U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20318 / October 1, 2007
Securities and Exchange Commission v. Meridian Holdings, Inc., Anthony C. Dike, and Michelle V. Nguyen, Case No. CV 07-06335 DDP (SSx) (C.D. Cal)
SEC Charges Meridian Holdings, Inc. and Two Individuals With Fraudulently Using a $30 Million Default Judgment to Show Earnings
On September 28, 2007, the Securities and Exchange Commission filed charges in federal district court against Culver City-based Meridian Holdings, Inc., and two individuals for fraudulently using a $30 million default judgment to boost earnings and for backdating Sarbanes-Oxley certifications.
According to the Commission's complaint, financial statements filed with the company's 2004 second and third quarter reports caused Meridian to materially misstate significant gains, when, in fact, it should have reported losses. Meridian also backdated officer certifications required by the Sarbanes-Oxley Act, the SEC charged.
Meridian owns interests in companies that engage in e-commerce in the medical industry, and provides management services to those companies. According to the Commission's complaint, during the second and third quarters of its 2004 fiscal year, Meridian improperly recognized a $30 million default judgment and interest as assets and income when it had no reasonable basis to believe the judgment was collectible. As a result, Meridian turned quarterly losses of 7 cents per share into earnings of $2.12 per share. Following the filing of the 2004 second quarter report, Meridian's stock price doubled. Similarly, Meridian recognized additional interest on the default judgment during the third quarter of 2004. The complaint alleges that this improper recognition again turned quarterly losses to quarterly gains. Following the filing of its 2004 third quarter report, Meridian's stock price increased by 40%.
In addition to Meridian, the complaint names Anthony C. Dike, age 52, of Los Angeles, Calif., Meridian's chairman and chief executive officer at the time, and Michelle V. Nguyen, age 48, of Orange, Calif., Meridian's former principal financial officer. Dike and Nguyen are alleged to have prepared misleading financial statements by booking the $30 million default judgment when neither had any reasonable basis to believe the judgment was collectible. The complaint further alleges that when Dike filed Meridian's second and third quarter reports, he included Nguyen's name on the Sarbanes-Oxley Act certifications filed with the reports even though he knew Nguyen had not signed them. While Nguyen signed the certifications included with Meridian's second quarter report after it had been filed, she never signed the certifications included with Meridian's third quarter report. Meridian also provided the Commission staff with backdated certifications filed with its 2004 annual report.
The Commission's complaint charges Meridian, Dike, and Nguyen with committing violations of Sections 10(b), 13(a), and 13(b)(2)(A) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder. In addition, the complaint charges Dike with violations of Rule 13a-14 of the Exchange Act. The complaint also charges Meridian and Dike with violations of Section 302(b) of Regulation S-T. The complaint seeks permanent injunctions against future violations of these provisions and civil penalties against all defendants and, with respect to Dike and Nguyen, orders barring each of them from serving as an officer or director of a public company.