LAWYER CHARGED BY SEC WITH HAVING ROLE IN PRIME BANK SCHEME

FROM:  SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Florida Lawyer in Connection with Multi-Million Dollar Prime Bank Scheme

The Securities and Exchange Commission announced that today that it charged Florida attorney Allen Ross Smith, a sole practitioner, with violating the anti-fraud and securities offering provisions of the federal securities laws for his role in an advance fee investment scheme involving prime bank transactions and overseas debt instruments. The scheme was orchestrated by Switzerland-based Malom Group AG, a company named with an acronym for "Make A Lot Of Money," through individuals in Zurich and Las Vegas. Smith acted as Malom's attorney as well as its escrow agent and "paymaster."

According to the SEC's complaint, filed in the U.S. District Court for the District of New Hampshire, Smith, leveraging his title and position as an attorney, made several false and misleading statements to investors. These statements concerned Malom's financial strength and history of success, Smith's familiarity with Malom and its principals, and the status of transactions from which Malom would repay investors who lost all their funds. In making these misstatements, Smith repeated what he was told by Malom and its agents and did nothing to verify their claims. At least three investors entered into transactions with Malom after having received Smith's misstatements about Malom. These investors collectively lost $2.1 million.

The SEC's complaint also alleges that Smith assisted Malom by allowing it to use his attorney escrow account to collect investor funds, and then by following Malom's direction to distribute those funds to individuals, including many with no connection to the contemplated transactions, located in the United States and abroad. Smith received and distributed approximately $2.44 million in investor funds at Malom's behest. Finally, the complaint alleges that Smith offered and sold unregistered securities by, among other actions, making several required certifications regarding Malom to investors as part of a securities offering that was intended to help New Hampshire-based USA Springs, Inc. emerge from bankruptcy. As a result of that fraudulent offering, the federal bankruptcy court for the District of New Hampshire entered a $60 million judgment against Malom in 2012. In re USA Springs, Inc., 1:08-bk-11816 (Bankr. D.N.H.).

The SEC's complaint alleges that Smith violated Section 17(a) and Section 5 of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aided and abetted violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties against Smith.

The SEC's investigation was conducted by Stephen Simpson and Angela Sierra, and the SEC's litigation will be led by Mr. Simpson. The SEC appreciates the assistance of the Department of Justice, Federal Bureau of Investigation, and the State Attorney's Office for the Canton of Zurich, Switzerland.

The SEC previously charged Malom Group AG, its principals, and agents with violating the antifraud and securities registration provisions of the federal securities laws in SEC v. Malom Group AG, et al, 2:13-cv-2280 (D. Nev. Dec. 16, 2013) and SEC v. Erwin et al., 2:14-cv-623 (D. Nev. Apr. 23, 2014). For additional information about these cases, see Litigation Release Number 22890 (Dec. 16, 2013); Litigation Release Number 22978 (Apr. 28, 2014).

2 BANK EXECUTIVES CHARGED BY SEC WITH MAKING MISTATEMENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Charges Two Bank Executives for Financial Misstatements and Failure to Disclose Probable Loss on Troubled Loan

On September 24, 2013, the Securities and Exchange Commission charged two former bank executives at Illinois-based Mercantile Bancorp with failing to recognize in financial statements a probable loss on one of the bank’s largest troubled loans. Former CEO Ted Awerkamp of Amarillo, Texas, and former CFO Michael McGrath of Quincy, Ill., agreed to settle the SEC’s charges by paying penalties of $100,000 each and being barred from acting as an officer or director of a publicly traded company.

The SEC alleges that prior to the end of the third quarter in 2010, Awerkamp knew that the borrower in a shared national credit loan for a large residential real estate development to be built in Colorado Springs was unwilling or unable to contribute the necessary funds to complete the project, which served as collateral for the loan. He also knew that the collateral had declined significantly in value. After the third quarter but still weeks before the bank’s quarterly report was filed, Awerkamp and McGrath also learned that the borrower missed a loan payment and declared bankruptcy. Based on these and other events, U.S. accounting rules required Mercantile to recognize a $5.28 million loan loss in its third quarter financial statements, yet the bank failed to do so.

According to the SEC’s complaint, the failure to report the loan loss caused Mercantile to falsely state that its main subsidiary bank had met certain capital ratio thresholds required by the Federal Deposit Insurance Corporation (FDIC). Mercantile also understated its net loss for the quarter and the nine months ending September 30. The bank reported those figures as $7.5 million and $11 million when they were actually at least $12.78 million and $16.28 million. Mercantile also falsely stated that its main subsidiary bank had a net income of $1.8 million for first nine months of 2010 when it actually had a net loss of at least $3.48 million during that period.

The SEC’s complaint charges Mercantile with violations of Section 17(a)(3) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-11 and 13a-13. Awerkamp is charged with violations of Section 17(a)(3) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2. He also is charged with aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13. McGrath is charged with violations of Section 17(a)(3) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13a-14, 13b2-1 and 13b2-2. He also is charged with aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13.

Mercantile, Awerkamp, and McGrath consented to the entry of final judgments without admitting or denying the SEC’s allegations. In addition to the monetary sanctions and officer-and-director bars against Awerkamp and McGrath, they agreed to be permanently enjoined from future violations of these provisions of the securities laws.

SEC CHARGES GOLD STANDARD MINING CORP. AND OTHERS FOR FALSE AND MISLEADING STATEMENTS

FROM:  U.S. SECURITES AND EXCHANGE COMMISSION
July 3, 2012
On June 29, 2012, the Securities and Exchange Commission filed a civil action in the United States District Court for the Central District of California against Gold Standard Mining Corp. (“Gold Standard”), its Chief Executive Officer/Chief Financial Officer Panteleimon Zachos, attorney Kenneth G. Eade, auditor E. Randall Gruber and his firm Gruber & Company LLC.

In its complaint, the Commission alleges that, between May 2009 and April 2011, Gold Standard filed numerous reports about its purported Russian gold mining operations that were materially false and misleading in various respects. According to the complaint, Gold Standard represented that it had acquired a Russian gold mining company known as Ross Zoloto Co., Ltd. (“Ross Zoloto”), but did not inform investors that it had agreed to allow the prior owner of Ross Zoloto to keep profits from existing operations or of issues surrounding Russian government registration or approval of the business combination. The complaint also alleges that Gold Standard filed false or misleading financial statements.

The complaint alleges that Gold Standard and Zachos were responsible for these misstatements, and that Eade, Gruber and Gruber & Co. substantially assisted Gold Standard in making these false and misleading statements. The complaint further alleges that Gruber & Co., through its sole member Edward Randall Gruber, misrepresented in an audit opinion that it had audited the company’s 2007, 2008 and 2009 consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board.

Without admitting or denying the allegations in the Commission’s complaint, Gold Standard and Zachos consented to final judgments pursuant to which Gold Standard will be enjoined from violating Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rules 10b-5, 12b-20, 13a-11 and 13a-13 thereunder, and Zachos will be enjoined from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13a-14 thereunder and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder. Zachos will also be barred from serving as an officer or director of a public company. The judgments are subject to court approval.

The complaint alleges that Eade and Gruber aided and abetted Gold Standard’s violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; Gruber & Co. violated Sections 10(b) and 10A(a) of the Exchange Act and Rule 10b-5(b) thereunder, and aided and abetted the violations of Gold Standard of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5(b), 12b-20, 13a-11, and 13a-13 thereunder; and Gruber violated Section 10A(a) of the Exchange Act and aided and abetted the violations of Gruber & Co. of Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder or, in the alternative, in liable as a control person of Gruber & Co. LLC with respect to those violations pursuant to Section 20(a) of the Exchange Act. The Commission seeks permanent injunctions, disgorgement, prejudgment interest and civil penalties against Eade, Gruber and Gruber & Co. and seeks to bar Eade from serving as an officer or director of a public company.