The Securities and Exchange Commission (Commission) announced today that it filed a complaint in the U.S. District Court for the Southern District of New York against Cedric Kushner Promotions, Inc. (CKP or the Company), its Chairman of the Board, Chief Executive Officer, President and Founder Cedric Kushner (Kushner), its Principal Financial and Accounting Officer, James DiLorenzo (DiLorenzo), and its former Executive Vice President and Secretary and a current director, Steven Angel (Angel) for violating the antifraud, record-keeping, and reporting provisions of the federal securities laws. As part of this action, the Commission alleges that Kushner and DiLorenzo violated the certification requirements of the Sarbanes-Oxley Act of 2002, and Rule 13a-14 of the Securities Exchange Act of 1934 (Exchange Act).

According to the Commission's Complaint, on the evening of May 20, 2003, CKP filed a Form 10-KSB for the year ended December 31, 2002, that contained what purported to be unqualified independent auditor reports authorized and issued by its former auditor, BDO Seidman, LLP (BDO), and current auditor, Marcum & Kliegman LLP (Marcum). However, the Complaint charges, neither BDO nor Marcum had actually provided those reports to CKP, and CKP instead filed forged auditor reports. Moreover, CKP filed its Form 10-KSB without obtaining either independent auditor's consent.

The Complaint alleges that the financial statements included in the May 20 filing contained material misstatements and substantial errors. For example, the Complaint alleges that the May 20 filing's statement of cash flows included in CKP's financial statements for 2002 reflected, among other things, an approximate $4 million cash deficit when, in fact, CKP's cash balance was $0 by year-end 2002. The Complaint alleges that the May 20 filing's statement of cash flows showed that $5.6 million had been used in operating activities in 2002 when, in fact, only $846,433 had been put to such uses. As a result, the Complaint alleges, CKP misstated its total assets by over 100%. The Complaint alleges further that the May 20 filing misstated in its financial footnotes the number of shares outstanding following CKP's April 2002 reverse merger by 8%.

According to the Complaint, despite their failure to obtain a signed audit report and material errors in the Company's financial statements, Kushner and DiLorenzo each personally certified that the filing fairly and accurately presented CKP's financial condition, in violation of Commission rules adopted pursuant to Section 302 of the Sarbanes-Oxley Act, which require an issuer's principal executive and financial officer to certify financial and other information contained in the quarterly and annual reports. Prior to certifying, the Complaint alleges, Kushner failed to read either the Sarbanes-Oxley certification or the filing to which it was attached, or to take any steps to ascertain whether the filing was true and accurate.

On May 21, both BDO and Marcum wrote letters protesting the forged auditor reports to CKP pursuant to Exchange Act Section 10A, which requires auditors to notify the appropriate level of management as soon as practicable once they detect, or otherwise become aware of, information indicating that an illegal act has or may have occurred. On May 23, the Company filed a Form 8-K containing the auditors' letters and simultaneously filed a Form 10-KSB/A removing the auditor reports, but including new materially inaccurate financial statements. The Complaint charges that DiLorenzo and Angel substantially participated in the creation of both the May 20 and May 23 filings.

The Complaint seeks an injunction against CKP based on its violation of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 10b-5, 12b-20 and 13a-1. The Complaint also seeks an injunction, officer and director bars, and civil monetary penalties against Kushner and DiLorenzo based on their primary violations of Exchange Act Section 10(b) and Exchange Act Rules 10b-5 and 13a-14, and their aiding and abetting CKP's violations of Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20 and 13a-1. The Complaint further charges that Kushner is liable for CKP's violations as a "control person" under Exchange Act Section 20(a). Lastly, the Complaint seeks an injunction, an officer and director bar, and a civil penalty against Angel based on his primary violations of Exchange Act Section 10(b) and Exchange Act Rule 10b-5 or, in the alternative, based on his aiding and abetting violations of Exchange Act Section 10(b) and Exchange Act Rule 10b-5 by CKP, Kushner and DiLorenzo, and his aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and Exchange Act Rules 12b-20 and 13a-1 by CKP.

SEC Complaint in this matter