Pahrump Valley Times
SAN FRANCISCO — The Securities and Exchange Commission last week filed fraud charges against a California-based mining company and its CEO who induced hundreds of investors to pour $16 million into a fruitless gold mining venture near Tonopah.
The SEC alleges that Nekekim Corporation and Kenneth Carlton defrauded investors with representations that a special “complex ore” found at Nekekim’s mine site in Nevada contained gold deposits worth at least $1.7 billion.
Carlton highlighted test results produced by two small labs that used unconventional methods to test the ore for gold, but withheld from investors other tests conducted by different firms that suggested the Nekekim mine site held little if any gold, the SEC claims.
The small labs’ reliability also had been called into doubt by geologists and a government study. Yet as Nekekim failed to produce any mining revenue, Carlton gave shareholders false hope that the company was close to perfecting the custom method it supposedly needed to extract gold from its special ore.
Carlton agreed to settle the SEC’s charges.
“Carlton touted cherry-picked test results and convinced shareholders to keep investing in Nekekim by claiming success was just around the corner,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “Investors should be wary of mining ventures claiming vast deposits of gold and precious metals that can only be extracted through mysterious, untested techniques.”
According to the SEC’s complaint filed in federal court in Fresno, Calif., Nekekim succeeded in attracting investors from 2001 to 2011 in such U.S. states as California, Florida, and New Jersey as well as foreign countries including Canada, Australia, and Singapore.
The SEC claims Carlton falsely represented to investors that a “physicist” who in reality had no scientific training helped develop a confidential gold extraction technique licensed by Nekekim. Carlton also promoted a series of other supposedly promising extraction methods in frequent reports to shareholders. In one newsletter, he touted: “a new gold recovery process is successful.”
As each of these methods actually failed, Carlton’s reports grossly overstated Nekekim’s progress toward profitability while prompting shareholders to invest more money in the company.
Carlton, who lives in Clovis, Calif., agreed to a court order requiring him to pay a $50,000 penalty and prohibiting him from selling securities for Nekekim or managing the company. He also will be prohibited from further violations of the antifraud and registration provisions of the federal securities laws. Nekekim, based in Madera, Calif., agreed to an order prohibiting the same violations and requiring disclosure of these sanctions in any offering of securities for the next three years. Carlton and Nekekim neither admitted nor denied the SEC’s allegations.
The SEC complaint notes Carlton, 64, the CEO and president of Nekekim since its founding, is a former music teacher with no mining experience outside the company. Nekekim controlled mining claims near Tonopah and paid government fees to maintain the claims, purporting to develop the claims site as a mine. In 2005 Nekekim bought a North Carolina chemical plant and an Arizona facility equipped with a small lab and processing tanks.
The SEC complaint states:”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.”
From November 2005 through June 2009, Nekekim sold approximately $6.7 million in common stock to investors, the SEC states, a memorandum Carlton distributed to prospective investors to promote the stock claimed Nekekim controlled gold deposits worth $1.7 billion or more.
Nekekim purported their assay labs reported 3.967 ounces of gold per ton, which would have meant a tremendous and rare gold discovery, as mining companies routinely work deposits under a half-ounce per ton, the SEC states. Nekekim represented in 2005 their ore body encompassed at least four square miles.
The SEC claimed this was “cherry picked and therefore misleading.”
Nekekim represented that a major east coast refinery committed to accept their ore for smelting, but the SEC said the refinery never confirmed any gold content or agreed to do any business with the company.