accountant stated the “[v]aluations of some [assets] (i.e. hotel at $3MM per room!!!) cannot be reasonable.” However, Eade ignored the evidence that the fair value of these assets was impaired and should be reduced.
3. Defendants Filed a False 10-Q for September 30, 2009.
50.
Eade continued with the plan to raise money for Gold Standard through securities sales to public investors. In late 2009, the company engaged an investment banker to assist it in obtaining financing for the company.
51.
Eade prepared the text of the report and the financial statements contained the Form 10-Q for the quarter ending September 30, 2009 (“September 2009 10-Q”), which Zachos signed and certified, and Gold Standard filed on November 17, 2009.
52.
Gold Standard, Zachos and Eade continued to disclose in the September 2009 10-Q that the Company, through its subsidiary, Ross Zoloto, was engaged in the business of exploration, development, and production of gold from
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alluvial and hard rock mineral deposits, but omitted the material facts that Gold Standard’s exchange agreement with Ross Zoloto was still pending required review and approval by the Russian regulatory authorities, and that there was an oral agreement for Khachatrian to keep the profits from the alluvial mining operations. Gold Standard, Zachos and Eade also misrepresented in the September 2009 10-Q that the financial statements had been prepared in conformance with GAAP.
53.
Eade knew, and Zachos knew or was reckless in not knowing, that Gold Standard’s acquisition was still pending registration with the Russian regulatory authorities.
54.
In response to Gruber’s request for an independent appraisal of Ross Zoloto’s assets, Eade obtained a flawed appraisal conducted by a Russian company, Yukos Co. Ltd. (“Yukos”), which shared a business address with Ross Zoloto. The appraisal, which was contracted for on September 7, 2009, consisted of four pages listing various equipment, buildings and other assets with an assigned value, but it did not contain any description of the appraiser’s credentials or the methodology used to reach the values assigned. Eade provided a copy to Gruber on or about September 11, 2009, indicating that the appraisal was conducted in just three days.
55.
In the September 2009 10-Q, Gold Standard, Zachos and Eade represented the value of the company’s PPE was $13,700,000. But that amount was not presented in conformance with GAAP.
56.
In Note 11 to the financial statements, Gold Standard, Zachos and Eade disclosed that PPE had accumulated depreciation, depletion and amortization (“DDA”) of approximately $391,893,000 which reduced the cost of its assets to $13,700,000. But this disclosure did not conform to GAAP, because DDA was improperly adjusted to account for the new value contained in the Yukos appraisal.
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57.
In Note 15 to the financial statements, Gold Standard, Zachos and Eade disclosed that “the financial statements have been restated to properly record a lower appraised value of the company’s assets over the historical cost value, and the result of Araik Khachatrian’s release of debt owed to him by the company’s subsidiary.” But this disclosure did not conform to GAAP, because it did not disclose that DDA was improperly adjusted to account for the new value or that the appraisal did not contain any description of the appraiser’s credentials or the methodology used to reach the values assigned.
58.
Eade knew, and Zachos knew or was reckless in not knowing, that the value of PPE was substantially reduced from $391,460,000 previously reported in the June 2009 10-Q to $13,700,000 based on the Yukos appraisal. This material change in the value of the PPE was misleading, because the appraisal contained no description of methodology and the reductions appeared arbitrary without any description of how the values were determined.
59.
Zachos knew or was reckless in not knowing that the September 2009 10-Q contained false and misleading statements and omissions of material fact, because he relied entirely on Eade to prepare the materials and did no due diligence to determine the value of the Ross Zoloto’s assets.
4. Defendants Filed a False “Super Form 8-K” on October 5, 2010.
60.
Eade continued with his plan to raise money for the company through securities sales to public investors. Eade wrote the text of the amended Form 8-K (“Super 8-K”) for Gold Standard, which Zachos signed and Gold Standard filed on October 5, 2010.
61.
Gold Standard, Zachos and Eade disclosed in the Super 8-K that Gold Standard had entered into an amended agreement to acquire GSMC and Ross Zoloto. But they failed to disclose the material facts that the agreement to acquire Ross Zoloto was still pending required review and approval by the
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Russian regulatory authorities, and that there was an oral agreement for Khachatrian to keep the profits from the alluvial mining operations.
62.
Gold Standard and Zachos also misrepresented in the Super 8-K that the consolidated financial statements for Gold Standard were presented in conformance with GAAP. The change in presentation from unconsolidated financial statements in the company’s annual report filed on April 15, 2010 that did not include the financial operations of Ross Zoloto, to consolidated financial statements that included the financial operations of Ross Zoloto, was an accounting error that required disclosure under ASC 250-10-50-7, Accounting Changes and Error Corrections.
63.
Gold Standard and Zachos also represented that Ross Zoloto had significant revenue from gold production sales of $33,614,000, $32,747,000 and $25,042,000 in 2009, 2008, and 2007 respectively. But this information was misleading in part because the company did not disclose that Khachatrian had withdrawn the profits and because it was not presented in conformance with GAAP. Under GAAP, revenue may only be recognized when realized and earned. Revenue is realized when products are exchanged for known amounts of cash. See ASC 605.10.25-1, Revenue Recognition.
64.
Gold Standard and Zachos had put no internal controls in place to determine whether the revenue reported from Ross Zoloto’s gold production sales was accurate. Further, the reported revenue was recognized in periods when Gold Standard had neither sufficient inventory nor active mining operations to support the purported sales.
65.
Gold Standard and Zachos had no accounting records related to the costs for extracting gold from year to year. Gold Standard and Zachos failed to include a separate line item in the financial statements for the cost of goods sold which also violated GAAP. Because Gold Standard and Zachos did not track its costs, it could not report inventory in conformance with GAAP. GAAP requires
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that “inventory at any given date is the balance of costs applicable to goods on hand remaining after the matching of absorbed costs with concurrent revenues.” GAAP also states that “[a] major objective of accounting for inventories is the proper determination of income through the process of matching appropriate cost against revenue.” See ASC 330.10.05-3 and 330.10.10-1 Inventory. The inventory reported by Gold Standard was insufficient to support these purported sales, and Gold Standard recognized sales in periods when the mine was not operating, which did not conform to GAAP.
66.
Gold Standard and Zachos also falsely represented that “Gold is measured at the lower of net production cost or net realizable value. The net cost of production per unit of gold is determined by dividing total production cost, by the saleable output of gold.” But they did not have sufficient records to determine the net production costs for extracting gold each year to present the information in conformance with GAAP.
67.
Gold Standard and Zachos also represented that the value of the company’s PPE at $6,698,000 in 2008 and $5,783,000 in 2009, stating in the notes to the financial statements that the “[s]ignificant value of Company’s mining assets included in the balance sheet was derived as a result of an independent appraisal before the contribution by the member. This appraised value represents fair market value at the time of the contribution.” However, they omitted material facts that the report contained no methodology on how the values were reached and the results were arbitrary.
5. Defendants Filed a False 10-Q for September 30, 2010.
68.
In the fall of 2010, Eade continued his efforts to raise money for the company through securities sales to public investors, Eade wrote the text of the report contained in the Form 10-Q for the quarter ending September 30, 2010
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(“September 2010 10-Q”), which Zachos signed and certified, and Gold Standard filed on November 22, 2010.
69.
In this filing, Gold Standard, Zachos and Eade failed to disclose material facts that the agreement to acquire Ross Zoloto was still pending required review and approval by the Russian regulatory authorities, and that there was an oral agreement for Khachatrian to keep the profits from the alluvial mining operations.
70.
Gold Standard and Zachos engaged a California public accounting firm (‘The California accounting firm”) to prepare the consolidated financial statements and footnotes that were filed with the September 2010 10-Q.
71.
In the September 2010 10-Q, Gold Standard and Zachos also failed to disclose material facts that the financial statements were not prepared in conformance with GAAP.
72.
Gold Standard failed to provide sufficient information to the California accounting firm to prepare the September 2010 10-Q in conformance with GAAP. For example, Gold Standard did not provide the California accounting firm with direct access to Ross Zoloto’s books and records in Russia or the company’s employees. Gold Standard failed to provide, among other things, a closed trial balance or a roll up of gold inventory. Because of the lack of records, the California accounting firm estimated all of the accounts based on prior periods.
73.
Gruber & Co., as Gold Standard’s auditor, performed a quarterly review of Gold Standard’s financial statements for the September 2010 10-Q before they were filed. Gruber & Co. and Gruber performed a deficient review on the September 2010 10-Q, because their review consisted solely of reading through the financial statements and related footnotes without creating work papers or a review report. Gruber performed no procedures on the quarterly financial statements which were necessary to be in accordance with PCAOB
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standards. The deficient review was egregious because Gruber knew that the financial statements were estimated and not prepared in conformance with GAAP.
74.
Gruber & Co. and Gruber aided and abetted Gold Standard’s violations of Section 10(b) of the Exchange Act and Rule 10b-5(b) when they knowingly provided substantial assistance by performing a deficient review of the September 2010 10-Q, and causing the company to misrepresent that its financial statements were prepared in conformance with GAAP.
6. Defendants Filed a False Form 8-K on January 27, 2011.
75.
On or about January 27, 2011, Eade drafted and caused Zachos to sign and Gold Standard to file a Form 8-K (“January 2011 Form 8-K”).
76.
In the filing, Gold Standard, Zachos and Eade failed to disclose material facts that the agreement to acquire Ross Zoloto was still pending review and approval by the Russian regulatory authorities, and that there was an oral agreement for Khachatrian to keep the profits from the alluvial mining operations.
77.
Gold Standard and Zachos also made materially inaccurate disclosures in the January 2011 Form 8-K, because, among other things, they announced revenue of $17,252,000 during fiscal year 2010 and income before taxes of $5,480,000, when in fact all of the amounts in the financial statement were based on estimates.
7. Defendants Filed a False Form 8-K on February 9, 2011.
78.
On or about February 9, 2011, Eade drafted and caused Zachos to sign and Gold Standard to file a Form 8-K (“February 2011 Form 8-K”).
79.
Gold Standard, Zachos and Eade made materially inaccurate disclosures in the February 2011 Form 8-K, because, among other things, they announced that it had unsold gold inventory of 56,500 ounces at the end of fiscal year 2010 worth over $75,000,000, but failed to disclose material facts necessary to make the statements made not misleading, among other things, that the
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company had no inventory as of September 30, 2010, and had no internal controls to determine whether the amount of inventory stated was accurate.
80.
Gold Standard, Zachos and Eade also failed to disclose material facts that the agreement to acquire Ross Zoloto was still pending review and approval by the Russian regulatory authorities, and that there was an oral agreement for Khachatrian to keep the profits from the alluvial mining operations.
81.
Zachos and Eade knew the statements in the February 2011 Form 8K were false and misleading because they had no records to substantiate the amount of inventory or internal controls in place to confirm that the amount reported was accurate.
8. Defendants Filed a False Form 8-K on April 7, 2011.
82.
On or about April 7, 2011, Zachos caused Gold Standard to file a Form 8-K (“April 2011 Form 8-K”) announcing that the financial statements including those in the September 2010 10-Q could not be relied upon because of a translation error in converting the accounting records from Russian to English. However, this statement was false and misleading, because the errors in the September 2010 10-Q, were caused by the lack of accounting books and records to substantiate the numbers reported, and in fact, the figures were based on estimates made by the California accounting firm rather than actual figures.
83.
Zachos knew or was reckless in not knowing that the errors in the September 2010 10-Q were the result of estimates because the accountants did not have access to accurate books and records, rather than a language translation error as he represented in the April 2011 Form 8-K.
D. Gruber & Co. and Gruber Submitted a False Audit Report in Super 8-K.
84.
Gold Standard engaged Gruber & Co. to conduct annual audits of the company’s financial statements for 2007, 2008, and 2009.
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85.
Gruber & Co. prepared an audit report for the Super 8-K, which Gruber caused Gruber & Co. to sign on June 21, 2010, and he consented to its inclusion in the Super 8-K on October 5, 2010.
86.
In the audit report filed with the Super 8-K, Gruber & Co. falsely represented that it had conducted an audit of Gold Standard’s 2009, 2008 and 2007 consolidated financial statements in accordance with PCAOB standards, and that the consolidated financial statements present fairly, in all material respects, the financial position of Gold Standard and its subsidiaries.
87.
In fact, Gruber & Co. and Gruber failed to conduct the audit in accordance with PCAOB standards, and the consolidated financial statements did not fairly present the financial position of Gold Standard and its subsidiaries.
88.
During its audit, Gruber & Co. and Gruber failed, among other things, to include procedures to independently verify that Ross Zoloto’s gold sales in fact occurred and that the company had received the sales proceeds represented; to determine the cost of sales for the gold mining production; to determine the existence or movement of inventory during the three year period; or to determine whether the values assigned to PPE were appropriate.
89.
Gruber & Co. and Gruber also relied on the Yukos appraisal to evaluate the value Gold Standard set for its PPE. But Gruber & Co. and Gruber failed to comply with PCAOB Standard AU § 336.08-.11 Using the Work of a Specialist, which requires that an auditor should evaluate the professional qualifications of the specialist, understand the specialist’s work, evaluate the specialist’s relationship with the client and perform additional procedures if there is any risk of impairment of the specialist’s objectivity. Gruber failed to identify that the appraisal was flawed because it was performed by a company owned by Khachatrian and it did not sufficiently describe the appraiser’s qualifications and methods for determining the value of Ross Zoloto’s assets.
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90.
Gruber & Co. and Gruber also relied upon the representations of management about the amount of gold produced and sold, and the proceeds deposited into Ross Zoloto’s Russian bank account without obtaining evidence confirming management’s representations. But Gruber & Co. and Gruber failed to comply with PCAOB Standard AU § 230.07-.09 Due Professional Care in the Performance of Work, which requires the auditor to “exercise professional skepticism” -- an attitude that includes “a questioning mind and a critical assessment of audit evidence” entailing the auditor to consider the competency and sufficiency of the evidence; (2) PCAOB Standard AU § 326.01-.02, .13, .16, .19 and .22 Evidential Matter, which requires that evidential matter obtained should be sufficient and competent to form conclusions concerning the validity of the assertions embodied in the components of the financial statements and a reasonable basis for an opinion; (3) PCAOB Standard AU § 333.02, .14 Management Representations, which states that management representations “are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit”; (4) PCAOB Standard AU § 326.21, which states, “[t]he validity of evidential matter is so dependent on the circumstances under which it is obtained” and “[w]hen evidential matter can be obtained from independent sources outside an entity, it provides greater assurance of reliability for the purposes of an independent audit than that secured solely within the entity”; and (5) PCAOB Standard AU § 330.31 The Confirmation Process.
91.
In addition, Gruber & Co. and Gruber disregarded problems with obtaining adequate financial information about Ross Zoloto’s activities, the inability to independently confirm the Russian gold sales and banking transactions. They also disregarded red flags about the overvalued assets, the independence of the appraiser, and inconsistent statements about inventory and
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timing of gold sales that came to Gruber’s attention. Accordingly, Gruber & Co. and Gruber failed to exercise due professional care.
92.
Gruber & Co. and Gruber failed to obtain sufficient competent evidential matter and improperly relied on limited evidence such as management representations which Gruber was unable to verify.
93.
Despite the known deficiencies in Gold Standard’s consolidated financial statements, Gruber & Co. provided an unqualified audit report and falsely stated that it had audited the consolidated financial statements in accordance with standards of the PCAOB.
E. Gold Standard Failed to keep Accurate Books and Records.
94.
As a company with securities registered under Section 12 of the Exchange Act, Gold Standard was required to make and keep books, records and accounts which in reasonable detail accurately and fairly reflected the transactions and dispositions of its assets under Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A).
95.
Gold Standard failed to make and keep accurate books, records and accounts concerning the operations of Ross Zoloto. For example, Gold Standard did not have accurate information in its books, records and accounts about the revenue that Ross Zoloto earned from its gold sales, the production costs for extracting gold each year, the inventory that Ross Zoloto maintained of the gold that it produced, or the value of its PPE.
96.
As the chief executive officer and one of only two management level employees of Gold Standard, Zachos knew that Gold Standards books, records, and accounts were insufficient or nonexistent and did not accurately and fairly reflect the transactions and dispositions of Gold Standard’s assets. Zachos provided knowing or reckless, substantial assistance to, and aided and abetted Gold Standard’s violations of Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C.
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§ 78m(b)(2)(A), by failing to make and keep accurate books, records and accounts concerning the operations of Ross Zoloto.
F. Gold Standard Failed to Implement a System of Internal Controls.
97.
As a company with securities registered under Section 12 of the Exchange Act, Gold Standard was required to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that transactions were executed in accordance with management’s authorization, and that transactions were recorded as necessary to permit reparation of financial statements in conformance with GAAP under Section 13(b)(2)(B) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(B) .
98.
Gold Standard failed to devise and maintain a system of internal accounting controls. For example, Gold Standard did not have a means to verify the amount of gold produced; it did not have a means to determine the costs of producing the gold that was sold; it did not maintain records of inventory; it did not have independent access to Ross Zoloto’s bank statements and transactions; and. It did not have a method for accessing the Russian accounting system used by Ross Zoloto or to close the books quarterly and create trial balances. It did not have copies of accounting policies or methods used to create the Russian accounting records to enable any U.S. accountants it retained to be able to convert the Russian accounting records accurately into financial statements in conformance with GAAP.
99.
As the chief executive officer of Gold Standard, Zachos knowingly or recklessly failed to implement a system of internal controls at Gold Standard in violation of Section 13(b)(5) of the Exchange Act, 15 U.S.C. § 78m(b)(5).
100.
Zachos knowingly or recklessly provided substantial assistance to Gold Standard’s violation of Section 13(b)(2)(B) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(B), by failing to implement a system of internal accounting controls.
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G. Zachos Violated the Certification Process.
101.
Rule 13a-14(a), 17 C.F.R. § 240.13a-14, which was adopted under Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), requires any company that files reports containing financial statements to include a certification signed by the chief executive officer and principal financial officer certifying, among other things, that the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the report and based on the officer’s knowledge. The certification must comply with the exact language contained in 17 C.F.R. §
229.601 (31) (i).
102. Zachos, as the chief executive officer of Fluid Solutions and later Gold Standard, signed false certifications for the June 2009 10-Q, September 2009 10-Q, and September 2010 10-Q knowing the financial information in the periodic reports did not fairly present, in all material respects, the financial condition and results of the operations of the issuer.
H. Gruber & Co. and Gruber Violated the Audit Requirements of Section 10A of the Exchange Act.
103.
Gruber & Co. was a public accounting firm engaged in the practice of public accounting and registered with the Public Company Accounting Oversight Board (“PCAOB”).
104.
Gruber & Co. conducted an audit of the financial statements of Gold Standard for 2007, 2008 and 2009, and submitted an audit report dated June 21, 2010 that was filed with Gold Standard’s Super 8-K.
105.
Gruber was the engagement partner for the Gold Standard audit and caused Gruber & Co. to sign the audit report dated June 21, 2010.
106.
Gruber & Co. and Gruber failed to design audit procedures to provide reasonable assurance of detecting illegal acts that would have a direct and
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material effect on the determination of financial statement amounts. PCAOB Standard AU § 317.05 Illegal Acts by Client states “[t]he auditor considers laws and regulations that are generally recognized by auditors to have a direct and material effect on the determination of financial statement amounts” and “the auditor considers such laws or regulations from the perspective of their known relation to audit objectives derived from financial statement assertions rather than from the perspective of legality per se.”
107.
During the audit, Gruber & Co. through Gruber raised questions about whether Gold Standard had consummated its purchase of Ross Zoloto by properly registering its acquisition with the Russian regulatory authorities during 2009, but failed to obtain sufficient information to determine whether that registration ever occurred. Gruber and Gruber & Co. failed to conduct any audit procedures to confirm that Gold Standard had registered its acquisition of Ross Zoloto under Russian laws.
108.
As part of the audit, Gruber and Gruber & Co. obtained from Gold Standard purported bank statements for 2007, 2008 and 2009 for Ross Zoloto’s bank accounts which were written in Russian and provided with translations in English written by management.
109.
Gruber and Gruber & Co. failed to conduct any audit procedures to determine the authenticity of these Russian bank records and the amounts reported within them. For example, they failed to obtain copies of the records directly from the bank, and did not receive confirmation letters from the bank affirming the balances or transactions in the account.
110.
As part of the audit, Gruber and Gruber & Co. obtained documents from Gold Standard that appeared to be contracts and invoices for the sale of gold to two Russian banks during 2007, 2008, and 2009. The documents which were written in Russian were provided with translations in English written by management.
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111.
Gruber and Gruber & Co. failed to conduct any audit procedures to confirm the authenticity of these gold sales contracts, invoices, or the amounts reported within them, and failed to receive confirmation letters from the bank affirming the transactions.
112.
As a result of the conduct described above, Gruber & Co. and Gruber violated Section 10A(a) of the Exchange Act related its audit report on the financial statements of Gold Standard for 2007, 2008 and 2009, submitted with Gold Standard’s Super 8-K.
FIRST CLAIM FOR RELIEF
Fraud in the Purchase or Sale of Securities –
Violations of Section 10(b) of the Exchange Act and Rule 10b-5
[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5]
(All Defendants)
113.
The SEC realleges and incorporates paragraphs 1 through 112 by reference.
114.
By engaging in the conduct alleged above, Gold Standard, Zachos, and Gruber & Co., directly or indirectly, with scienter, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce, the mails, or any facility of a national securities exchange, made untrue statements of material fact or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading in violation of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5(b), 17 C.F.R. § 240.10b-5(b).
115.
Gold Standard, Zachos, and Gruber & Co. violated, and unless restrained and enjoined will continue to violate, Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5(b), 17 C.F.R. § 240.10b-5(b).
116.
Eade, Gruber & Co., and Gruber aided and abetted, and caused Gold Standard’s violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5(b) ), 17 C.F.R. § 240.10b-5(b); and Gruber also aided and
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abetted, and caused Gruber & Co.’s violations, and unless restrained and enjoined will continue to cause violations, of Section 10(b) of the Exchange Act and Rule 10b-5(b).
117.
In the alternative, Gruber as the person who, directly or indirectly, controlled Gruber & Co. is liable under Section 20(a) of the Exchange Act, 15
U.S.C. § 78t(a), for Gruber & Co.’s violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5(b), 17 C.F.R. § 240.10b-5(b).
SECOND CLAIM FOR RELIEF
Violations of the Periodic Reporting Provisions of Section 13(a) of the
Exchange Act and Rules 12b-20, 13a-11, and 13a-13 [15 U.S.C. § 78m(a) and 17 C.F.R. §§ 240.12b-20, 240.13a-11 and 240.13a-13] (All Defendants)
118.
The SEC realleges and incorporates paragraphs 1 through 112 by reference.
119.
Gold Standard failed to prepare its financial statements in conformance with GAAP and made material misrepresentations and omissions in periodic reports filed with the SEC.
120.
By engaging in the conduct alleged above, Gold Standard violated, and unless restrained and enjoined will continue to violate, Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Rules 12b-20, 13a-11, and 13a-13,17
C.F.R. §§ 240.12b-20, 240.13a-11 and 240.13a-13.
121.
Zachos and Eade aided and abetted and caused the violations by Gold Standard of Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), and Rules 12b-20, 13a-11, and 13a-13, 17 C.F.R. §§ 240.12b-20, 240.13a-11 and 240.13a-13, for each of the reports identified above (except for the April 2011 8K which Eade did not prepare), and unless restrained and enjoined will continue to aid and abet violations of these provisions.
122.
Gruber & Co. and Gruber aided and abetted and caused the violations by Gold Standard of Section 13(a) of the Exchange Act, 15 U.S.C. §
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78m(a), and Rules 12b-20, 13a-11, and 13a-13, 17 C.F.R. §§ 240.12b-20, 240.13a-11 and 240.13a-13, for the Super 8-K filed on October 5, 2010, and the September 2010 10-Q, and unless restrained and enjoined will continue to aid and abet violations of these provisions. In the alternative, Gruber, as the person who, directly or indirectly, controls Gruber & Co. is liable, under the provisions of Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), for Gruber & Co. causing these violations.
THIRD CLAIM FOR RELIEF Violations of the Books and Records Provisions Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)] (Defendants Gold Standard and Zachos)
123.
The SEC realleges and incorporates paragraphs 1 through 112 by reference.
124.
By engaging in the conduct alleged above, Gold Standard failed to make and keep books, records and accounts, which, in reasonable detail, accurately and fairly reflected its transactions and disposition of assets.
125.
Gold Standard violated, and unless restrained and enjoined will continue to violate, Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A) .
126.
Zachos aided and abetted and caused Gold Standard’s violations of Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(A), and unless restrained and enjoined will continue to aid and abet violations of these provisions.
FOURTH CLAIM FOR RELIEF
Violations of the Internal Controls Provisions
Section 13(b)(2)(B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(B)]
(Defendants Gold Standard and Zachos)
127.
The SEC realleges and incorporates paragraphs 1 through 112 by reference.
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128.
By engaging in the conduct alleged above, Gold Standard failed to maintain internal accounting controls sufficient to permit preparation in conformance with GAAP of financial statements which were filed with the SEC.
129.
Gold Standard violated, and unless restrained and enjoined will continue to violate, Section 13(b)(2)(B) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(B).
130.
Zachos, as the chief executive officer of Gold Standard, aided and abetted and caused Gold Standard’s violations of Section 13(b)(2)(B) of the Exchange Act, 15 U.S.C. § 78m(b)(2)(B), and unless restrained and enjoined will continue to aid and abet violations of these provisions.
FIFTH CLAIM FOR RELIEF Failure to Implement Internal Controls in Violation of Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)] (Defendant Zachos)
131.
The SEC realleges and incorporates paragraphs 1 through 112 by reference.
132.
Based on the conduct alleged above, Zachos violated Section 13(b)(5) of the Exchange Act, 15 U.S.C. § 78m(b)(5), by knowingly failing to implement a system of internal accounting controls, and unless restrained and enjoined will continue to violate this provision.
SIXTH CLAIM FOR RELIEF
Violation of the Certification Provisions of Rule 13a-14(a),
[17 C.F.R. § 240.13a-14]
(Defendant Zachos)
133.
The SEC realleges and incorporates paragraphs 1 through 112 by reference.
134.
Based on the conduct alleged above, Zachos, as the chief executive officer of Fluid Solutions and later Gold Standard, signed false certifications for the June 2009 10-Q, September 2009 10-Q, and September 2010 10-Q knowing
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the financial information in the periodic reports did not fairly present, in all material respects, the financial condition and results of the operations of the issuer.
135.
As a result, Zachos violated Rule 13a-14(a) adopted under Section 13(a) of the Exchange Act, 15 U.S.C. § 78m(a), by falsely certifying Gold Standard’s quarterly reports.
SEVENTH CLAIM FOR RELIEF
Violation of the Audit Requirements of
Section 10A(a) of the Exchange Act [15 U.S.C. § 78j-1(a)]
(Defendants Gruber & Co. and Gruber)
136.
The SEC realleges and incorporates paragraphs 1 through 112 by reference.
137.
In the course of conducting an audit of the financial statements of Gold Standard and its subsidiary, Gruber & Co. and Gruber failed to adopt procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statement amounts.
138.
Based on the conduct alleged above, Gruber & Co. and Gruber violated Section 10A(a) of the Exchange Act, 15 U.S.C. § 78j-1(a).
PRAYER FOR RELIEF
The SEC respectfully requests that this Court:
I.
Find that defendants Gold Standard, Zachos, Eade, Gruber & Co. and Gruber committed the violations alleged in this Complaint and unless restrained will continue to do so.
II.
Enter a permanent injunction, pursuant to Rule 65(d) of the Federal Rules
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of Civil Procedure, enjoining defendants Gold Standard, Zachos, Eade, Gruber & Co. and Gruber from violating, directly or indirectly, or aiding and abetting violations of each of the provisions of the law and rules alleged in this Complaint.
III. Order defendants Eade, Gruber & Co. and Gruber to prepare an accounting
of all the proceeds they obtained from the unlawful transactions and activities described above.
IV. Order defendants Eade, Gruber & Co. and Gruber to disgorge all ill-gotten
gains resulting from their participation in the illegal conduct alleged in this Complaint plus pre-judgment and post judgment interest.
V. Order defendants Gold Standard, Zachos, Eade, Gruber & Co. and Gruber
to pay civil penalties pursuant to Section 21(d) of the Exchange Act, 15 U.S.C. § 78u(d), in an amount to be determined by the Court.
VI. Order defendants Zachos and Eade each to be barred from acting as an officer or director of any company having a class of securities registered with the SEC under to Section 12 of the Exchange Act, 15 U.S.C. § 78l, or that is required
to file reports pursuant to Section 15(d) of the Exchange Act, 15 U.S.C. § 78o(d), pursuant to Section 21(d)(2) of the Exchange Act, 15 U.S.C. § 78u(d)(2).
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VII.
Grant such other relief as the Court deems necessary and appropriate.
DATED: June 29, 2012. Respectfully submitted,
s/ Leslie J. Hughes Leslie J. Hughes Esq.
s/Molly M. White Molly M. White
Attorneys for Plaintiff Securities and Exchange Commission
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