SEC Settles Microcap Fraud Scheme With Attorney, Two Audit Firms, Seven Auditors

Microcap fraud is a key part of the broken windows enforcement approach. One of the more significant actions brought in this regard is In the Matter of John Briner, Esq., Adm. Proc. File No. 3-16339 (Jan. 15, 2015). There the Order named as Respondents two attorneys, Mr. Briner and Diane Balmy; two audit firms, De Joya Griffith, LLC and M&K CPAs, PLLC; and seven CPAs – Arthur De Joya, Jason Griffith, Chris Whetman, Philip Zhang, Matt Manis, Jon Ridenour and Ben Ortego.

The action is an out-growth of stop order proceeding brought in January by the Commission based on a series of sham offerings for mining companies. The scheme was orchestrated by suspended attorney, John Briner, who recruited figureheads Stuart Carnie, Charles Irizarry, and Wayne Middleton to pose as the heads of the entities. Each of the offerings was alleged to be a sham. The audit firms and their auditors claimed to have audited the financial statements of the firms when in fact they did not. The Order alleges violations of Securities Act Section 17(a) by the attorneys and unprofessional conduct by the audit firms and auditors. While the proceeding was initially set for hearing, now the charges have been resolved as to each Respondent except Ms. Balmy:

Mr. Briner: consented to the entry of a cease and desist order based on Securities Act Section 17(a). He is also barred from participating in any penny stock offering and is suspended from appearing and practicing before the Commission as an attorney. In addition, he will pay $20,000 in disgorgement, prejudgment interest and a penalty of $50,000.

De Joya Griffith, LLC: consented to the entry of a cease and desist order based on each subsection of Securities Act Section 17(a). The firm is denied the privilege of appearing or practicing before the Commission as an accountant with the right to apply for reinstatement after five years. The firm will pay disgorgement of $37,500, prejudgment interest and a penalty of $18,750.

M&K CPAS PLLC: consented to the entry of a cease and desist order based on Securities Act Sections 17(a)(2) and (3). The firm was also censured and agreed to certain undertakings which include not accepting new clients for a period of twelve months and retaining an independent consultant. The firm will also pay disgorgement of $49,500, prejudgment interest and a penalty of $50,000.

Arthur De Joya, CPA: consented to the entry of a cease and desist order based on each subsection of Securities Act Section 17(a). Mr. De Joya is denied the privilege of appearing or practicing before the Commission as an accountant with the right to apply for reinstatement after three years. He will also pay a penalty of $15,000.

Jason Griffith, CPA: consented to the entry of a cease and desist order based on each subsection of Securities Act Section 17(a). He is denied the privilege of appearing or practicing before the Commission as an accountant with the right to apply for reinstatement after three years will also pay a penalty of $15,000.

Philip Zhang, CPA: consented to the entry of a cease and desist order based on each subsection of Securities Act Section 17(a). He is also denied the privilege of appearing or practicing before the Commission as an accountant with a right to apply for reinstatement after five years. In addition, Mr. Zhang will pay a civil penalty of $25,000.

Matt Manis, CPA: consented to the entry of a cease and desist order based on Securities Act Sections 17(a)(2) and (3). He is also denied the privilege of appearing or practicing before the Commission as an accountant and will pay a penalty of $20,000.

Jon Ridenour, CPA: consented to the entry of a cease and desist order based on Securities Act Sections 17(a)(2) and (3). He is also denied the privilege of appearing or practicing before the Commission as an accountant and will pay a penalty of $15,000.

Ben Ortego, CPA: consented to the entry of a cease and desist order based on Securities Act Sections 17(a)(2) and (3). Mr. Ortego is also denied the privilege of appearing or practicing before the Commission with the right to apply for reinstatement after three years. He will also pay a penalty of $50,000.

Chris Whetman, CPA: was dismissed from this action but settled with the Commission in a related proceeding. In the Matter of Christopher D. Whetman, CPA, Adm. Proc. File No. 3-16821 (Sept. 18, 2015). To resolve this proceeding, based on his audits of Idle Media, Inc. he consented to the entry of a cease and desist order based on Securities Act Sections 17(a)(2) and (3). Mr. Whetman is also denied the privilege of appearing or practicing before the Commission with the right to apply for reinstatement after five years. He will also pay a penalty of $15,000.

See also In the Matter of Wayne Middleton, Adm. Proc. File No. 3-16342 (Jan. 15, 2015); In the Matter of Charles Irizarry, Adm. Proc. File No. 3-16341 (Jan. 15, 2015); and In the Matter of Stuart Cranie, Adm. Proc. File No. 3-16340 (Jan. 15, 2015). These actions center on claims that the named Respondent served as a figurehead for the corporations at the behest of Mr. Briner. Each alleged violations of Securities Act Section 17(a). In each the Respondent settled, consenting to the entry of a cease and desist order, and agreed to pay disgorgement, prejudgment interest and a penalty. Each Respondent also agreed to the entry of an order barring him from serving as an officer or director and from participating in any penny stock offering. Mr. Middleton will pay disgorgement of $4,000, prejudgment interest and a penalty of $8,000; Mr. Irizarry will pay disgorgement of $6,000, prejudgment interest and a penalty of $12,000; and Mr. Carnie will pay disgorgement of $6,000, prejudgment interest and a penalty of $12,000.

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