SEC files fraud charges against Calif. mining CEO

Music Teacher Ran $16 Million Scam, SEC Says

FRESNO, Calif. (CN) - Nekekim Corp. and its CEO Kenneth W. Carlton defrauded investors of $16 million in a 10-year gold mining scam, the SEC claims in court.
Carlton, 64, of Clovis, "is a former music teacher and has no mining experience outside of Nekekim," the SEC says in its federal complaint. Nekekim is a Nevada corporation founded in 1993, based in Madera, Calif.
"Nekekim Corp. and its CEO Kenneth Carlton induced hundreds of investors to invest over $16 million in a fruitless gold mining venture," the complaint states. "In doing so, defendants violated the antifraud and registration provisions of the federal securities laws.
"Nekekim succeeded in attracting investors from across the U.S. and overseas from 2001 through 2011. Carlton led this effort, representing to investors that a special 'complex ore' found at Nekekim's mine site in Nevada contained gold deposits worth at least $1.7 billion. As proof of the deposits, Carlton pointed investors to test results produced by two small labs that used unconventional methods to test the purported ore for gold. He did not tell investors that other tests conducted by different firms suggested the Nekekim mine site held little if any gold, or that the small labs' reliability had been called into doubt by geologists and a government study.
"Carlton told investors that Nekekim had to develop a custom method to be able to extract gold from its ore. He falsely represented to investors that a 'physicist' - in reality an individual with no scientific training - had helped develop a confidential gold extraction technique licensed by Nekekim. And as Nekekim failed to produce any mining revenue, Carlton touted a series of other supposedly promising extraction methods in frequent reports to shareholders. Each of these methods failed, and Carlton's reports grossly overstated Nekekim's progress toward profitability while prompting shareholders to invest more money in the company.
"The sales of Nekekim's securities were not registered with the Commission or covered by an exemption from registration, as the securities laws require."
The SEC adds: "Nekekim has never generated mining revenue, and it used money raised from investors to fund its operations. The company raised approximately $14.6 million from about 600 investors in three nominally separate stock offerings begun in approximately October 2001, November 2005, and July 2009, respectively. Additionally, from around April 2005 through October 2010, Nekekim sold approximately $1.8 million in notes to about 50 investors, mostly existing shareholders. The investors who bought the stock and notes resided in multiple U.S. states, including California, Florida, and New Jersey, and in several foreign countries, including Canada, Australia, and Singapore.
"Carlton took the leading role for Nekekim in the sales of the stock and notes. He approved the three offering memoranda that Nekekim used to offer the stock for sale to persons who later invested. He typically sent the memoranda to prospective investors using his personal email account. Carlton's practice was to conduct personal phone calls or meetings with prospective investors, and he personally closed the initial stock purchase with the vast majority of Nekekim shareholders. ...
"In addition to leading investment sales, Carlton's duties for Nekekim included, but were not limited to, overseeing third-party service providers; signing contracts on behalf of the company; budgeting; and paying company bills. In lieu of salary, Carlton took periodic loans from Nekekim that were funded with investor money. During the relevant period, the loans averaged approximately $150,000 annually. Carlton has never repaid any of the approximately $2.2 million he has 'borrowed' from Nekekim since its founding in 1993."
The SEC seeks penalties and an injunction.
Carlton is still president and CEO of Nekekim, according to his profile on LinkedIn, checked this morning.