WASHINGTON
Wed Sep 25, 2013 3:27 P.M. EDT
(Reuters) - The
creator of a video game based on the popular Christian "Left Behind"
novel series and his friend have been charged with scheming to inflate
the company's revenue by nearly 1,300 percent, U.S. regulators announced
Wednesday.
Left Behind Games Inc Chief
Executive and Chief Financial Officer Troy Lyndon issued nearly 2
billion shares to his friend Ronald Zaucha, purportedly as compensation
for consulting services, the Securities and Exchange Commission's
complaint alleges.
The real reason
for issuing the stock was so Zaucha could sell millions of unregistered
shares in the marketplace and then kick back the proceeds and use other
"sham purchases" to help bolster the struggling company's books, the SEC
said.
The SEC's lawsuit was filed
late on Tuesday in a federal court in Hawaii, where Lyndon and Zaucha
both reside. The SEC suspended the company's stock Wednesday.
The complaint charges both men with fraud, and the SEC said its probe is continuing.
The
charges come roughly two weeks after the company announced in an SEC
filing that its public accountant Malone Bailey had resigned after
previously expressing "substantial doubt" about the company's ability to
continue.
Last year, in March 2012, Lyndon filed a voluntary petition for Chapter 7 bankruptcy, the SEC said.
Lyndon,
of Honolulu, said he only learned of the charges early Wednesday
morning after a press inquiry from Reuters and that he believes the
government is discriminating against him.
"I'm
just a video game guy. If any violation occurred, it would never have
been intentional - and certainly, never fraudulent. My attorney told me
that any person that earned shares could use them for any purpose," he
said.
"For more than two years,
I've asked SEC to explain how and if I have violated any rule, so that I
could self-report it. As I see it, the government has systematically
and intentionally conspired to dismantle Left Behind Games and the facts
are both true and hard to believe - worthy of a Ron Howard film or John
Grisham novel."
A more detailed statement from Lyndon can be found at
www.troylyndon.com/govt
Efforts to reach Zaucha were unsuccessful.
According to the SEC's allegations, Lyndon and Zaucha made a "last ditch" effort to save the struggling company in 2009.
After
issuing 1.7 billion shares in stock, the SEC said Zaucha sold most of
it for $4.6 million, roughly $3.3 million of which was later kicked back
to the company in a variety of ways.
One
such example, the SEC said, was when in December 2010 Zaucha formed a
company and used the stock sale proceeds to buy $1.38 million in
obsolete Left Behind Games inventory.
Zaucha's
company then gave most of the products away to churches and religious
groups, while Left Behind went on to recognize the transaction as
revenue.
The SEC also said Zaucha
never truly performed any real consulting services to the company, and
he was also allowed to keep more than $1 million of the stock sale
proceeds that he used for personal expenses, including buying property
in California and Hawaii.
According
to his online biography, Lyndon was the "original team lead developer"
of the first 3D versions of the John Madden Football video game, among
others.
Reuters could not immediately independently verify those details.
He started working on development of religious video games in 2002, and took Left Behind Games public in 2006, he says.
"Although
government regulations have resulted in the loss of nearly 50 percent
of America's public companies over the past 15 years, Left Behind Games
continues to operate and has products in more than 500 retail locations
throughout the USA," he wrote on his website.
(Reporting by Sarah N. Lynch; editing by Andrew Hay)