U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23253 / May 7, 2015
Securities and Exchange Commission v. Charles H. Merchant, Sr. and Southern USA Resources, Inc., Civil Action No. 1:13-cv-3879-SCJ (N.D. Ga.)
Final Judgments Entered, Substantial Civil Penalties Ordered Against Two Alabama Based Defendants
On May 5, 2015, Honorable Steve C. Jones of the U.S. District Court for the Northern District of Georgia entered final judgments against Charles H. Merchant, Sr. (Merchant), an Anniston, Alabama resident, and his company Southern USA Resources, Inc. (Southern USA), a Delaware corporation based in Ashland, Alabama. Both had been previously sued by the Securities and Exchange Commission (Commission) charging them with violations of the antifraud provisions and various reporting violations of the federal securities laws. Merchant was ordered to pay a third tier civil penalty in the amount of $300,000. Southern USA was ordered to pay a third tier civil penalty in the amount of $725,000.
The Court found that Southern USA, a company purportedly focused on the exploitation of gold mining rights in Alabama, and Merchant, the company's CEO, CFO, president, secretary, treasurer and director, filed materially false reports with the Commission that misrepresented the value of the company's land. The Court also found that in 2012 Merchant filed with the Commission certifications that contained false statements about the company's internal controls and his understanding of those controls. Southern USA was also delinquent with respect to its 2012 Form 10-K and its most recent Forms 10-Q. Merchant had resigned his CEO and CFO positions with no successors named, and the company's outside auditor also has resigned - none of which had been disclosed in a Form 8-K.
In an earlier order dated November 25, 2013, Merchant was permanently enjoined from violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13a-14 and 13b2-1 thereunder; from aiding and abetting, and being liable as a control person under Section 20(a) of the Exchange Act for, Southern USA's violations of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 13a-1, 13a-11, 13a-13, and 13a-15 thereunder. Merchant consented to the entry of that order without admitting or denying the allegations of the Commission's complaint. In addition to finding disgorgement, prejudgment interest and civil penalties appropriate, the Court also imposed an officer and director bar, and a penny stock bar against Merchant.
In an order dated April 20, 2015, the Court granted the Commission's motions for summary judgment against Merchant and for default judgment against Southern USA. In a separate order the same day, Southern USA was permanently enjoined from Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 13a-1, 13a-11, 13a-13 and 13a-15 thereunder. In addition the court found disgorgement, prejudgment interest and civil penalties appropriate, but concluded there was no evidence of disgorgement against either defendant. Judge Jones made preliminary findings that Merchant's conduct involved a third tier civil penalty. Two weeks later, in the final judgment, the Court imputed Merchant's scienter to Southern USA and concluded that the corporate defendant also engaged in fraud and deceit, which caused a significant risk of substantial losses to other persons.
See also: L.R. 22878 (November 25, 2013)