The Securities and Exchange Commission announced that a federal district court in Nevada has entered a final judgment, by consent, against Marlin R. Brinsky of Santa Monica, California, in connection with an enforcement action filed in 2005 concerning a penny stock manipulation and accounting fraud. The final judgment against Brinsky, a certified public accountant, was entered on April 21, 2010. It permanently enjoins him from violating provisions of the federal securities laws governing accountant’s reports and orders him to pay a $20,000 civil penalty. Separately, Brinsky also consented to an administrative order suspending him from appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after two years.
The Commission’s civil injunctive action was filed on April 25, 2005, against Exotics.com, Inc., a Nevada corporation based in Vancouver, British Columbia, and 12 additional principal defendants and one relief defendant. The Commission’s complaint alleged that, between at least 1999 and 2002, Exotics.com, which was then an Over-the-Counter Bulletin Board company in the business of operating adult Web sites, was the subject of a stock manipulation and accounting fraud. The complaint alleged, among other things, that Brinsky and others engaged in conduct that resulted in Exotics.com filing materially false and misleading financial statements in its Commission filings. The complaint further alleged that the staff of Exotics.com’s outside auditor, of which Brinsky was a member, committed acts and/or omissions that caused them to become non-independent during audits of Exotics.com and that their firm thereafter issued audit reports falsely representing that the audits had been conducted by an independent accountant. Those audit reports were incorporated in Exotics.com’s Commission filings. According to the complaint, the audit reports, among other things, falsely stated that the audits had been conducted by an independent auditor and in accordance with generally accepted auditing standards (GAAS). The complaint also alleged that Brinsky and other members of the audit team engaged in a number of improper accounting practices that caused Exotics.com’s financial statements to depart from generally accepted accounting principles (GAAP).