Read the release and the related SEC Complaint. Summarize the release and complaint in 2-3 pages (12-point, double spaced). U.S. Securities and Exchange Commission Litigation Release No. 21819 / January 20, 2011 Accounting and Auditing Release No. 3234 / January 20, 2011 Securities and Exchange Commission v. NutraCea, et al., United States District Court, District of Arizona, Civil Action No. CV 11-0092-PHX-DGC SEC CHARGES ARIZONA-BASED HEALTH FOOD COMPANY AND FORMER EXECUTIVES WITH ACCOUNTING FRAUD On January 13, 2011, the Securities and Exchange Commission charged NutraCea, three former executives, and two former accounting personnel for engaging in a fraudulent accounting scheme to inflate NutraCea's product sales revenues. The SEC alleges that NutraCea overstated its sales revenues for the second and third quarters of its fiscal year 2007 and fiscal year 2007 by booking false sales and engaging in improper revenue recognition practices. Through misstated financial statements, NutraCea disguised its true operating results in the second and third quarter of 2007 and fiscal year 2007. The SEC charged NutraCea's former chief executive officer, Bradley D. Edson, former chief financial officer, Todd C. Crow, and former senior vice president and secretary, Margie Adelman, for their roles in the fraudulent accounting scheme. The SEC also charged former controller, Joanne D. Kline, and former director of financial services, Scott Wilkinson, for their roles in the improper accounting. NutraCea, an Arizona-based company that manufactures and sells health food products, agreed to settle the SEC's charges. Edson agreed to pay a $100,000 penalty, reimburse NutraCea $350,000 in bonuses he received in 2008, and agreed to a permanent officer and director bar to settle the SEC's charges against him. Adelman, Kline, and Wilkinson also agreed to settle the SEC's charges. The SEC's complaint, filed in federal district court in Arizona, alleges that NutraCea, Edson, Crow, and Adelman falsified NutraCea's sales revenues in 2007, and Kline and Wilkinson engaged in improper accounting by recording these false revenues. NutraCea booked $2.6 million in false sales to Bi-Coastal Pharmaceutical Corp. in the second quarter of 2007, resulting in overstated product sales revenue of as much as 35% in the second quarter of 2007. According to the SEC's complaint, Edson instructed Bi-Coastal's president to falsify his family's financial statements to reflect a higher net worth in order to support the false sales to Bi-Coastal. In reality, Bi-Coastal's "down payment" for the $2.6 million sale came from NutraCea's former COO. When Kline tried to discuss with Crow in 2007 her discovery that the $1 million deposit for the Bi-Coastal sale came from a loan from the former COO to Bi-Coastal in order to justify NutraCea's recognition of revenue from this sale, she says that Crow "covered his ears and said, 'No, no, no, no, no, no, no, no, no. I don't want to hear it.'" The complaint also alleges that NutraCea improperly recorded revenue on a bill and hold transaction related to a $1.9 million sale of product to ITV Global, Inc. in the fourth quarter of 2007. As a result of the Bi-Coastal and ITV Global transactions alone, NutraCea overstated its product sales revenue by 36.8% for fiscal year end 2007. These false revenues caused NutraCea to misstate its operating loss by over 89% in the second quarter 2007, over 17.6% in the third quarter 2007, and nearly 7% in fiscal year 2007. Without admitting or denying the SEC's allegations, NutraCea, Edson, Adelman, Kline, and Wilkinson agreed to settle this matter on the following terms: NutraCea consented to the entry of an order that permanently enjoins it from future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. Edson consented to a final judgment permanently enjoining him from future violations of Section 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder, and for aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. Edson also agreed to a permanent officer and director bar, to pay a civil penalty of $100,000, and to reimburse NutraCea, pursuant to the Sarbanes Oxley Act of 2002, the $350,000 in bonuses he received in 2008. Adelman consented to a final judgment permanently enjoining her from future violations of Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 13b2-1, and 13b2-2 thereunder, and for aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder. Adelman further consented to a five year officer and director bar. Kline and Wilkinson both consented to final judgments permanently enjoining them from future violations of Section 13(b)(5) of the Exchange Act, and Rules 13b2-1 and 13b2-2 thereunder, and for aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 thereunder. Kline and Wilkinson also agreed to each pay a civil penalty of $25,000. Kline and Wilkinson further consented to the issuance of administrative orders pursuant to Rule 102(e) of the Commission's Rules of Practice, suspending each of them from appearing or practicing before the Commission as an accountant with the right to apply for reinstatement after one year. These settlements are subject to the approval of the U.S. District Court of Arizona. The complaint against Crow alleges that he violated and aided and abetted violations of the antifraud, books and records, financial reporting, internal controls, and lying to auditors provisions of the federal securities laws. The complaint also alleges that Crow violated Exchange Act Rule 13a-14 by signing certifications required by Section 302 of the Sarbanes Oxley Act that were false and misleading. The SEC's complaint against Crow seeks a permanent injunction, a civil penalty, and an officer and director bar. The case against Crow is ongoing. Case 2:11-cv-00092-DGC Document 1 1 2 3 4 5 6 7 Filed 01/13/11 Page 1 of 25 SPENCER E. BENDELL, Cal. Bar No. 181220 E-mail: bendells@sec.gov ANN C. KIM, Cal. Bar No. 212438 Email: kimac@sec.gov Attorneys for Plaintiff Securities and Exchange Commission Rosalind Tyson, Regional Director John M. McCoy III, Associate Regional Director 5670 Wilshire Boulevard, 11th Floor Los Angeles, California 90036 Telephone: (323) 965-3998 Facsimile: (323) 965-3908 8 9 UNITED STATES DISTRICT COURT 10 DISTRICT OF ARIZONA 11 12 SECURITIES AND EXCHANGE COMMISSION, Plaintiff, 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 vs. NUTRACEA; BRADLEY D. EDSON; TODD C. CROW; JOANNE D. KLINE; SCOTT WILKINSON; and MARGIE ADELMAN; Defendants. Case No. COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS Case 2:11-cv-00092-DGC Document 1 1 2 Plaintiff Securities and Exchange Commission (the \"Commission\") alleges as follows: 3 4 Filed 01/13/11 Page 2 of 25 SUMMARY 1. This matter involves false financial information reported by 5 Phoenix, Arizona-based NutraCea (formerly known as NutraCea, Inc.) and 6 certain of its senior management and accounting staff in its periodic reports filed 7 with the Commission for fiscal year 2007. 8 9 2. NutraCea manufactures and sells health food products. NutraCea overstated its sales revenues for the second and third quarters of fiscal year 2007 10 and its entire fiscal year 2007 by booking false sales and engaging in improper 11 revenue recognition practices. 12 3. Through misstated financial statements, NutraCea disguised its 13 second and third quarter 2007 and fiscal year 2007 true operating results. 14 NutraCea booked $2.6 million in false sales to Bi-Coastal Pharmaceutical Corp. 15 (\"Bi-Coastal), resulting in overstated product sales revenue of as much as 35% in 16 the second quarter of 2007. The false sales to Bi-Coastal had a continuing 17 material impact through the third quarter of 2007 when NutraCea overstated 18 product sales revenue by 29% for the nine month period ending September 30, 19 2007. In addition, NutraCea improperly recorded revenue on a bill and hold 20 transaction related to a $1.9 million sale of product to ITV Global, Inc. (\"ITV\") 21 in the fourth quarter of 2007. 22 4. As a result of these two transactions alone, NutraCea overstated its 23 product sales revenue by 36.8% for fiscal year end 2007. As a result of the 24 overstated product sales revenue from these two transactions, NutraCea misstated 25 its operating loss by over 89% in the second quarter 2007, over 17.6% in the third 26 quarter 2007, and nearly 7% in fiscal year 2007. 27 28 5. On March 28, 2008, NutraCea incorporated by reference its misstated Form 10-K for fiscal year 2007 in a Form S-3/A filed in connection 1 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 3 of 25 1 with an amended registration statement with a potential $125 million offering of 2 common stock, preferred stock, warrants, and depositary shares. As a result of 3 Defendants' fraudulent conduct, NutraCea restated its financial statements on 4 October 20, 2009. 5 6 JURISDICTION AND VENUE 6. This Court has jurisdiction over this action pursuant to Sections 7 20(b), 20(d)(1), and 22(a) of the Securities Act of 1933 (\"Securities Act\"), 15 8 U.S.C. 77t(b), 77t(d)(1), and 77v(a), and Sections 21(d)(1), 21(d)(3)(A), 21(e), 9 and 27 of the Securities Exchange Act of 1934 (\"Exchange Act\"), 15 U.S.C. 10 78u(d)(1), 78u(d)(3)(A), 78u(e) & 78aa. Defendants have directly or indirectly 11 made use of the means or instrumentalities of interstate commerce, of the mails, 12 or of the facilities of a national securities exchange in connection with the 13 transactions, acts, practices and courses of business alleged in this Complaint. 14 7. Venue is proper in this district pursuant to Section 22(a) of the 15 Securities Act, 15 U.S.C. 77v(a), and Section 27 of the Exchange Act, 15 16 U.S.C. 78aa, because defendants reside and transact business within this district 17 and certain of the transactions, acts, practices and courses of conduct constituting 18 violations of the federal securities laws alleged in this Complaint occurred within 19 this district. 20 21 THE DEFENDANTS 8. NutraCea is a California corporation with its principal executive 22 offices located in Phoenix, Arizona and is engaged in the business of 23 manufacturing health food products. NutraCea's common stock is registered 24 with the Commission pursuant to Section 12(g) of the Exchange Act and trades 25 on the OTC:BB under the symbol \"NTRZ\". 26 9. Bradley D. Edson, age 51, of Scottsdale, Arizona, is the former 27 chief executive officer and a former director of NutraCea. Edson was NutraCea's 28 CEO from December 2005 to March 2009, and a member of NutraCea's board of 2 Case 2:11-cv-00092-DGC Document 1 1 2 Filed 01/13/11 Page 4 of 25 directors from December 2004 to March 2009. 10. Todd C. Crow, age 62, of Granite Bay, California, is the former 3 chief financial officer of NutraCea. Crow was NutraCea's chief financial officer 4 from October 2005 to May 2008 and July 2008 to November 2008. 5 11. Joanne D. Kline, age 48, of Phoenix, Arizona, is the former 6 controller of NutraCea. Kline was the controller from March 2007 to June 2009. 7 Kline has been a licensed certified public accountant in Arizona since April 1993, 8 but her license was suspended in November 2010. 9 12. Scott Wilkinson, CPA, age 54, of Phoenix, Arizona, is the former 10 director of financial services of NutraCea. He held this position from April 2007 11 to February 2009. Wilkinson has been a licensed certified public accountant in 12 Arizona since 2006. 13 13. Margie Adelman, age 50, of Paradise Valley, Arizona, is a former 14 senior vice president and secretary of NutraCea. Adelman was NutraCea's senior 15 vice president from January 2005 to November 2008. Adelman served as 16 NutraCea's secretary from January 2005 to early 2008. 17 18 DEFENDANTS' FRAUDULENT SCHEME 14. In order to meet earnings and/or gross sales expectations and 19 guidance throughout 2007, NutraCea management falsified its product sales 20 revenues. The tone from the top - specifically Bradley Edson (\"Edson\") - was to 21 do anything necessary to ensure NutraCea met its earnings goals, especially after 22 the first quarter of 2007 when NutraCea had a revenue shortfall primarily 23 attributable to its inability to recognize $2.6 million in sales. Through false sales 24 of $2.6 million of product to Bi-Coastal in the second quarter, NutraCea was able 25 to record $10.3 million in sales and thereby exceed its previously announced 26 guidance for gross sales of between $9 million and $10 million. 27 28 15. Through its premature recognition of $1.9 million in revenue from the ITV sale in the fourth quarter, NutraCea was able to meet its previously 3 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 5 of 25 1 announced earnings expectation of between $5 million and $7 million by 2 reporting fourth quarter revenues of $5.6 million. 3 I. 4 Second Quarter 2007 Sale to Bi-Coastal Pharmaceutical 16. In the second quarter of fiscal year 2007, NutraCea improperly 5 recorded a $2.6 million sale of four different products to Bi-Coastal. NutraCea 6 had attempted to book revenue from the sale of these same products to three 7 different customers in the previous quarter, but Perry-Smith, NutraCea's outside 8 auditors, disagreed with NutraCea's assessment that revenues from the sales were 9 appropriately recognized. 10 17. Edson fought hard with Perry-Smith to convince them that the 11 revenue from these first quarter sales should be booked. However, Perry-Smith 12 refused to change its position and made NutraCea reverse the revenue, causing a 13 shortfall in revenues by 47% from the same period one year before. 14 18. The next quarter, Edson was determined to recognize revenue from 15 the sale of these same products. Specifically, in the second quarter of 2007, 16 Edson approached Bi-Coastal's president and asked him to issue purchase orders 17 for $2.6 million of product. This transaction was a complete sham. Bi-Coastal 18 had no intention of purchasing and selling these products. Edson told Bi- 19 Coastal's president that \"he had several avenues of potential distribution for these 20 products and that [Bi-Coastal was] never going to take possession of them and 21 that at a later date [Edson] was going to sell the products to a third party.\" 22 19. NutraCea then improperly booked the entire sale in the second 23 quarter. Staff Accounting Bulletin (\"SAB\") No. 104 references four basic 24 criteria for revenue recognition as follows: (1) persuasive evidence of an 25 arrangement exists; (2) delivery has occurred or services have been rendered; 26 (3) the seller's price to the buyer is fixed or determinable; and (4) collectability is 27 reasonably assured. In this instance, collection from Bi-Coastal was not 28 reasonably assured. See also Accounting Research Bulletin No. 43, Chapter1A, 4 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 6 of 25 1 Para. 1, which states that collection must be reasonably assured before profit can 2 be recognized. Here, due to Bi-Coastal's and its owners' precarious financial 3 condition, as well as the dubious sales arrangement between NutraCea and Bi- 4 Coastal, collection of the receivable from this transaction could not be deemed 5 reasonably assured. 6 20. To further substantiate this sham sale and to support recognizing the 7 entire sale in the second quarter, Edson did the following: (1) worked out a $1 8 million loan from NutraCea's former COO to Bi-Coastal so that Bi-Coastal could 9 make a down payment on the $2.6 million purchase; (2) requested Bi-Coastal's 10 president to send NutraCea an internally prepared financial statement for Bi- 11 Coastal's owners that would support Bi-Coastal's ability to pay the balance due 12 of $1.6 million; and 3) asked Bi-Coastal's president to falsify the numbers in the 13 original financial statement to reflect a higher net worth for Bi-Coastal's owners. 14 21. Specifically, Edson told Bi-Coastal's president that \"the only way 15 that [Edson] could book the sale and the auditors would be able to accept the sale 16 and book the sale for that period of time was if a substantial deposit was made for 17 that amount, because of Bi-Coastal's lack of financial strength . . . .\" Edson 18 further told Bi-Coastal's president that Edson had arranged a loan for the down 19 payment from NutraCea's former COO to Bi-Coastal. Specifically, the former 20 COO would transfer his NutraCea options to Bi-Coastal to affect a loan. After he 21 sent the original financial statement to NutraCea, Bi-Coastal's president received 22 instructions from Edson to falsify the numbers in the financial statement to reflect 23 a higher net worth for Bi-Coastal's owners. 24 22. Bi-Coastal was also contacted by NutraCea's former COO, who told 25 him what changes to make to the financial statements. Ultimately, based on the 26 former COO's and Edson's directions, Bi-Coastal's president falsified his 27 family's financial statements to reflect a net worth of over $20 million. This was 28 $15 million more than the net worth originally stated in the financial statement 5 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 7 of 25 1 dated three days earlier, in which Bi-Coastal's owners reported a net worth of 2 over $4.9 million. 3 23. CFO Todd Crow (\"Crow\") knew that Bi-Coastal's down payment 4 for the $2.6 million sale came from the former COO. Sometime between June 5 21, 2007 and June 30, 2007, NutraCea's former COO attempted to tell Crow 6 about his loan to Bi-Coastal for the down payment, but \"[Crow] basically said, 'I 7 don't want to hear this.'\" 8 24. Around July 10, 2007, Joanne Kline (\"Kline\"), NutraCea's former 9 controller, received some documents from NutraCea's former COO that included 10 documents related to the loan from the former COO to Bi-Coastal. She believed 11 that the loan from NutraCea's former COO may have been used for the one 12 million-dollar deposit by Bi-Coastal to justify NutraCea's recognition of revenue 13 from this sale. When Kline tried to discuss with Crow her thought that the $1 14 million deposit for the Bi-Coastal sale came from a loan from the former COO to 15 Bi-Coastal or one of its owners, \"[Crow] covered his ears and said, 'No, no, no, 16 no, no, no, no, no, no. I don't want to hear it.'\" 17 25. Around this time, Kline believes she told Scott Wilkinson 18 (\"Wilkinson\") that the $1 million down payment may have been from a loan the 19 former COO made to Bi-Coastal. Kline did not discuss the loan from the former 20 COO to Bi-Coastal with anyone else, particularly Perry-Smith and NutraCea's 21 audit committee, because she was afraid she would be terminated. 22 26. Despite their knowledge and/or belief that Bi-Coastal's $1 million 23 down payment on the $2.6 million sale was from NutraCea's former COO's loan, 24 Edson, Crow, Kline and Wilkinson failed to disclose this information to Perry- 25 Smith. Instead, they affirmatively misled the auditors when they all signed an 26 August 14, 2007 management representation letter related to Perry-Smith's 27 review of the interim financial information of NutraCea for the second quarter 28 Form 10-Q falsely representing that (1) the interim financial information was 6 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 8 of 25 1 presented in accordance with accounting principles generally accepted in the 2 U.S.; (2) all financial records and related data were made available to Perry- 3 Smith; and (3) they had no knowledge of any fraud or suspected fraud affecting 4 NutraCea involving management, employees who have significant roles in the 5 internal control, or others where fraud could have a material effect on the interim 6 financial information. 7 II. Fourth Quarter 2007 Sale to ITV Global, Inc. 8 A. ITV's November 2007 Order Of Rice n Shine 9 27. In November 2007, NutraCea sold 150,000 units of Rice n Shine, a 10 meal replacement product, to ITV for over $1.9 million. NutraCea engaged a co- 11 packer, Innovative Health Products, Inc. (\"IHP\"), to manufacture this order of 12 Rice n Shine for ITV. To that end, in late November 2007, NutraCea shipped its 13 proprietary raw ingredient, dextrinized rice bran (hereinafter, \"raw material\") to 14 IHP, to manufacture ITV's order of Rice n Shine. After manufacturing the Rice 15 n Shine, IHP was to hold the product at its facilities for shipping to ITV. 16 28. Around the time the purchase order for Rice n Shine was issued, 17 Edson instructed Margie Adelman (\"Adelman\"), the vice president who 18 negotiated this sale, to obtain letters from both ITV and IHP stating that the Rice 19 n Shine would be manufactured and shipped out by the end of 2007. 20 29. Specifically, Edson told Adelman to obtain a letter from ITV that 21 stated ITV would take possession of the shipment by a certain date (December 22 31, 2007). Edson wanted this particular letter from the purchaser (ITV) - and the 23 specific language contained in it - because he knew this letter would be provided 24 to NutraCea's outside auditors to support NutraCea booking the revenue from the 25 sale to ITV in the fourth quarter of 2007. 26 30. Adelman made numerous attempts to get a letter from IHP to 27 provide to NutraCea's outside auditors, but was not successful. Ultimately, 28 Edson secured a letter from IHP in July 2008 to try to further support NutraCea's 7 Case 2:11-cv-00092-DGC Document 1 1 2 booking of the revenue from this sale in 2007. B. Doubts That IHP Completed Manufacturing ITV's Order Of Rice n Shine Prior To The End Of 2007 3 4 Filed 01/13/11 Page 9 of 25 31. Adelman had concerns about whether the 150,000 units of Rice n 5 Shine could be manufactured by the end of 2007 because of the amount of time it 6 would take to procure the raw materials and manufacture such a large order. 7 Adelman told Edson about her concerns that the product could not be 8 manufactured by the end of 2007, but Edson told her \"not to worry, that it was 9 common practice to obtain letters like this and we had done it prior.\" 10 32. In January 2008, Adelman's doubts that IHP could manufacture all 11 150,000 units of Rice n Shine before December 31, 2007 were confirmed when 12 she saw a statement that ITV issued on its website stating that Rice n Shine was 13 on back order. Edson was also aware of ITV's statement. In response to ITV's 14 statement, Edson made comments regarding ITV such as \"what a bunch of jerks\" 15 or \"I can't believe they did that.\" 16 33. Sometime in early 2008, Kline asked Adelman about the November 17 2007 sale of Rice n Shine, which prompted Adelman to call IHP's CEO and ask 18 why ITV was back-ordered on Rice n Shine. IHP's CEO told Adelman that IHP 19 was waiting for phytosterols (an antioxidant needed to manufacture Rice n Shine) 20 from China. When Adelman relayed this information to Kline, Kline became 21 \"freaked out\" and said \"I don't want to hear that.\" 22 34. Kline then asked Adelman who wanted to book the revenue from 23 this sale in 2007, and Adelman responded that it was Edson. After this 24 conversation with Kline, Adelman again went to Edson to discuss her concerns 25 that they were booking revenue for product that had not been manufactured by 26 the end of 2007. Edson told her \"not to worry\" since NutraCea had obtained the 27 letter from ITV indicating it had taken possession of the product. Adelman also 28 told Edson about her conversation with Kline, and Edson told her \"not to have 8 Case 2:11-cv-00092-DGC Document 1 1 2 Filed 01/13/11 Page 10 of 25 that conversation with Joanne and to be very careful about what [Adelman] said.\" 35. After Kline's conversation with Adelman, Kline had a conversation 3 with Wilkinson in which they \"both shared very strong concerns that [the ITV 4 transaction] was not a valid sale . . . .\" Kline's concerns resulted from her 5 conversation with Adelman and the fact that IHP had not invoiced NutraCea for 6 the manufacturing of Rice n Shine by the beginning of 2008. It appears 7 Wilkinson's concerns were caused by both the invoice issue and the inventory of 8 NutraCea's raw material that IHP still had on hand as of January 7, 2008. 9 36. Based on a January 7, 2008 email from Wilkinson to IHP's general 10 manager of operations, Wilkinson acknowledged that IHP had raw material that 11 NutraCea shipped to IHP that had not been manufactured into Rice n Shine. 12 Specifically, Wilkinson wrote: \"we've shipped a lot of [raw material] which 13 hasn't yet been turned into Rice-n-Shine for us.\" Kline and Wilkinson discussed 14 whether they needed to resign. 15 37. The day after her discussions with Wilkinson, Kline expressed her 16 concerns about the ITV sale to Crow, while NutraCea was closing its books for 17 the fourth quarter of 2007. Specifically, Kline told Crow that she was very 18 disturbed \"that [NutraCea was] recording a sale when everything [she] heard and 19 saw led [her] to believe that there was no inventory to sell.\" Kline further told 20 Crow \"if this issue were to ever come up, and [she] was under oath and had to 21 testify . . . that [she] would have to say [she] had strong reasons to believe that 22 the sale is not valid.\" Crow responded by stating, \"he did not see a problem with 23 it, that 'we are relying on IHP's invoice,' and if, in fact, IHP did not have the 24 inventory, that they were the ones committing fraud . . . .\" 25 C. Recognizing The Entire Sale In 2007 26 38. Despite all of these red flags, Edson, Crow, Adelman, Kline, and 27 Wilkinson failed to disclose this information to Perry-Smith, and NutraCea 28 booked the revenue from the entire sale in its 2007 year-end financial statements. 9 Case 2:11-cv-00092-DGC Document 1 1 39. Filed 01/13/11 Page 11 of 25 NutraCea recorded all of the revenue from this sale in 2007 based on 2 a bill and hold revenue recognition theory. However, as described above, this 3 transaction did not meet all of the factors required for basic revenue recognition, 4 let alone the requirements for bill and hold. 5 40. Generally Accepted Accounting Principles require that delivery 6 occur before recognition of revenue is appropriate. Under a bill and hold revenue 7 recognition criteria, a company may recognize revenue when delivery has not 8 occurred when the following specific requirements are met: (1) the risk of 9 ownership must have passed to the buyer; (2) the customer must have made a 10 fixed commitment to purchase the goods, preferably in written documentation; 11 (3) the buyer, not the seller, must request that the transaction be on a bill and hold 12 basis and the buyer must have a substantial business purpose for ordering the 13 good on a bill and hold basis; (4) there must be a fixed schedule for delivery of 14 the goods; (5) the seller must not have retained any specific performance 15 obligations such that the earning process is not complete; (6) the ordered goods 16 must have been segregated from the seller's inventory; and (7) the product must 17 be complete and ready for shipment. See SAB 104. Here, the requirements for 18 bill and hold had not been met because the product had not yet completed the 19 manufacturing process. 20 41. Specifically, the entire order was not manufactured prior to the end 21 of 2007. In fact, some of the Rice n Shine ordered in November 2007 was still 22 being manufactured in November 2008. 23 42. Moreover, Edson, Crow, Kline, and Wilkinson signed a March 17, 24 2008 management representation letter related to Perry-Smith's audit of 25 NutraCea's year-end financial information falsely representing that (1) the year- 26 end financial statements were presented in accordance with accounting principles 27 generally accepted in the U.S.; (2) all financial records and related data were 28 made available to Perry-Smith; and (3) they had no knowledge of any fraud or 10 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 12 of 25 1 suspected fraud affecting NutraCea involving management, employees who have 2 significant roles in the internal control, or others where fraud could have a 3 material effect on the interim financial information. 4 43. After NutraCea filed its 2007 Form 10-K, Edson and Adelman were 5 again alerted to the fact that IHP still had not manufactured all of the Rice n 6 Shine from the November 2007 order. In a May 2008 email from an ITV 7 consultant to Edson, ITV explained that it was not paying NutraCea's invoice 8 pursuant to the agreed upon terms because IHP had not delivered all of the Rice n 9 Shine ITV ordered. Again, Edson never disclosed this information to Perry- 10 Smith. 11 44. Further, on at least two occasions in 2008, IHP asked NutraCea to 12 send it more raw materials to replace insect infested raw material so it could 13 finish manufacturing the Rice n Shine for ITV's November 2007 order. The first 14 insect infestation issue occurred in late December 2007 or early January 2008, 15 prior to the filing of the 2007 Form 10-K. The second infestation occurred in 16 May 2008, and Adelman worked with IHP to get the infested raw material 17 replaced. Adelman also kept Edson apprised of the infestation issues, and on 18 May 19, 2008, she informed him that NutraCea needed to send IHP enough 19 replacement raw material to fulfill the remaining 56,998 units of Rice n Shine 20 IHP owed to ITV. 21 III. NutraCea's Form 10-K for Fiscal Year 2007 and Forms 10-Q for the 22 Second and Third Quarters of 2007 Contained Materially False 23 Information 24 45. The Bi-Coastal and ITV transactions had a material impact on 25 NutraCea's financial statements. NutraCea overstated its reported product 26 sales revenue and misstated its reported operating loss in its financial 27 /// 28 /// 11 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 13 of 25 1 statements filed with the Commission in 2007 by improperly reporting the 2 Bi-Coastal and ITV transactions as revenue as follows: 3 Q2 2007 (6 months) Q3 2007 (9 months) FYE 2007 (12 months) Previously Reported Product Sales Revenue $9,983,000 $11,480,000 $16,821,000 Adjusted Product Sales Revenue $7,382,000 $8,879,000 $12,300,000 Overstatement of Product Sales Revenue By Percentage 35.2% 29.3% 36.8% Previously Reported Operating Loss $(239,000) 4 5 6 7 8 9 10 11 12 13 14 15 $(5,832,000) $(15,130,000) Adjusted $(2,283,000) $(7,076,000) $(16,210,000) Operating Loss 16 Misstatement of Operating Loss By Percentage 17 18 89.5% 17.6% 6.7% 19 20 46. NutraCea's Form 10-Q for the second quarter in 2007 falsely 21 overstated its product sales revenue by over 35%, or approximately $2.6 million; 22 and falsely misstated its operating loss by 89.5%, or over $2 million. When 23 NutraCea filed its Form 10-Q for the second quarter in 2007, Edson, Crow and 24 Kline knew that NutraCea's financial statements were materially misstated. 25 47. NutraCea's Form 10-Q for the third quarter in 2007 falsely 26 overstated its product sales revenue by over 29%, or approximately $2.6 million; 27 and falsely misstated its operating loss by 17.6%, or over $1.2 million. When 28 NutraCea filed its Form 10-Q for the third quarter in 2007, Edson, Crow and 12 Case 2:11-cv-00092-DGC Document 1 1 2 Filed 01/13/11 Page 14 of 25 Kline knew that NutraCea's financial statements were materially misstated. 48. NutraCea's Form 10-K for fiscal year 2007 falsely overstated its 3 product sales revenue by 36.8%, or over $4.5 million; and falsely misstated its 4 operating loss by 6.7%, or over $1 million. When NutraCea filed its Form 10-Q 5 for the third quarter in 2007, Edson, Crow, Kline, Wilkinson, and Adelman knew 6 that NutraCea's financial statements were materially misstated. 7 49. As a result of NutraCea's improper recognition of revenue, on 8 October 20, 2009, NutraCea restated its consolidated balance sheets at December 9 31, 2006 and 2007 and its consolidated statements of operations, stockholders' 10 equity, and cash flows for fiscal years ended 2006 and 2007. These restatements 11 also affected interim financial information for all of the quarters of FYE 2007 12 and the first three quarters of FYE 2008. The restatement for FYE 2007 and the 13 second and third quarters of 2007 included adjustments based on booking the 14 false sales to Bi-Coastal in the second quarter and improperly recognizing 15 revenue from the ITV transaction in the fourth quarter. 16 50. Edson, as NutraCea's CEO, and Crow, as NutraCea's CFO, signed 17 NutraCea's annual report on Form 10-K for fiscal year 2007, its quarterly reports 18 on Form 10-Q for the second and third quarters of fiscal year 2007 and the 19 accompanying Sarbanes-Oxley certifications. In connection with the Form 10-K 20 for fiscal year 2007 and Forms 10-Q for the second and third quarters of fiscal 21 year 2007, Edson and Crow certified they had no knowledge of any untrue 22 statement or omission of material fact in the annual and quarterly reports, and 23 that the financial statements in the reports fairly present in all material respects 24 the financial condition and results of the issuer. At the time they made those 25 certifications, Edson and Crow knew that those statements were false because 26 they were aware of NutraCea's improper recognition of revenue in connection 27 with the Bi-Coastal and ITV transactions, which resulted in false statements in 28 NutraCea's Form 10-K and Forms 10-Q. 13 Case 2:11-cv-00092-DGC Document 1 1 IV. 2 Filed 01/13/11 Page 15 of 25 Edson Received Bonuses During The Fraudulent Scheme 51. Edson received two bonuses of $280,000 and $70,000 within 12 3 months of the filing of the false 2007 Form 10-K for meeting capital raising 4 targets. 5 FIRST CLAIM FOR RELIEF 6 FRAUD IN THE OFFER OR SALE OF SECURITIES 7 Violations of Section 17(a) of the Securities Act 8 (Against NutraCea, Edson and Crow) 52. 9 10 The Commission realleges and incorporates by reference 1 through 51 above. 11 53. NutraCea, Edson and Crow, and each of them, by engaging in the 12 conduct described above, directly or indirectly, in the offer or sale of securities 13 by the use of means or instruments of transportation or communication in 14 interstate commerce or by the use of the mails: 15 a. 16 with scienter, employed devices, schemes, or artifices to defraud; 17 b. obtained money or property by means of untrue statements of 18 a material fact or by omitting to state a material fact necessary 19 in order to make the statements made, in light of the 20 circumstances under which they were made, not misleading; 21 or 22 c. engaged in transactions, practices, or courses of business 23 which operated or would operate as a fraud or deceit upon the 24 purchaser. 25 54. By engaging in the conduct described above, NutraCea, Edson and 26 Crow violated, and unless restrained and enjoined will continue to violate, 27 Section 17(a) of the Securities Act, 15 U.S.C. 77q(a). 28 /// 14 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 16 of 25 1 SECOND CLAIM FOR RELIEF 2 FRAUD IN CONNECTION WITH THE 3 PURCHASE OR SALE OF SECURITIES 4 Violations and Aiding and Abetting Violations of 5 Section 10(b) of the Exchange Act 6 and Rule 10b-5 thereunder 7 (Against NutraCea, Edson, Crow and Adelman) 8 9 55. The Commission realleges and incorporates by reference 1 through 51 above. 10 56. NutraCea, Edson, Crow and Adelman, and each of them, by 11 engaging in the conduct described above, directly or indirectly, in connection 12 with the purchase or sale of a security, by the use of means or instrumentalities of 13 interstate commerce, of the mails, or of the facilities of a national securities 14 exchange, with scienter: 15 a. employed devices, schemes, or artifices to defraud; 16 b. made untrue statements of a material fact or omitted to state a 17 material fact necessary in order to make the statements made, 18 in the light of the circumstances under which they were made, 19 not misleading; or 20 c. engaged in acts, practices, or courses of business which 21 operated or would operate as a fraud or deceit upon other 22 persons. 23 57. By engaging in the conduct described above, NutraCea, Edson, 24 Crow and Adelman violated, and unless restrained and enjoined will continue to 25 violate, Section 10(b) of the Exchange Act, 15 U.S.C. 78j(b), and Rule 10b-5 26 thereunder, 17 C.F.R. 240.10b-5. 27 /// 28 /// 15 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 17 of 25 1 THIRD CLAIM FOR RELIEF 2 VIOLATIONS OF COMMISSION PERIODIC 3 REPORTING REQUIREMENTS 4 Violations of Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-1, 5 and 13a-13 thereunder 6 (Against NutraCea) 7 8 9 58. The Commission realleges and incorporates by reference 1 through 51 above. 59. By filing with the Commission materially false and misleading 10 periodic reports, including an annual report on Form 10-K for fiscal year 2007, 11 and quarterly reports on Forms 10-Q for the second and third quarters of fiscal 12 year 2007, NutraCea violated and unless restrained and enjoined will continue to 13 violate Section 13(a) of the Exchange Act, 15 U.S.C. 78m(a), and Rules 12b- 14 20, 13a-1, and 13a-13 thereunder, 17 C.F.R. 240.12b-20, 240.13a-1, and 15 240.13a-13. 16 FOURTH CLAIM FOR RELIEF 17 VIOLATIONS OF COMMISSION PERIODIC 18 REPORTING REQUIREMENTS 19 Aiding and Abetting Violations of 20 Section 13(a) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 21 thereunder 22 (Against Edson, Crow, Kline, Wilkinson and Adelman) 23 24 25 60. The Commission realleges and incorporates by reference 1 through 51 above. 61. NutraCea violated Section 13(a) of the Exchange Act and Rules 26 12b-20, 13a-1 and 13a-13 thereunder, by filing with the Commission an annual 27 report on Form 10-K for fiscal year 2007 and quarterly reports on Forms 10-Q for 28 the second and third quarters of 2007 that were materially false and failed to 16 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 18 of 25 1 include material information necessary to make the required statements, in light 2 of the circumstances under which they were made, not misleading. 3 62. Edson, Crow, Kline, Wilkinson and Adelman knowingly provided 4 substantial assistance to NutraCea in its violation of Section 13(a) of the 5 Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder in connection with 6 NutraCea's filings of its Form 10-K for fiscal year 2007 and quarterly reports on 7 Forms 10-Q for the second and third quarters of 2007. 8 9 63. By engaging in the conduct described above and pursuant to Section 20(e) of the Exchange Act, 15 U.S.C. 78t(e), Edson, Crow, Kline, Wilkinson 10 and Adelman aided and abetted NutraCea's violations, and unless restrained and 11 enjoined will continue to aid and abet violations, of Section 13(a) of the 12 Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 thereunder. 13 FIFTH CLAIM FOR RELIEF 14 RECORD-KEEPING VIOLATIONS 15 Section 13(b)(2)(A) of the Exchange Act 16 (Against NutraCea) 64. 17 18 The Commission realleges and incorporates by reference 1 through 51 above. 65. 19 By failing to make or keep books, records and accounts that in 20 reasonable detail accurately and fairly reflected its transactions and disposition of 21 its assets, NutraCea violated Section 13(b)(2)(A) of the Exchange Act, 15 U.S.C. 22 78m(b)(2)(A). 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 17 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 19 of 25 1 SIXTH CLAIM FOR RELIEF 2 RECORD-KEEPING VIOLATIONS 3 Aiding and Abetting Violations of 4 Section 13(b)(2)(A) of the Exchange Act and Violations of 5 Rule 13b2-1 thereunder 6 (Against Edson, Crow, Kline, Wilkinson and Adelman) 7 8 66. The Commission realleges and incorporates by reference 1 through 51 above. 9 67. NutraCea violated Section 13(b)(2)(A) of the Exchange Act, 15 10 U.S.C. 78m(b)(2)(A), by failing to make or keep books, records, and accounts, 11 which, in reasonable detail accurately and fairly reflected its transactions and 12 disposition of its assets. 13 68. Edson, Crow, Kline, Wilkinson and Adelman knowingly provided 14 substantial assistance to NutraCea's violation of Section 13(b)(2)(A) of the 15 Exchange Act, 15 U.S.C. 78m(b)(2)(A). 16 69. By engaging in the conduct described above and pursuant to Section 17 20(e) of the Exchange Act, 15 U.S.C. 78t(e), defendants Edson, Crow, Kline, 18 Wilkinson and Adelman aided and abetted NutraCea's violations, and unless 19 restrained and enjoined will continue to aid and abet violations of Section 20 13(b)(2)(A) of the Exchange Act. 21 70. By engaging in the conduct described above, Edson, Crow, Kline, 22 Wilkinson and Adelman violated Exchange Act Rule 13b2-1 by, directly or 23 indirectly, falsifying or causing to be falsified NutraCea's books, records, or 24 accounts subject to Section 13(b)(2)(A) of the Exchange Act. Unless restrained 25 and enjoined, Edson, Crow, Kline, Wilkinson and Adelman will continue to 26 violate Rule 13b2-1, 17 C.F.R. 240.13b2-1. 27 /// 28 /// 18 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 20 of 25 1 SEVENTH CLAIM FOR RELIEF 2 INTERNAL CONTROLS VIOLATIONS 3 Section 13(b)(2)(B) of the Exchange Act 4 (Against NutraCea) 5 6 7 71. The Commission realleges and incorporates by reference 1 through 51 above. 72. By failing to devise and maintain a system of internal accounting 8 controls sufficient to provide reasonable assurances that transactions were 9 recorded as necessary to permit preparation of financial statements in conformity 10 with GAAP and to maintain the accountability of assets, NutraCea violated, and 11 unless restrained and enjoined will continue to violate, Section 13(b)(2)(B) of the 12 Exchange Act, 15 U.S.C. 78m(b)(2)(B). 13 EIGHTH CLAIM FOR RELIEF 14 INTERNAL CONTROLS VIOLATIONS 15 Aiding and Abetting Violations of 16 Section 13(b)(2)(B) of the Exchange Act 17 (Against Edson, Crow, Kline, Wilkinson and Adelman) 18 19 20 73. The Commission realleges and incorporates by reference 1 through 51 above. 74. NutraCea violated Section 13(b)(2)(B) of the Exchange Act, 15 21 U.S.C. 78m(b)(2)(B), by failing to devise and maintain a system of internal 22 accounting controls sufficient to provide reasonable assurances that transactions 23 were recorded as necessary to permit preparation of financial statement in 24 conformity with GAAP and to maintain the accountability for assets. 25 75. Edson, Crow, Kline, Wilkinson and Adelman knowingly provided 26 substantial assistance to NutraCea's violation of Section 13(b)(2)(B) of the 27 Exchange Act, 15 U.S.C. 78m(b)(2)(B). By engaging in the conduct described 28 above and pursuant to Section 20(e) of the Exchange Act, 15 U.S.C. 78t(e), 19 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 21 of 25 1 defendants Edson, Crow, Kline, Wilkinson and Adelman aided and abetted 2 NutraCea's violations, and unless restrained and enjoined will continue to aid and 3 abet violations of Section 13(b)(2)(B) of the Exchange Act, 15 U.S.C. 4 78m(b)(2)(B). 5 NINTH CLAIM FOR RELIEF 6 CIRCUMVENTION OF INTERNAL CONTROLS AND 7 FALSIFICATION OF RECORDS 8 Violations of Section 13(b)(5) of the Exchange 9 (Against Edson, Crow, Kline, Wilkinson and Adelman) 10 11 12 76. The Commission realleges and incorporates by reference 1 through 51 above. 77. By engaging in the conduct described above, Edson, Crow, Kline, 13 Wilkinson and Adelman violated Section 13(b)(5) of the Exchange Act, 15 14 U.S.C. 78m(b)(5), by knowingly circumventing or failing to implement a 15 system of internal accounting controls, or, directly or indirectly, by knowingly 16 falsifying or causing to be falsified any NutraCea books, records, or accounts 17 described in Section 13(b)(2) of the Exchange Act. Unless restrained and 18 enjoined, Edson, Crow, Kline, Wilkinson and Adelman will continue to violate 19 Section 13(b)(5) of the Exchange Act, 15 U.S.C. 78m(b)(5). 20 TENTH CLAIM FOR RELIEF 21 FALSE STATEMENT TO ACCOUNTANTS 22 Violations of Exchange Act Rule 13b2-2 23 (Against Defendants Edson, Crow, Kline, Wilkinson and Adelman) 24 25 26 78. The Commission realleges and incorporates by reference 1 through 51 above. 79. Defendants Edson, Crow, Kline, Wilkinson and Adelman, directly 27 or indirectly, (i) made, or caused to be made, materially false or misleading 28 statements or (ii) omitted to state, or caused others to omit to state, material facts 20 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 22 of 25 1 necessary in order to make statements made, in light of the circumstances under 2 which they were made, not misleading, to an accountant in connection with an 3 audit, review or examination of financial statements or the preparation or filing of 4 a document or report required to be filed with the Commission. 5 80. By engaging in the conduct alleged above, defendants Edson, Crow, 6 Kline, Wilkinson and Adelman violated, and unless restrained and enjoined will 7 continue to violate, Exchange Act Rule 13b2-2, 17 C.F.R. 240.13b2-2. 8 ELEVENTH CLAIM FOR RELIEF 9 CERTIFICATION VIOLATIONS 10 Violations of Rule 13a-14 of the Exchange Act 11 (Against Edson and Crow) 81. 12 13 The Commission realleges and incorporates by reference 1 through 51 above. 82. 14 Edson and Crow violated Rule 13a-14 by signing the certifications 15 included with NutraCea's fiscal year 2007 Form 10-K, and second and third 16 quarter Forms 10-Q for 2007, certifying, among other things, that the forms fully 17 complied with the requirements of the Exchange Act and fairly presented, in all 18 material respects, the financial condition and results of operations of the 19 company, when, in fact, the reports contained untrue statements of material fact 20 and omitted material information necessary to make the reports not misleading. 21 83. By engaging in the conduct described above, Edson and Crow 22 violated Exchange Act Rule 13a-14, 17 C.F.R. 240.13a-14. Unless restrained 23 and enjoined, Edson and Crow will continue to violate Rule 13a-14, 17 C.F.R. 24 240.13a-14. 25 /// 26 /// 27 /// 28 /// 21 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 23 of 25 1 PRAYER FOR RELIEF 2 WHEREFORE, the Commission respectfully requests that the Court: 3 I 4 5 Issue findings of fact and conclusions of law that the defendants committed the alleged violations. 6 7 II Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d), 8 permanently enjoining Defendant NutraCea and its agents, servants, employees, 9 attorneys, and those persons in active concert or participation with any of them, 10 who receive actual notice of the order by personal service or otherwise, from 11 violating Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A), 12 and 13(b)(2)(B) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, and 13a- 13 13, thereunder. 14 III 15 Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d), 16 permanently enjoining Defendants Edson and Crow and their agents, servants, 17 employees, attorneys, and those persons in active concert or participation with 18 any of them, who receive actual notice of the order by personal service or 19 otherwise, from violating Section 17(a) of the Securities Act, Sections 10(b) and 20 13(b)(5) of the Exchange Act, and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 21 thereunder, and for aiding and abetting violations of Sections 13(a), 13(b)(2)(A), 22 and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13 23 thereunder. 24 25 IV Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d), 26 permanently enjoining Defendant Adelman and her agents, servants, employees, 27 attorneys, and those persons in active concert or participation with any of them, 28 who receive actual notice of the order by personal service or otherwise, from 22 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 24 of 25 1 violating Sections 10(b) and 13(b)(5) of the Exchange Act, and Rules 10b-5, 2 13b2-1, and 13b2-2 thereunder, and for aiding and abetting violations of Sections 3 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a- 4 1 and 13a-13 thereunder. 5 6 V Issue judgments, in a form consistent with Fed. R. Civ. P. 65(d), 7 permanently enjoining Defendants Kline and Wilkinson and their agents, 8 servants, employees, attorneys, and those persons in active concert or 9 participation with any of them, who receive actual notice of the order by personal 10 service or otherwise, from violating Section 13(b)(5) of the Exchange Act, and 11 Rules 13b2-1, and 13b2-2 thereunder, and for aiding and abetting violations of 12 Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 13 12b-20, 13a-1, and 13a-13 thereunder. 14 VI 15 Enter an order, pursuant to Section 21(d)(2) of the Exchange Act, 15 16 U.S.C. 78u(d)(2), prohibiting defendants Edson, Crow and Adelman from 17 acting as officers or directors of any issuer that has a class of securities registered 18 pursuant to Section 12 of the Exchange Act, 15 U.S.C. 78l, or that is required to 19 file reports pursuant to Section 15(d) of the Exchange Act, 15 U.S.C. 78o(d). 20 21 22 23 24 VII Order defendant Edson to repay NutraCea the bonuses he received in 2008 pursuant to Section 304 of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7243. VIII Order defendants Edson, Crow, Kline and Wilkinson to pay civil penalties 25 under Section 20(d) of the Securities Act, 15 U.S.C. 77t(d), and/or Section 26 21(d)(3) of the Exchange Act, 15 U.S.C. 78u(d)(3). 27 28 IX Retain jurisdiction of this action in accordance with the principles of equity 23 Case 2:11-cv-00092-DGC Document 1 Filed 01/13/11 Page 25 of 25 1 and the Federal Rules of Civil Procedure in order to implement and carry out the 2 terms of all orders and decrees that may be entered, or to entertain any suitable 3 application or motion for additional relief within the jurisdiction of this Court. 4 5 6 X Grant such other and further relief as this Court may determine to be just and necessary. 7 8 DATED: January 13, 2011 Respectfully submitted, 9 10 11 12 s/Ann C. Kim SPENCER E. BENDELL ANN C. KIM Attorneys for Plaintiff Securities and Exchange Commission 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24