U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16732 / September 27, 2000
Accounting and Auditing Enforcement Release No. 1327 / September 27, 2000
SEC v. Countryland Wellness Resorts, Inc., Fred Cruz (a.k.a. Federico Cruz Gonzalez), Luis R. Hidalgo, Jr., and Donald E. Studer, Civil Action No. CV-S-00-1160-PMP (RJJ)(D. Nev.).
On September 26, 2000, the Securities and Exchange Commission filed an action in federal court in Las Vegas alleging financial statement fraud against Countryland Wellness Resorts, Inc. ("Countryland"), its president and Board Chairman Fred Cruz (a.k.a. Federico Cruz Gonzalez)("Cruz"), its auditor Luis R. Hidalgo, Jr. ("Hidalgo"), and its attorney Donald E. Studer ("Studer") for the false reporting of assets in periodic filings and a registration statement made with the Commission from 1997 to the present.
The Commission's action alleges that Countryland lied to investors about the following assets reported in its financial statements and in various Commission filings:
With respect to Hidalgo only, the Commission's complaint alleges that Hidalgo rendered false audit reports on Countryland's 1996, 1997 and 1998 financial statements. The Commission alleges that Hidalgo falsely stated that Countryland's financial statements were presented in conformity with Generally Accepted Accounting Principles and that he conducted his audit in accordance with Generally Accepted Auditing Standards. In fact, the audits were not performed in accordance with GAAS and the financial statements were not prepared in conformity with GAAP.
The complaint further alleges that Cruz, along with Countryland's counsel, Studer, knowingly included an unauthorized audit report in a June 1999 registration statement filed with the Commission.
The Commission's complaint alleges that Countryland, Cruz, Hidalgo, and Studer violated the antifraud provisions (Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder). Additionally, the complaint alleges that Countryland violated and Cruz aided and abetted Countryland's violations of the reporting (Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder), record-keeping (Section 13(b)(a)(A) of the Exchange Act) and internal control provisions (Section 13(b)(2)(B) of the Exchange Act). Cruz also falsified Countryland's books and records (Rule 13b2-1 of the Exchange Act) and violated the lying-to-an-accountant provisions (Rule 13b2-2 of the Exchange Act).
The complaint seeks a permanent injunction against each of the defendants, and civil penalties against Cruz, Hidalgo, and Studer.
Simultaneous with the filing of the Commission's complaint, Countryland, Cruz, Hidalgo, and Studer offered to settle the action by consenting to a permanent injunction, without admitting or denying the allegations in the complaint, for the violations outlined above. Cruz also agreed to pay a civil penalty in the amount of $55,000. No penalties were assessed against Studer and Hidalgo based on their demonstrated inability to pay.
The defendants are:
In a separate enforcement action, on September 27, 2000, the Commission instituted an administrative proceeding against Countryland seeking to revoke the registration of Countryland's common stock. See Administrative Release No. 3-10314 (Sept. 27, 2000).http://www.sec.gov/litigation/litreleases/lr16732.htm