SEC Suit Alleges Fraud in Mining Offer

The Securities and Exchange Commission filed a civil suit Tuesday accusing Burbank radio-television financial adviser R. G. Reynolds and Kern County miner William M. Moreland of fraud in a $1.7-million gold ore promotion.

The suit, filed in U.S. District Court in Los Angeles, is a “direct challenge” of a California Court of Appeal decision last year in favor of the same defendants, Irving M. Einhorn, SEC regional administrator in Los Angeles, said.

Reynolds also was accused by the SEC of using false statements in collecting another $2 million from investors in a so-called loan program from early 1985 to at least April, 1987. The suit also alleged that Reynolds acted without authority as an investment adviser and a broker-dealer.

The suit alleges that Reynolds and Moreland sold unregistered securities to 250 persons in the form of interests in a gold mining venture in Kern County between December, 1985, and April, 1986.

The SEC suit also alleged that an “information package” prepared by Moreland and disseminated by Reynolds and his R. G. Reynolds Enterprises made “numerous” fraudulent misrepresentations and omitted material information.

Omissions Alleged

Among other things, the suit alleged that the information package failed to disclose that a previous Moreland mining venture on the same property went bankrupt in 1985.

Moreland also falsely claimed to have valuable gold reserves and investors were not told that he did not own valid mining claims beneath about 80% of the previously mined “dump and tailings waste material” in which interests were sold, the suit said. Accused of aiding in the alleged fraud was Joseph A. Johnson, a Bakersfield geologist.

Last year, the California appeals court ruled that investment contracts for the Moreland gold were not securities under state law. The court had relied on a 9th U.S. Circuit Court of Appeals ruling in July, 1986, in favor of Belmont Reid & Co. involving gold contracts.

Einhorn said that if the new Reynolds suit reaches the 9th Circuit, it may serve the SEC’s purpose in seeking a ruling holding that such investment contracts do constitute securities.

State and federal securities law enforcers have complained that the 1986 federal and 1987 state rulings on the question have hamstrung efforts to regulate gold and other commodities.