U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21456 / March 19, 2010
Accounting and Auditing Enforcement Release No. 3121 / March 19, 2010
Securities and Exchange Commission v. Exotics.com, Inc, Civil Action No. 2:05-cv-00531-PMP-GWF, United States District Court, District of Nevada
Final Judgments Entered Against Certified Public Accountants Stephen P. Corso and Brian K. Rabinovitz in Market Manipulation and Financial Fraud Case
The Securities and Exchange Commission announced that a federal district court in Nevada has entered final judgments, by consent, against Stephen P. Corso, of Las Vegas, Nevada, and Brian K. Rabinovitz of Oak Park, California, in connection with an enforcement action filed in 2005 concerning a stock manipulation and accounting fraud scheme. The judgment against Corso, entered on March 18, 2010, permanently enjoins him from violating the antifraud and auditor independence provisions of the federal securities laws. The judgment against Rabinovitz, entered on March 15, 2010, permanently enjoins him from violating the auditor independence provisions of the federal securities laws and orders him to pay a civil penalty of $30,000.
The Commission's civil injunctive action was filed on April 25, 2005, against Exotics.com, Inc., a Nevada corporation based in Vancouver, British Columbia, and 12 additional principal defendants and one relief defendant. The Commission's complaint alleged that, between at least 1999 and 2002, Exotics.com, which was then an Over-the-Counter Bulletin Board company in the business of operating adult Web sites, was the subject of a stock manipulation and accounting fraud perpetrated by, among others, its officers, attorneys and outside auditors. The complaint alleged, among other things, that Corso, Rabinovitz, and others engaged in conduct that resulted in Exotics.com filing materially false and misleading financial statements in its Commission filings. The complaint further alleged that audit staff under the supervision of Corso and Rabinovitz committed acts and/or omissions that caused them to become non-independent during audits of Exotics.com and that Corso and Rabinovitz approved the issuance of audit reports that were incorporated in Exotics.com's Commission filings. According to the complaint, the audit reports, among other things, falsely stated that the audits had been conducted by an independent auditor and in accordance with generally accepted auditing standards (GAAS). The Complaint also alleged that Rabinovitz and audit staff under his supervision engaged in a number of improper accounting practices that caused Exotics.com's financial statements to depart from generally accepted accounting principles (GAAP).
Without admitting or denying the allegations in the Commission's complaint, Corso and Rabinovitz consented to the entry of final judgments against them. The final judgment against Corso enjoins him from violating Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder and Rule 2-02 of Regulation S-X. The final judgment against Rabinovitz enjoins him from violating Rule 2-02 of Regulation S-X and orders him to pay a civil penalty of $30,000.
Rabinovitz also consented to the entry of an Administrative Order, pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after three years. Corso was previously forthwith suspended, on April 14, 2009, from appearing or practicing before the Commission as an accountant.
The Commission previously obtained judgments by default against two defendants and judgments by consent against two additional defendants. The action remains pending against the remaining seven defendants and a relief defendant.
For further information, see Litigation Release Nos. 19207 (April 28, 2005) [civil injunctive action filed], 19645 (April 7, 2006) [judgment by default against Exotics.com], 19699 (May 15, 2006) [judgment by consent against Barry Duggan], 19957 (January 4, 2007) [judgment by default against Gary Thomas], and 21028 (May 7, 2009) [judgment by consent against Edward James Wexler], and Exchange Act Release No. 59766 (April 14, 2009) [forthwith suspension of Stephen Corso].