SEC gives Cardinal’s wings a clip

It took a while for regulators to do something about Cardinal Resources. But it has finally happened. The long-on-promises, short-on-performance Wilkins water treatment company had not filed quarterly or annual financial statements since January of last year, when Cardinal reported a $2.6 million loss for the first nine months of 2015. Sooner or later, such a lapse in required disclosure was bound to come to the attention of the U.S. Securities and Exchange Commission.

This month, the SEC revoked registration for Cardinal’s stock after agency staff termed the company’s lack of compliance “serious and egregious.” Noting that Cardinal thought other things were more important than paying auditors and meeting its reporting obligations, the SEC said revoking the registration was “necessary and appropriate for the protection of investors.”

Given the debilitated status of Cardinal’s shares — promoters once tried to tout Cardinal by using

a picture of movie star Matt Damon with a toilet seat around his neck — the SEC’s protective measure is too little and too late for many investors.

The SEC’s decision means that Cardinal’s shares will no longer be publicly traded. That makes it even harder for investors to dump their shares because there isn’t a public market where investors can put a price on Cardinal’s stock. Assessing the value was already nearly impossible because there were no financial statements to indicate what a piece of Cardinal might be worth.

Cardinal is in the business of making solar-powered systems that provide clean drinking water to Third World communities. According to Utah attorney John Thomas, who represented Cardinal in the SEC proceedings, the company’s business “is moving forward and is very promising.”

Mr. Thomas offered the assessment in a pleading that attempted to persuade the federal agency not to revoke Cardinal’s securities registration. His argument was reminiscent of the student who tries to tell his teacher that the dog ate his homework.

Cardinal “has allocated all its resources to operations and not audits necessary to complete these reports,” Mr. Thomas wrote in a June 30 SEC filing.

Nine days earlier, the company reported to the SEC that its auditor, Malone Bailey of Houston, Texas, had resigned. Cardinal disclosed that it had not asked Malone Bailey to audit its financial statements over the past two years.

In response to emailed questions, CEO Kevin Jones indicated that Cardinal plans to prepare audited financial statements and eventually ask the SEC to re-register the company’s shares.

“The company was not able to keep up with its auditor, legal, and accounting costs necessary to remain fully reporting because we were focused on our operations,” Mr. Jones wrote. “We intend to reengage a different auditor in September and prepare to file another registration statement for the benefit of all of our shareholders and become fully reporting again.”

Cardinal was in the process of deregistering its stock by the time the SEC swung into action.

“We agreed with the SEC to revoke our registration,” Mr. Jones said in an email. “We are still in business, working to move forward, and have begun the steps necessary to reregister.”

He said Cardinal’s goal is to have audited financial statements completed by the end of next month.

Mr. Jones did not respond to an emailed question regarding whether he will show up for a deposition that one of Cardinal’s creditors has requested.

A Pittsburgh firm that tried to help Cardinal seek some U.S. Army contracts in Africa is trying to track down Mr. Jones. Allegheny County Common Pleas Court records indicate B2G Alliance won a $12,500 judgment against Cardinal in February.

It wants to depose Mr. Jones in order to find out where there are assets Cardinal can use to pay off the judgment. Mr. Jones failed to show up for a July 12 deposition “and there has been no communication from [the] defendant to explain his failure to appear,” B2G’s attorney said in a July 17 filing.

The logical assumption would be Mr. Jones is too busy focusing on operations. Perhaps that’s why B2G sought a court order to compel him to testify. Common Pleas Judge Robert Colville complied, ordering Mr. Jones to show up for the deposition within 30 days of his Aug. 18 order.