SEWC [now WDLF} Shell Has Big Problem
"SEC shuts down Vegas accounting firm favoured by B.C. promoters
By David Baines, Vancouver Sun September 1, 2009
For the last couple of years, I have complained bitterly about professional complicity in Vancouver-created stock frauds.
I have cited dozens of cases where lawyers, accountants and geologists have helped companies with obvious sham businesses go public on the OTC Bulletin Board in the United States.
I have categorically stated that the intent of the promoters who put together these deals is not to develop a real business, but rather to create tightly held shell companies that can be used for future stock manipulations. These shells sell on the street for up to $800,000 each.
In June 2007, when former B.C. Securities Commission chairman Doug Hyndman declared war on Vancouver-originated bulletin board frauds, he said his enforcement staff would "work with the professional bodies for B.C. accountants, lawyers and geologists to build awareness about the abuses of the OTC markets" and, if necessary, refer disciplinary matters to them.
But so far, neither commission staff nor any of these professional bodies have taken any tangible action against professionals who aid and abet these frauds. I find this disgraceful.
Fortunately, the U.S. Securities and Exchange Commission is taking this business more seriously. Most recently, on Thursday, it shut down Moore & Associates, a Las Vegas accounting firm that has helped breathe life into dozens of fraudulent bulletin board deals, many originating in Vancouver.
In a complaint filed in U.S. District Court in Nevada, the SEC noted that Moore & Associates issued unqualified opinions that its audits accorded with generally accepted accounting principles. In fact, the SEC alleged, the firm's audits "were so deficient that they amounted to no audits at all."
The SEC said the accounting firm, under the ownership and control of 55-year-old certified public accountant Michael J. Moore, grew from three public issuer clients in 2005 to more than 300 by the end of last year. Most were "development stage or shell companies," and together they paid about $3 million in audit fees.
The SEC said Moore was the firm's only CPA until the end of last year, and the firm currently has 12 employees to conduct audits. "At the time they were hired, M&A's employees had little or no accounting experience and no education, background or experience in auditing," the SEC alleged.
On-the job training was cursory. One employee stated that her training consisted of sitting with an outside auditor for a week. Another said she "merely filled out checklists but performed no auditing procedures," the SEC charged.
The complaint cites six public company clients as examples, and goes into two of them in considerable detail. One of those two is Tombstone Exploration Corp., which was based in Nanaimo when Moore & Associates was appointed auditor in July 2007.
After the accounting firm audited Tombstone's 2006 and 2007 statements and issued unqualified opinions, the SEC began asking questions. Tombstone subsequently announced it would restate its financial statements to record a $900,000 impairment in its principal asset, and expense $4.95 million in stock issued to settle debt and pay consulting services.
These afterthoughts changed a $693,625 reported profit into a $4.3-million loss, which must have been a shocking development for public shareholders.
On Thursday, rather than fight the SEC in court, Moore and his firm settled the matter without admitting or denying the allegations, but agreeing never to appear or practise before the commission again.
In a concurrent action, the U.S. Public Company Accounting Oversight Board revoked the firm's registration and barred Moore from working for a registered public accounting firm.
This is good news. Moore and his firm fall into the category of "public menaces." As recently as last Wednesday, even before this disciplinary action was revealed, I noted that Moore & Associates had served as the auditor for Blue Mountain Resources Inc.
Blue Mountain was one of six B.C.-connected companies that filed legal opinions with the SEC under the letterhead of San Diego lawyer Daniel Masters, attesting to the validity of the shares being registered for resale. Problem is, Masters claims these letters are forgeries.
In my Wednesday column, I noted that when Blue Mountain filed its registration statement, it included financial statements audited by Moore & Associates. Curiously, a note to Blue Mountain's financial statements erroneously referred to the company as "Dunn Mining Inc," which is one of the other companies that provided forged opinion letters.
When I asked Moore to explain this error, he said it was simply a "typo." I say this is, at best, more evidence of sloppy accounting, and at worst, evidence of a larger conspiracy to defraud the public.
dbaines@vancouversun.com"
