SEC accuses Left Behind dev of 'revenue inflation' (Update: CEO says SEC 'conspired' against studio)

The United States Security and Exchange Commission charged the founder of Left Behind Games and a friend for "falsely" inflating the company's revenue by 1,300 percent during a one-year period, according to a press release from the SEC.

According to the SEC, Left Behind Games CEO and CFO Troy Lyndon issued "almost two billion shares of stock" to Ronald Zaucha for "consulting services."

"The true purpose of the arrangement was to enable Zaucha to sell millions of unregistered shares of Left Behind Games stock into the market and then kick back a portion of his stock proceeds to the company in order to prop up its revenue at a time when it was in dire need of additional funds," the SEC claims.

The SEC filed its claim yesterday in federal court in Hawaii, the state in which both defendants live. The organization alleges that the developer encountered financial trouble, laid off its employees and closed its office in late 2011, after the two "concocted their scheme beginning in 2009" in an attempt to save the company.

The SEC alleges that Zaucha performed "few, if any," consulting services, received stock, sold the stock and kicked it back into Left Behind Games.

"Lyndon and Zaucha's scheme duped investors into believing Left Behind Games was becoming a successful enterprise when it was struggling to stay afloat," said Michele Wein Layne, director of the SEC's Los Angeles Office. "Lyndon essentially gave Zaucha stock in exchange for phony revenue streams that created an inaccurate portrait of the company's financial health."

According to Left Behind Games' website, the company describes itself as "the world's leading publisher of Christian video games."

"The company focuses on bringing bible stories to life in this new entertainment medium while providing games that provide a healthy alternative in a prolific industry which creates interactive violence," the official site reads. "Accordingly, games are made for people of any faith to enjoy, appreciate and consider matters of greater importance. In January 2011, we incorporated in Nevada, but in 2012 we moved operations to Honolulu, Hawaii. The company was originally incorporated on August 22, 2002 in Delaware and operated in California for nearly 10 years."

We've reached out to LB Games for comment and will update this article with more information as we receive it.

Update: Left Behind Games CEO Troy Lyndon provided Polygon with the following statement, in which he explains his side of the story.

Fact is, I'm just a video game guy. If any violation occurred, it would never have been intentional — and certainly, never fraudulent — my attorney told me that any person that earned shares could use them for any purpose. For more than 2 years, I've asked SEC to explain how and if I have violated any rule, so that I could self-report it. As I see it, the government has systematically and intentionally conspired to dismantle Left Behind Games and the facts are both true and hard to believe — worthy of a Ron Howard film or John Grisham novel.

In 2008, [the Financial Industry Regulatory Authority] ignored my complaint that the Tides' Foundation had possibly used government funds to intentionally launch a smear campaign in 2006 because of our affiliation to religious and political conservative Tim LaHaye. In 2009, FINRA ignored my complaint that Newbridge Securities had developed a large and illegal naked-short position in our stock which they covered with our investors' shares after our announcement on June 19, 2009 of our Walmart placement. I even provided FINRA with details on how to calculate how brokerages were moving shares out of investors' name into street name, in order to hide their positions from the government. By using published REG-SHO data, I demonstrated to FINRA how 67% of our trading at one point was a direct result of naked-shorting — and still they did nothing.

In January 2011, the [Public Company Accounting Oversight Board] removed our fully-reporting status as a public company by cutting 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.

I'm still working diligently — never giving up — as the Inc. Magazine Entrepreneur of the Year award recipient that I am — while I still hold a lifelong goal to see Left Behind Games become successful for the long-term, for our investors who have funded what has become one of the leading publishers of Christian video games, providing healthy alternatives to much of the violence released by the video game industry.

I actually filed a lawsuit myself against the government on July 24, 2013 for their negligence — in United States District Court for the District of Hawaii, case #CV13 00367 SOM BMK, but it 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 CEOs 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. They are inhibiting entrepreneurial access to capital across the board without regard to the consequences for our nation and economy.

I still find everything that has happened hard to believe myself. I will post more details on this page from time-to-time as [the] story unfolds.

Polygon independently verified that Lyndon filed suit against the SEC on July 24, 2013 in a case called "Lyndon v. Securities and Exchange Commission et al."

In the documents, Lyndon alleges that the SEC's "intentional diregard and/or willful misconduct occurred as a result of religious discrimination and/or intentional disregard and negligence, covering-up securities trading fraud, either separately or conspiratorially, causing financial injury and emotional distress to Plaintiff, his company and its shareholders."

The civil action was filed to "compel" the defendants (the SEC and the Depository Trust & Clearing Corporation) to "reform their nondiscretionary duties, adopt policies improving and reducing corruption resulting from self-regulation, in the interest of Plaintiff and the public."