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SEC Claims Maker of Religious-Themed Left Behind Games Fraudulently Propped Up Revenue

The Securities and Exchange Commission is charging the maker of religious-themed vidgame company Left Behind Games with falsely inflating the company’s revenue by nearly 1,300% through a series of “scam” transactions.

The SEC filed its complaint in federal court in Hawaii late Tuesday, naming Left Behind Games CEO and CFO Troy Lyndon as well as Ronald Zaucha, described as a friend of Lyndon’s and a consultant to the company.

The crux of the complaint is that Lyndon had Left Behind Games issue almost 2 billion shares of stock to Zaucha as compensation for consulting services. The SEC alleges that the “true purpose” was to enable Zaucha to sell millions of unregistered shares of Left Behind Games stock in the market and then kick back a portion of his proceeds in order to prop up the company’s revenue.

The SEC suspended the company’s stock on Wednesday.

On his website, Lyndon said in a long post that “for more than two 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 a John Grisham novel.” Among other things, he wrote that the private securities regulator org FINRA had ignored his complaint in 2008 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.” Lyndon was referring to the co-creator of the highly successful “Left Behind” series of novels.

But Michele Wein Layne, director of the SEC’s Los Angeles office, said in a statement that “Lyndon essentially gave Zaucha stock in exchange for phony revenue streams that created an inaccurate portrait of the company’s financial health.”

Left Behind Games was founded in 2001 and billed itself as the “world leader in the publication of Christian video games,” the SEC said, but the company was in such dire financial straits by 2011 that it laid off all of its employees and closed its office.

The SEC claims that consulting agreements that Zaucha made with the company were vague, including one that stated he would build an “independent rep network” to contact church pastors and offer the game products, but that there really was no such network.

Federal officials say that Lyndon and Zaucha “concocted” the scheme in 2009 to save the company. In one instance, the SEC claims, Zaucha formed a company called Lighthouse Distributors and used the proceeds of stock sales to finance the purchase of $1.38 million in old and obsolete inventory of the games. Lighthouse gave away the products to church and religious groups, but Left Behind Games recognized it as revenue even though they were “sham transactions,” the SEC said.

The SEC’s complaint claims fraud and violations of other securities regulations. It seeks injunctions against Lyndon and Zaucha, restricting certain business activities, as well as financial penalties and recovery of their gains from the stock transactions.

Lyndon chided the SEC for filing “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 said on his website that he plans to post more details “from time-to-time as the story unfolds.”

“Fact is, I’m just a video game guy,” he wrote. “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.”

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