Federal charges of scheming to falsely inflate the revenue of a Christian video game manufacturer that was formerly headquartered in Murrieta have been brought against its CEO and his purported consultant, a prison ministry pastor.
The SEC alleges the pair schemed to falsely inflate the company’s revenue by nearly 1,300 percent in a one-year period through sham circular transactions. It is suspected that nearly two billion shares of Left Behind Games, Inc., stock were issued to Zaucha as compensation for consulting services.
“The true purpose of the arrangement was to enable Zaucha to sell millions of unregistered shares of Left Behind Games stock into the market and then kick back a portion of his stock proceeds to the company in order to prop up its revenue at a time when it was in dire need of additional funds,” the SEC stated in a news release.
As a result of the charges, the SEC suspended the company’s stock Wednesday; it will stay suspended until Oct. 8.
“Lyndon and Zaucha’s scheme duped investors into believing Left Behind Games was becoming a successful enterprise when it was struggling to stay afloat,” said Michele Wein Layne, director of the SEC’s Los Angeles office. “Lyndon essentially gave Zaucha stock in exchange for phony revenue streams that created an inaccurate portrait of the company’s financial health.”
According to the SEC’s complaint, Left Behind Games had been headquartered in Murrieta since it was founded in 2001 by Lyndon. It touted itself as “the only publicly-traded exclusive publisher of Christian modern media” and “the world leader in the publication of Christian video games and a Christian social network provider.”
Murrieta Patch unsuccessfully sought to interview the company in January 2011 about a new version of the "Left Behind" game a source said it was programming at the time. The games are a spinoff from the "Left Behind" book series written by Christian authors Tim LaHaye and Jerry Jenkins.
The company’s website states that it in January 2011, it reincorporated in Nevada before moving its headquarters to Honolulu, Hawaii in 2012.
Lyndon lives in Honolulu and Zaucha lives in Maui, according to the SEC.
The SEC complaint states that financial troubles caused the company to terminate all of its employees and close its Murrieta office in 2011.
The SEC alleges that Lyndon and Zaucha concocted their scheme beginning in 2009 in an apparent last-ditch fraudulent effort to save the company, which was unprofitable and severely undercapitalized at the time.
“Left Behind Games issued stock to Zaucha for his so-called consulting services, and at Lyndon’s direction he promptly sold virtually all of his stock for approximately $4.6 million in proceeds,” the complaint states. “Zaucha then kicked back approximately $3.3 million of the proceeds to the company in three deceiving ways.”
The SEC alleges that Zaucha first paid the company $871,000 from September 2009 to June 2010 for what his consulting agreement termed as “early-sell fees” for his excessive sale of stock.
Secondly, in December 2010, the SEC alleges that Zaucha formed a company called Lighthouse Distributors and used the proceeds of his stock sales to finance the purchase of approximately $1.38 million in old and obsolete inventory from Left Behind Games.
According to the SEC’s complaint:
“Lighthouse simply gave most of these products away to churches and religious organizations, yet Left Behind Games improperly recognized the revenue from these sham transactions and falsely claimed that its revenue had increased nearly 1,300 percent from the prior fiscal year.
“Zaucha later kicked back another $1 million to Left Behind Games as instructed by Lyndon. Meanwhile, Lyndon allowed Zaucha to retain $1.28 million of his stock sale proceeds for personal uses, which included the purchase of condominiums in Maui and Orange County.
“Zaucha performed few, if any, consulting services, according to the SEC’s complaint. Each of the consulting agreements was vague about the services that Zaucha would provide. One agreement noted that Zaucha had experience in marketing related to non-profit corporations when, in fact, Lyndon understood Zaucha’s experience to be as a pastor running prison ministries rather than in marketing. Two agreements also vaguely stated that Zaucha would perform services to build an “independent rep network” to contact church pastors in an effort to offer Left Behind Games products.
“In reality, Left Behind Games had no ‘network’ of independent representatives calling potential purchasers of its products.”
The SEC’s complaint alleges that in doing so, Lyndon and Zaucha violated several sections of the Securities Act of 1933 and the Securities Exchange Act of 1934.
The complaint also alleges that Lyndon “aided and abetted” Left Behind Games’ violations.
SEC will ask the court to bar Lyndon from acting as an officer or director.
The SEC’s litigation will be led by Karen Matteson and Amy Longo.
The complaint also seeks permanent injunctions, financial penalties, and penny stock bars against Lyndon and Zaucha.
The SEC’s investigation, which is continuing, has been conducted by Lucee Kirka, Carol Shau, and Marc Blau of the Los Angeles office.
Editor’s Note: The outcome of these allegations, as well as the facts, may change as the case progresses through the legal system. Not all details of each investigation are made public. All items are alleged to have occurred. There should be no assumption of guilt.