SEC Charges Two Public Companies and Executives with Financial and Disclosure Fraud
Litigation Release No. 25155 / August 3, 2021
Securities and Exchange Commission v. Live Ventures Incorporated, JanOne Inc. (f/k/a Appliance Recycling Centers of America, Inc.), John Isaac a/k/a Jon Isaac, Kingston Diversified Holdings LLC, and Virland A. Johnson, Civil Action No. 2:21-cv-01433 (D. Nev. filed August 2, 2021)
The Securities and Exchange Commission charged a publicly-traded Las Vegas-based holding company, its CEO, its CFO, an LLC controlled by the CEO, and another Nevada-based public company with multiple financial, disclosure, and reporting violations related to inflated income and earnings per share, stock promotion and secret trading, and undisclosed executive compensation.
The SEC's complaint alleges that Las Vegas-based Live Ventures Incorporated and its CEO, Jon Isaac, recorded income from a backdated contract to boost Live Ventures' pre-tax income for fiscal year 2016 by 20%. Live Ventures and Isaac also allegedly overstated earnings per share by 40% by improperly understating Live Ventures' outstanding share count. The complaint alleges that in addition to disclosing falsified financial results, Isaac hired a stock promoter to boost interest in Live Ventures. As alleged, the financial manipulation and stock promotion caused Live Ventures' share price to spike. Isaac allegedly profited by secretly selling Live Ventures shares in a nominee account that he controlled in the name of Kingston Diversified Holdings.
The complaint also alleges that Live Ventures misrepresented the date on which it had acquired a new subsidiary from Appliance Recycling Centers of America, Inc. (ARCA, currently known as JanOne Inc.), enabling Live Ventures to report a positive net income for its first quarter of 2018, which otherwise would have been an unprofitable quarter. According to the complaint, Isaac and Virland A. Johnson, who held the position of CFO at both Live Ventures and ARCA, engaged in a scheme to misrepresent the effective acquisition date, and lied to Live Ventures' auditors about the acquisition date to ensure Live Ventures could report positive net income. The complaint further alleges that Isaac underreported his executive compensation in Live Ventures' proxy statements. As alleged, for the fiscal years 2016, 2017, and 2018, Live Ventures disclosed that Isaac received, in aggregate, $162,000 of additional compensation, even though he had actually received approximately $315,000 during that period.
The SEC's complaint, which was filed in the U.S. District Court for the District of Nevada, charges Live Ventures, JanOne, Kingston Diversified, Isaac, and Johnson with violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also charges Live Ventures with violating the reporting provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder; Live Ventures and Isaac with violating the proxy solicitation provisions of Section 14(a) of the Exchange Act and Rule 14a-3 thereunder; and Isaac and Kingston Diversified with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933. The complaint further charges Isaac and Johnson with violating Section 13(b)(5) of the Exchange Act and Rules 13a-14, 13b2-1, and 13b2-2 thereunder, and aiding and abetting Live Ventures' violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.
The SEC's investigation was conducted by Robert Stillwell, Wendy Pearson, and Christopher Conte and supervised by Finola Manvelian and Rhoda Chang of the Los Angeles Regional Office. The SEC's litigation will be led by John Bulgozdy and supervised by Amy J. Longo.