SEC Charges Attorney and Former CEO of a Publicly Traded Company in Connection with Fraudulent Filing in Federal Bankruptcy Proceedings

ADMINISTRATIVE PROCEEDING
File Nos. 3-20051, 3-20052

September 23, 2020 - The Securities and Exchange Commission today filed settled charges against California attorney Daniel C. Masters and California resident Alan J. Kau for committing fraud by filing a materially false and misleading plan of reorganization in federal bankruptcy proceedings.

According to the SEC's order against Masters, in his role as bankruptcy counsel for California-based penny stock company Worthington Energy, Inc., Masters drafted and signed a bankruptcy reorganization plan and disclosure statement containing false and misleading statements regarding Worthington Energy's agreement to be acquired by a private company and its assets and sales projections. According to the order, Masters included the false and misleading representations to entice creditors to approve the reorganization plan, and to convince the United States Bankruptcy Court for the Southern District of California to confirm the plan, which would have resulted in the issuance of thousands of shares of Worthington Energy's securities in the public marketplace. According to the SEC's order against Kau, Worthington Energy's former president and CEO, he signed the plan and declared under the penalty of perjury that the information in the plan was accurate, when he knew, or was reckless in not knowing, that the representations were false or misleading.

After Worthington Energy filed for bankruptcy, the SEC intervened in the bankruptcy case, and, shortly thereafter, the case was dismissed.

The SEC's orders find that Masters and Kau violated the antifraud provisions of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Without admitting or denying the findings in the orders, Masters and Kau consented to the entry of cease-and desist orders, officer-and-director bars, and penny stock bars, with Kau having the right to reapply after two years. Masters agreed to pay a civil penalty of $50,000 and Kau agreed to pay a civil penalty of $15,000. Masters further agreed to the entry of an order permanently suspending him from appearing and practicing before the SEC as an attorney. The order prohibits Masters from representing clients in SEC matters, including investigations, litigation, or examinations, and from advising clients about SEC filing obligations or content.

The SEC's investigation was conducted by Tom Peirce and Neal Jacobson, with assistance from senior trial counsel David Stoelting, and was supervised by Lara S. Mehraban, Michael D. Paley and Alistaire Bambach.