The Gold Is Missing From Gold Standard Mining

Ponzi scheme cases are a primary focuses of SEC Enforcement as the recent NERA report details. The question there is, of course, a variation of Jerry MacGuire’s “Show me the money” which asks “Where is the money?’ Now the Division is asking “Where is the gold?” Unfortunately for investors, the answer seems to be the same: Not to be seen. SEC v. Gold Standard Mining Corporation, Case No. CV 12-5662 (C.D. Cal. Filed June 29, 2012).

The defendants in Gold Standard, in addition to the company whose principal place of business is the law offices of its general counsel Kenneth Eads, are Panteleimon Zachos, a Greek resident who is CEO and CFO, Mr. Eads, audit firm Gruber & Company LLC and Edward Gruber, managing member of the audit firm.

From May 2009 through April 2011 Gold Standard and its CEO filed false and misleading periodic reports with the Commission concerning the operations of the company, its assts and financial statements. Specifically, although the company informed investors that it had acquired a Russian gold mining company, failed to mention that under the acquisition agreement portions of the profits from the mine were to be paid to the former Russian owner. It also failed to mention that the acquisition had not been properly registered with Russian regulatory authorities.

The financial statements also presented difficulties. Despite a claim by the company that its statements had been prepared in accordance with GAAP, in fact they were not. Indeed, the company failed to make and keep books and records and implement internal controls to provide accurate information about the financial activities occurring in its Russian subsidiary.

Attorney and defendant Eads prepared the false and misleading disclosure statements as well as the financial reports. To create interest in the company he initially included a representation in a report that the Russian mining interest were worth over $1.3 billion. Authority to prepare and sign the reports was given to Mr. Eads by defendant Zachos.

Gruber & Company LLC, a public accounting firm, was engaged by Mr. Eads. The firm and its principal claimed to have conducted an audit of Gold Standard’s financial statements in accord with generally accepted auditing standards. It did not, according to the complaint which alleges violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5).

Defendants Gold Standard and Zachos settled with the Commission, consenting to the entry of permanent injunctions based on the Sections cited in the complaint. Mr. Zachos will also be barred from serving as an officer or director of a public company. The other defendants have not settled.

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