The Securities and Exchange Commission has entered final judgments against two CPAs accused of market manipulation and financial fraud in auditing a company that operated adult Web sites.
The final judgments were entered, by consent, against Stephen P. Corso, of Las Vegas, and Brian K. Rabinovitz, of Oak Park, Calif., in a Nevada federal court in connection with an enforcement action filed in 2005 concerning a stock manipulation and accounting fraud scheme. The judgment against Corso, entered on March 18, 2010, permanently enjoins him from violating the antifraud and auditor independence provisions of the federal securities laws. The judgment against Rabinovitz, entered on March 15, 2010, permanently enjoins him from violating the auditor independence provisions of the federal securities laws and orders him to pay a civil penalty of $30,000.
The case involves Exotics.com Inc., a Nevada corporation based in Vancouver, B.C., which operated adult Web sites. The SEC alleged that, between at least 1999 and 2002, Exotics.com, which traded on the Over-the-Counter Bulletin Board, was the subject of a stock manipulation and accounting fraud perpetrated by its officers, attorneys, outside auditors and others.
The SEC accused Corso, Rabinovitz and others of conduct that resulted in the company filing materially false and misleading financial statements in its SEC filings. The complaint further alleged that audit staff under their supervision committed acts and omissions that caused them to become non-independent during audits of Exotics.com and that Corso and Rabinovitz approved the issuance of audit reports that were incorporated in Exotics.com's SEC filings.
At the time, Corso was an officer and shareholder of Merdinger, Fruchter, Rosen & Co., a defunct New York-based accounting firm, and Rabinovitz was an accountant who worked there on the Exotics.com audits.
The SEC complaint alleged that Rabinovitz and the audit staff under his supervision engaged in a number of improper accounting practices that caused Exotics.com's financial statements to depart from generally accepted accounting principles and auditing standards.
Without admitting or denying the allegations, Corso and Rabinovitz consented to the entry of final judgments against them. The final judgment against Rabinovitz orders him to pay a civil penalty of $30,000. Rabinovitz also consented to the entry of an administrative order suspending him from appearing or practicing before the SEC as an accountant, with a right to apply for reinstatement after three years. Corso was previously suspended, on April 14, 2009, from appearing or practicing before the SEC as an accountant.
The SEC previously obtained judgments by default against two other defendants in the case and judgments by consent against two additional defendants. Action remains pending against the remaining seven defendants and a relief defendant. They include other accountants.
