Left Behind Games accused of revenue inflation scheme
[UPDATE: CEO responds] The SEC says studio founder inflated the company's revenue by 1,300 percent in one year
The United States Securities and Exchange Commission has filed charges against Left Behind Games founder Troy Lyndon and his consultant friend Ronald Zaucha. The pair stand accused of inflating the company's value nearly 1,300 percent using circular transactions over the course of one year. Left Behind Games' stock was suspended by the SEC.
"Lyndon and Zaucha's scheme duped investors into believing Left Behind Games was becoming a successful enterprise when it was struggling to stay afloat," said Michele Wein Layne, director of the SEC's Los Angeles Office. "Lyndon essentially gave Zaucha stock in exchange for phony revenue streams that created an inaccurate portrait of the company's financial health."
Left Behind Games was founded in 2001 and closed its offices at the end of 2011. The SEC alleges that Lyndon and Zaucha began their scheme in 2009. Left Behind would issue stock to Zaucha for consulting services, which he would then sell immediately for $4.6 million, with $3.3 million returning to the company. Zaucha paid the company $871,000 in early-sell fees. He then created a second company, Lighthouse Distributors, which purchased $1.38 million in equipment from Left Behind, which was then given away. Then he kicked back the latter $1 million to the company directly. The SEC says that Zaucha performed few actual consulting services.
The SEC complaint wants permanent injunctions, financial penalties, and penny stock bars against Lyndon and Zaucha.
UPDATE: Lyndon released a statement, wherein he says that the SEC has "systematically and intentionally conspired to dismantle Left Behind Games." The full statement is below:
Fact is, I'm just a video game guy. If any violation occurred, it would never have been intentional - and certainly, never fraudulent - my attorney told me that any person that earned shares could use them for any purpose. For more than 2 years, I've asked SEC to explain how and if I have violated any rule, so that I could self-report it. As I see it, the government has systematically and intentionally conspired to dismantle Left Behind Games and the facts are both true and hard to believe - worthy of a Ron Howard film or John Grisham novel.
In 2008, [the Financial Industry Regulatory Authority] ignored my complaint that the Tides' Foundation had possibly used government funds to intentionally launch a smear campaign in 2006 because of our affiliation to religious and political conservative Tim LaHaye. In 2009, FINRA ignored my complaint that Newbridge Securities had developed a large and illegal naked-short position in our stock which they covered with our investors' shares after our announcement on June 19, 2009 of our Walmart placement. I even provided FINRA with details on how to calculate how brokerages were moving shares out of investors' name into street name, in order to hide their positions from the government. By using published REG-SHO data, I demonstrated to FINRA how 67% of our trading at one point was a direct result of naked-shorting - and still they did nothing.
In January 2011, the [Public Company Accounting Oversight Board] removed our fully-reporting status as a public company by cutting a back-door deal with our former auditor without our knowledge or ability to do anything and in April 2011, after our company asked the SEC directly for clarification regarding the proper way to book a series of transactions conducted with Mr. Zaucha, they've turned our request into a law suit against this CEO that has already given everything for the benefit of his investors, resulting in my own personal bankruptcy in 2012.
I'm still working diligently - never giving up - as the Inc. Magazine Entrepreneur of the Year award recipient that I am - while I still hold a lifelong goal to see Left Behind Games become successful for the long-term, for our investors who have funded what has become one of the leading publishers of Christian video games, providing healthy alternatives to much of the violence released by the video game industry.
I actually filed a lawsuit myself against the government on July 24, 2013 for their negligence - in United States District Court for the District of Hawaii, case #CV13 00367 SOM BMK, but it is expected to be dismissed on September 30, 2013 because of the government's broad immunity.
We are now at a point in time in which the SEC's budget has increased by 444% in 15 years, resulting in a record number of lawsuits. Instead of helping hard-working CEOs remain good corporate citizens, the SEC's goal is to file as many lawsuits as possible without recognizing how such litigation has contributed to the loss of thousands, virtually half of America's public companies. They are inhibiting entrepreneurial access to capital across the board without regard to the consequences for our nation and economy.
I still find everything that has happened hard to believe myself. I will post more details on this page from time-to-time as [the] story unfolds.