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January 4, 2013

LITIGATION AND ENFORCEMENT

ENFORCEMENT-ED Cal: SEC Alleges California-Based Mining Corporation Misled Investors

By Matthew Garza, J.D.

The SEC has filed a complaint against mining company Nekekim Corp. alleging that the company and its CEO violated the registration and antifraud provisions of the Securities Act and the Exchange Act when they solicited investors in a Nevada mine that they represented contained $1.7 billion in gold deposits (SEC v. Nekekim Corporation, January 3, 2013).

According to the complaint, the company provided cherry-picked results to investors from two labs that tested a "complex ore" using unconventional methods that showed the presence of gold in a mine near Tonopah, Nevada, but failed to tell investors that other tests conducted by different firms showed the mine site held little if any gold or that the reliability of the labs that got positive results has been called into doubt by geologists and a government study. The company used money raised for investors to fund its operations, the SEC said, and raised approximately $14.6 million from about 600 investors in three stock offerings in October 2001, November 2005, and July 2009. The company also sold approximately $1.8 million in notes to about 50 investors from April 2005 through October 2010.

The CEO also allegedly represented that a physicist, who the SEC said actually had no scientific training, helped develop a gold extraction technique licensed by Nekekim. As the mine failed to produce revenue, the CEO pointed to other promising extraction methods in reports to shareholders, each of which failed. The reports "grossly overstated Nekekim's progress toward profitability while prompting shareholders to invest more money in the company," according to the complaint. The sales of Nekekim securities were also not registered with the Commission or covered by an exemption from registration.

The Commission requested civil penalties and a permanent injunction from violations of Securities Act Sections 5(a), 5(c), and 17(a), and Exchange Act Section 10(b) and Rule 10b-5.

The case is No. 13-cv-00010-AWI-SKO

Enforcement FraudManipulation SecuritiesOfferings

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