The U.S. Securities and Exchange Commission has secured an injunction in federal court in Atlanta against an Alabama man after alleging that he and his company, Southern USA Resources Inc., engaged in securities fraud associated with the acquisition and exercise of gold mining rights.
The suit accuses Cleburne County resident Charles H. Merchant Sr., 61, and his company, which is headquartered in nearby Ashland, of filing “materially false” reports with the SEC that misrepresented the value of the Southern USA’s land holdings. The SEC suit sought to bar Merchant, his company employees and his lawyers from violating federal securities laws. It also a demand that Merchant and Southern USA disgorge “all ill-gotten gains or unjust enrichment.”
On Tuesday, Judge Steve Jones of the Northern District of Georgia issued a permanent injunction order barring Merchant and his company from falsifying corporate books, records and reports, from violating federal securities laws and from engaging in stock sales or other broker-dealer activities.
The suit accuses Merchant of filing false statements about the company’s internal controls and claims that Merchant has failed to make required reports to the SEC. It also says that he resigned his positions as chief executive officer and chief financial officers and named no successor without making those disclosures to the SEC as federal securities laws require. According to the suit, he also failed to notify the SEC that the company’s outside auditor had resigned.
Merchant and his company have no counsel of record listed in the court record. Merchant could not be located for comment.
Southern USA originally was incorporated in 2006 as Lodestar Mining, Inc. to acquire property and mineral rights in Alabama, according to the suit. Southern USA was created as a public company in 2012 when Merchant was named as CEO, CFO, president, secretary and treasurer. The following day, Merchant contributed mining equipment and, in return, was issued 29 million shares, or 99 percent, of the company’s common stock, becoming its majority shareholder, the suit said.
Merchant had no accounting training, according to the suit. “He agreed to become the CEO and CFO of a publicly-traded company because he wanted funding for his gold mining project and was told by the investors who supplied the initial financing that they would invest in that project only through a public company so that they could eventually sell shares of the company in the open market,” the suit alleges.
According to the SEC, Southern USA “purported to be a start-up gold mining entity” but had never reported any revenues. According to the SEC, the company’s reports understated the acreage owned by the company by 80 percent, according to the suit, resulting in the value per acre of reported property “to be substantially overstated.”
The SEC said that in 2012, Southern USA issued more than 4.3 million shares of stock to investors who had financed the company. The SEC said that Southern USA’s corporate counsel, who is not identified in the complaint, issued legal opinion letters that the stock sales were exempt from the registration requirements of federal securities laws. Merchant then sold 3.7 million shares of stock in four separate private transactions to the company’s corporate counsel, his wife and two of his employees, the SEC said.
Last March, the SEC suspending trading in Southern USA securities and the public accounting firm that had been hired to audit the company’s financial statements resigned, according to the SEC. Two days later ,the company announced it had “encountered difficulties in its gold production process” and temporarily ceased production.