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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 49267/ February 17, 2004

ADMINISTRATIVE PROCEEDING
File No. 3-11319


In the Matter of

PAUL A. BARRIOS III,

AND DENNIS P. O'CONNELL, JR.


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ORDER MAKING FINDINGS AND
IMPOSING SANCTION BY DEFAULT

The Securities and Exchange Commission ("Commission") instituted this proceeding on October 29, 2003, pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act"). The Order Instituting Proceedings ("OIP") directed that Respondents file an Answer within twenty days after service of the OIP, and that I issue an Initial Decision no later than 210 days from the date of service. See 17 C.F.R. 201.220(b), .360(a)(2).

Respondents Barrios and O'Connell received the OIP on November 17, 2003, and December 7, 2003, respectively. Respondents were represented at a telephonic prehearing conference held on December 15, 2003. A hearing is scheduled to begin on February 24, 2004, in Los Angeles, California.

On February 5, 2004, the Division of Enforcement ("Division") filed a motion that Respondents be deemed in default and that the proceeding be determined against them ("Motion"). The Motion's six exhibits ("Exhibits") show that the Division has made the investigative file available to Respondents (Exhibit 3), has sent each of them proposed Offers of Settlement (Exhibits 1, 2, 5), and has informed Respondents that it would file the Motion if it did not receive an Answer from Respondent O'Connell and either an Answer or signed Offer of Settlement from Respondent Barrios by January 23, 2004. (Exhibit 4.)

The Commission's Rules of Practice provide that any Respondent, who fails to file an Answer, appear at a prehearing conference, or answer a dispositive motion may be deemed to be in default and the allegations in the OIP may be deemed true. 17 C.F.R. 201.155, .220. Respondents Barrios and O'Connell have not answered the allegations in the OIP, and have not responded to the Motion. Accordingly, I find that the following allegations in the OIP are true.

Facts

Respondent Barrios, age 42, resides in Rancho Santa Margarita, California. Respondent Barrios was employed as a Shoreline Development Company ("Shoreline") sales representative from December 2001 to February 2002 and acted as an unregistered broker-dealer. During the relevant period, Respondent Barrios was not associated with a broker-dealer and is not currently associated with any broker-dealer. From June 24, 1999 to November 11, 1999, and from October 19, 2001 to December 6, 2001, Respondent Barrios was a registered representative associated with Mark Stewart Securities, Inc., a broker-dealer registered with the Commission (File No. 8-49347). From September 18, 1995 to December 15, 1995, and from December 7, 1998 to July 1, 1999, Respondent Barrios was associated with Securities America, Inc., a broker-dealer registered with the Commission (File No. 8-26602). The Commission previously issued a cease-and-desist order against Respondent Barrios from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. Paul A. Barrios, 71 SEC Docket 2560 (Mar. 15, 2000). In that matter, Respondent Barrios, a registered representative with a registered broker-dealer, offered and sold preferred stock in four unregistered offerings. He misrepresented material facts in his solicitations to investors. Respondent Barrios was suspended from association with any broker or dealer for twelve months.

Respondent O'Connell, age 31, resides in Rancho Santa Margarita, California. Respondent O'Connell was employed as a Shoreline sales representative from at least March 2001 to August 2002 and acted as an unregistered broker-dealer. During the relevant period, Respondent O'Connell was not associated with a broker-dealer and is not currently associated with any broker-dealer. The Pennsylvania Securities Commission issued a cease-and-desist order against Respondent O'Connell on December 14, 2000, for engaging in unregistered securities activity in Pennsylvania in an oil and gas offering.

On August 27, 2002, the Commission filed a Complaint in the United States District Court for the Central District of California in SEC v. Shoreline Dev. Co., Case No. CV 02-6695 RSWL (Ex).

On October 8, 2003, the District Court granted the Commission's motion for summary judgment against Respondents and entered a final judgment of permanent injunction against them on all claims in the Commission's complaint. The judgment enjoins Respondents Barrios and O'Connell from violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act and from committing violations of the broker-dealer registration provisions of Section 15(a) of the Exchange Act.

The final judgment entered against Respondents Barrios and O'Connell imposed civil penalties in the amount of $50,000 each. The final judgment also ordered Respondent Barrios to disgorge the sum of $13,328.31, and ordered Respondent O'Connell and a shell corporation he controlled, Northstar Acquisitions and Holdings, Inc., to disgorge the sum of $233,409.05.

The Complaint alleged that:

A. Shoreline sold fractional undivided interests in oil and gas rights. From 2000 until August 27, 2002, Shoreline, through sales agents including Respondents Barrios and O'Connell, raised at least $3.8 million in approximately six offerings from 120 investors in thirty-two states. Respondents Barrios and O'Connell solicited investors to purchase Shoreline's securities through cold-call telemarketing and by sending them offering materials by overnight mail. Shoreline also used the Internet to promote its business and its purported success drilling wells.

B. Shoreline's principals made material misrepresentations about the performance of Shoreline's wells, a purported business relationship with El Paso Field Services, and their use of investor funds. Shoreline purchased the fractional undivided interests in oil and gas rights in its own name and then resold the interests to the public without disclosing to the investors that it was selling its own securities and marking them up in price from fifty to sixty-six percent. This mark up was not disclosed to investors. Shoreline's offering materials stated in the "use of proceeds" section that either "all" of the investor funds will be used for well drilling and completion costs, including production equipment and expenses, or that the purchase price of the securities includes the costs of drilling and completing the well, production equipment, and management fees. Roughly sixty-five percent of the amount raised from investors was paid to Shoreline's well operators for the purchase of investors' fractional interests in the wells and for drilling and completion costs. Shoreline's principals misused about thirty-five percent of investor funds for their personal use.

Order

Based on the above findings, I GRANT the Motion and find Respondents Barrios and O'Connell in default, pursuant to Rule 155 of the Commission's Rules of Practice, 17 C.F.R. 201.155.

Accordingly, I ORDER, pursuant to Section 15(b) of the Securities Exchange Act of 1934, that Paul A. Barrios, III and Dennis P. O'Connell, Jr. are barred from being associated with a broker or dealer.

Brenda P. Murray
Chief Administrative Law Judge

 

http://www.sec.gov/litigation/admin/34-49267.htm


Modified: 02/26/2004