The Securities and Exchange Commission (SEC) is looking into the business practices of the owner of a Christian video game maker and one of his investors.
Although Troy Lyndon, the founder and chief executive officer of Left Behind Games Inc., said his company was profitable, the SEC claims the company actually never turned a profit and was facing financial difficulties, according to its complaint filed in Hawaii on Tuesday.
The SEC says Lyndon schemed with Maui business consultant Ronald Zaucha to increase the value of the company and profit from the sale of stock that had little or no value.
According to the SEC’s complaint, Left Behind’s two video games—Left Behind 4 and Scripture Chess—were not selling well and caused the company to suffer major financial losses. The commission claims Lyndon gave Zaucha millions of shares of the company stock, which he sold for more than $4 million. Zaucha then used that money to boost revenue by purchasing video game inventory through a distributor, paying fees and loans that the SEC claims were nothing more than kickbacks.
The SEC said in its complaint that the inventory sales “lacked economic substance, and were essentially circular, sham transactions.” Zaucha then gave the inventory away to churches and other religious organizations, but instead of recording the inventory as losses, he recorded it as profit. It fired its employees and closed its doors soon thereafter in 2011.
The SEC is asking that Lyndon and Zaucha pay back any profits they made from the scheme, pay penalties and be barred from issuing penny stocks in the future.
Read more about this case on the Wall Street Journal Law Blog.