Maker of Religious Video Games Faces Stock Fraud Charges in U.S.

Remember those Left Behind holy-war video games made for the PC in the middle of the last decade? U.S. regulators just sued the company’s founder, saying that he and a friend artificially inflated the firm’s revenue figures through a stock kickback scheme. The founder says the government is discriminating against him.

In a wide-ranging statement that alleged the U.S. government “has systematically and intentionally conspired to dismantle Left Behind Games,” Troy A. Lyndon says “if any violation occurred, it would never have been intentional—and certainly, never fraudulent.” The Securities and Exchange Commission, for its part, alleges he sold millions of unregistered shares in Left Behind Games to a friend, who then sold the shares and kicked back a portion of the proceeds to prop up the company’s balance sheet.

Whether intentional, fraudulent or not, Left Behind Games is essentially no more. Reuters notes this lawsuit comes about two weeks after the company announced that its accountant had resigned after expressing “substantial doubt” about Left Behind’s ability to carry on. Further, in March 2012, Left Behind filed for Chapter 7 bankruptcy, according to the SEC.

The SEC’s case says Lyndon issued more than 1.7 billion—yes, with a B—shares to a friend, one Ronald Zaucha of Hawaii, which was then sold for $4.6 million—or two-tenths of a cent US per share. The SEC says $3.3 million of that was kicked back to Left Behind games, for example, a rigged purchase in December 2010 in which Zaucha formed a shell company to buy $1.38 million of obsolete inventory from Left Behind. The inventory was given away to churches and religious groups, with the transaction still recognized as revenue.

In 2011, Left Behind Games opened up a plan whereby it courted “investors” with a free copy of one of its games, valued at between $20 and $30.

Lyndon alleged the lawsuit was the doing of the Public Company Accounting Oversight Board—a unit created in 2002 by the Sarbanes-Oxley legislation reforming how publicly traded companies report and are accountable for their financial data. The PCAOB, Lyndon said:

[cut] a back-door deal with our former auditor without our knowledge or ability to do anything and in April 2011, after our company asked the SEC directly for clarification regarding the proper way to book a series of transactions conducted with Mr. Zaucha, they’ve turned our request into a law suit against this CEO that has already given everything for the benefit of his investors, resulting in my own personal bankruptcy in 2012.

In 2010, Left Behind Games said it pulled in $210,000 in revenue through the first two quarters of its fiscal year, and boasted of giving away 50,000 copies of its PC games “to our network of Pastors who share our desire to provide healthier video game alternatives to their youth.” Earlier that year Left Behind bragged that Walmart wanted to expand test-market locations across the Bible Belt.

Lyndon, in his statement, noted that he sued the SEC in July but his case “is expected to be dismissed on September 30, 2013 because of the government’s broad immunity.

“We are now at a point in time in which the SEC’s budget has increased by 444% in 15 years, resulting in a record number of lawsuits. Instead of helping hard-working CEO’s remain good corporate citizens, the SEC’s goal is to file as many lawsuits as possible without recognizing how such litigation has contributed to the loss of thousands, virtually half of America’s public companies,” he complained.

Trading in shares of Left Behind Games, Inc. was suspended by the SEC on Tuesday. It was last listed at 0.0001 US per share.

‘Left Behind’ video game creator faces U.S. SEC fraud charges [Reuters]