Another CPA Disciplined for Porn Site Accounting Fraud

A federal district court in Nevada has granted the Securities and Exchange Commission’s motion for a summary judgment and entered a final judgment against another CPA who was accused of stock manipulation and accounting fraud at a company that operated adult Web sites.

The final judgment against L. Rex Andersen, a CPA based in Draper, Utah, was entered Tuesday in connection with an enforcement action filed by the SEC in 2005. He has been permanently enjoined from violating the antifraud and other provisions of the federal securities laws and ordered to pay disgorgement, prejudgment interest, and a civil money penalty totaling $126,219.04.

The civil injunctive action was filed on April 25, 2005, against Andersen, Exotics.com, Inc., a Nevada corporation based in Vancouver, British Columbia, and 11 additional principal defendants and one relief defendant. The SEC complaint alleged that, between at least 1999 and 2002, Exotics.com (formerly a corporate shell known as Hardrock Mines, Inc.) was the subject of a stock manipulation and accounting fraud. According to the complaint, Andersen performed audits of the 1999 and 2000 year-end financial statements of Hardrock Mines, Inc., but he lacked independence during the audits because he had prepared most of the client’s books and records and its financial statements. He was a principal of Andersen, Andersen & Strong, a Salt Lake City-based accounting firm.

The SEC complaint further alleged that Andersen created the client's books and records in reliance on documents that he knew, or was reckless in not knowing, were fraudulent, and thereby caused the financial statements to depart from GAAP. The complaint also alleged that Andersen's firm thereafter issued audit reports falsely representing that the audits had been conducted in accordance with generally accepted auditing standards, and that the financial statements were presented in conformity with GAAP. The fraudulent audit reports provided by Andersen were incorporated in various public filings with the Commission made by Hardrock Mines and Exotics.com.

The SEC previously obtained judgments by default against two defendants and judgments by consent against seven additional defendants, including several other CPAs (see CPAs Disciplined for Porn Site Accounting Fraud and CPA Settles Porn Site Accounting Fraud for $20,000). The action remains pending against defendants Daniel G. Chapman, James L. Ericksteen, and Sean P. Flanagan and relief defendant Flanagan & Associates, Ltd.