Litigation Release No. 18085 / April 14, 2003
Accounting and Auditing Enforcement
Release No. 1758 / April 14, 2003
SECURITIES AND EXCHANGE COMMISSION v. ED JOHNSON AND MERL HOLDINGS, INC.COM, Civil Action No. 02-5490 (D.N.J.)(GEB)
COURT ENTERS FINAL JUDGMENT AGAINST MERL HOLDINGS INC.COM
On April 3, 2003, the Honorable Garrett E. Brown, Jr. of the U.S. District Court for the District of New Jersey entered a final judgment of permanent injunction ("Final Judgment") against New Jersey-based MERL Holdings Inc.com ("MERL"). The Final Judgment permanently enjoins MERL from violating the anti-fraud provisions of the federal securities laws. MERL, without admitting or denying the allegations against it contained in the Commission's complaint, consented to the entry of the Final Judgment. According to the complaint, which was filed on November 18, 2002, MERL and its chairman, president and CEO, Ed Johnson, orchestrated a fraudulent scheme in which: (1) MERL artificially inflated the value of certain assets recorded in its financial statements; (2) MERL improperly consolidated a purported subsidiary in its 1997 and 1998 financial statements; (3) MERL filed two registration statements which contained Management's Discussion and Analysis sections that materially mischaracterized the financial health of the company; (4) MERL compounded its financial irregularities by issuing false press releases, which materially misrepresented the financial condition of the company; and (5) Johnson benefited from his fraudulent scheme by avoiding losses or becoming unjustly enriched by selling MERL stock while in possession of material nonpublic information concerning these accounting irregularities.
The Court's Final Judgment permanently enjoins MERL from violating the anti-fraud provisions of the federal securities laws pursuant to Section 17(a) of the Securities Act of 1933 [15 U.S.C. §77q(a)]; Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder (17 C.F.R. §240.10b-5).
The Commission's case against Johnson is pending. See Litigation Release No. 17846 (November 18, 2002).