U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21519 / May 6, 2010
Accounting and Auditing Enforcement Release No. 3132 / May 6, 2010
Securities and Exchange Commission v. Exotics.com, Inc., et al., Civil Action No. 2:05-cv-00531-PMP-GWF, United States District Court, District of Nevada
L. Rex Andersen, CPA, Permanently Enjoined For Role In Penny Stock And Accounting Fraud
The Securities and Exchange Commission announced that a federal district court in Nevada has granted the Commission's motion for summary judgment and entered a final judgment against L. Rex Andersen of Draper, Utah, a certified public accountant. The final judgment against Andersen, entered on May 4, 2010, is in connection with an enforcement action filed by the Commission in 2005 concerning a penny stock manipulation and accounting fraud. The final judgment permanently enjoins Andersen from violating the antifraud and other provisions of the federal securities laws and orders him to pay disgorgement, prejudgment interest, and a civil money penalty totaling $126,219.04.
The civil injunctive action was filed on April 25, 2005, against Andersen, Exotics.com, Inc., a Nevada corporation based in Vancouver, British Columbia, and 11 additional principal defendants and one relief defendant. The Commission's complaint alleged that, between at least 1999 and 2002, Exotics.com (formerly a corporate shell known as Hardrock Mines, Inc.) was the subject of a stock manipulation and accounting fraud. According to the complaint, Andersen performed audits of the 1999 and 2000 year-end financial statements of Hardrock Mines, Inc., but he lacked independence during the audits because he himself had prepared most of the client's books and records and its financial statements. The Commission's complaint further alleged that Andersen created the client's books and records in reliance on documents that he knew, or was reckless in not knowing, were fraudulent, and thereby caused the financial statements to depart from generally accepted accounting principles (GAAP). The complaint also alleged that Andersen's firm thereafter issued audit reports falsely representing that the audits had been conducted in accordance with generally accepted auditing standards, and that the financial statements were presented in conformity with GAAP. The fraudulent audit reports provided by Andersen were incorporated in various public filings with the Commission made by Hardrock Mines and Exotics.com.
The final judgment against Andersen permanently enjoins him from future violations of 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. It also enjoins him from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, and orders him to pay disgorgement in the amount of $3,500, prejudgment interest in the amount of $2,719.04, and a $120,000 civil penalty.
The Commission previously obtained judgments by default against two defendants and judgments by consent against seven additional defendants. The action remains pending against defendants Daniel G. Chapman, James L. Ericksteen, and Sean P. Flanagan and relief defendant Flanagan & Associates, Ltd..
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 F. Duggan], 19957 (January 4, 2007) [judgment by default against Gary Thomas], 21028 (May 7, 2009) [judgment by consent against Edward James Wexler], 21456 (March 19, 2010) [judgments by consent against Stephen P. Corso and Brian K. Rabinovitz], 21490 (April 16, 2010) [judgments by consent against Ingo W. Mueller and Firoz Jinnah], 21498 (April 22, 2010) [judgment by consent against Marlin R. Brinsky], and Exchange Act Release Nos. 59766 (April 14, 2009) [forthwith suspension of Stephen P. Corso, CPA], 61771 (March 24, 2010) [suspension of Brian K. Rabinovitz, CPA], and 61998 (April 28, 2010) [suspension of Marlin R. Brinsky, CPA].