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Live Ventures’ Ex-CFO Loses Attorney In SEC Fraud Case
New development temporarily pauses case against retailer accused of inflating earnings and lying to auditors.
January 1, 2024
The fraud case against Live Ventures Incorporated (LIVE), a flooring, steel, and video game retailer, is temporarily paused after attorneys for multiple parties involved quit following a failed attempt to settle the matter in mediation.
In 2021, the SEC charged Live Ventures, CEO Jon Isaac, and ex-CFO Virland Johnson with multiple financial, disclosure, and reporting violations related to inflated income and earnings per share, stock promotion and secret trading, and undisclosed executive compensation.
The SEC’s complaint says Isaac, in part:
“...recorded income from a backdated contract to boost Live Ventures' pre-tax income for fiscal year 2016 by 20%. Live Ventures and Isaac also allegedly overstated earnings per share by 40% by improperly understating Live Ventures' outstanding share count. The complaint alleges that in addition to disclosing falsified financial results, Isaac hired a stock promoter to boost interest in Live Ventures. As alleged, the financial manipulation and stock promotion caused Live Ventures' share price to spike. Isaac allegedly profited by secretly selling Live Ventures shares in a nominee account that he controlled in the name of Kingston Diversified Holdings.”
Live Ventures also misrepresented, according to the SEC, the date on which it had acquired a new subsidiary from Appliance Recycling Centers of America, Inc. (ARCA, currently known as JanOne Inc.), enabling Live Ventures to report a positive net income for its first quarter of 2018, which otherwise would have been an unprofitable quarter. According to the complaint, Isaac and Johnson, who held the position of CFO at both Live Ventures and ARCA, engaged in a scheme to misrepresent the effective acquisition date, and lied to Live Ventures' auditors about the acquisition date to ensure Live Ventures could report positive net income.
In June 2023, after a failed attempt at mediation, the parties were supposed to resume a previously issued discovery schedule order.
However, discovery deadlines have been extended because counsel for JanOne and Virland Johnson moved to withdraw on August 18, 2023, which motion the court granted on October 2, 2023. JanOne and Virland Johnson have until January 4, 2024, to obtain new counsel, after which Live Ventures anticipates depositions will commence.
If it loses the case, Live Ventures says fines and damages could be “substantial” and result in Isaac may no longer be allowed to serve as a company officer or director.
Separately, Live Ventures reduced previously reported FY22 Operating Cash Flow by $8.2 million, or more than 56% due to a reclassification stemming from a failed sales and leaseback transaction as part of an acquisition.
Live Ventures reassured investors the reclassification had no impact on Adjusted EBITDA.
Separately, two weeks after Tony Isaac, a member of the Live Ventures’ board of directors, and father of the Company's CEO, Jon Isaac, exercised more than 9,000 stock options for the company repurchased Isaac's 9,904 shares of company stock for $25.85 per share, the closing market price on June 28, 2023, or approximately $256,000.
Tony Isaac is the Chief Executive Officer and a director of JanOne, one of the parties accused in the SEC fraud probe.
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