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U.S. Securities and Exchange Commission

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO

Civil Action No.

Securities and Exchange Commission,

Plaintiff,

vs.

Norman P. Rounds,

Defendant.
 


COMPLAINT


 

Plaintiff the Securities and Exchange Commission ("Commission"), for its complaint, alleges as follows:

I. SUMMARY

1)  This matter involves Norman P. Rounds' activities in connection with offers and sales of securities without being registered as a broker or dealer, in violation of Section 15(a)(1) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §78o(a)(1)]. Unless restrained and enjoined, defendant Rounds will in the future continue to violate Section 15(a)(1) of the Exchange Act. Accordingly, the Commission seeks an order permanently restraining and enjoining defendant Rounds.
2)  Defendant Rounds' activities also violated a 1996 order issued by Commission barring Rounds from association with a broker or dealer ("1996 Bar Order"). The Commission seeks an order of this Court enforcing its 1996 Bar Order.
3)  The Commission brings this action for injunctive and other relief pursuant to the authority conferred upon it by Section 21(d) and (e) of the Exchange Act [15 U.S.C. §§ 78u(d) and (e)].
4)  The Commission seeks an order requiring defendant Rounds to pay civil penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)].
5)  The Commission seeks an order pursuant to the equitable authority of the court requiring defendant Rounds to disgorge all ill-gotten gains from his unlawful conduct and prejudgment interest thereon.

II. JURISDICTION AND VENUE

6)  This Court has jurisdiction over this action pursuant to Sections 21(d) and (e) and 27 of the Exchange Act [15 U.S.C. §§78u(d) and (e) and 78aa]. Venue lies in this Court pursuant to Section 27 of the Exchange Act.
7)  In connection with the transactions, acts, practices, and courses of business described in this Complaint, defendant Rounds, directly and indirectly, has made use of the mails or other means or instrumentalities of interstate commerce.
8)  Certain of the transactions, acts, practices and courses of business constituting the violations of law alleged herein occurred within this district. Moreover, defendant Rounds resides in this district.

III. DEFENDANT

9)  Norman P. Rounds, age 53, is a resident of Greenwood Village, Colorado. Rounds was employed by various brokerage firms in the Denver area from 1973 until 1996.
10)  In a 1994 administrative proceeding brought by the Commission's Division of Enforcement, defendant Rounds was charged with failing to supervise a stockbroker employed by the brokerage firm he owned, Consolidated Investment Services, Inc. ("CIS"). The stockbroker had conducted a fraudulent scheme to sell bogus securities that resulted in multi-million dollar losses to CIS's customers. Following a hearing before an administrative law judge in this proceeding and an appeal to the Commission, the Commission issued an order barring defendant Rounds from associating with any broker or dealer with a right to reapply for such association after one year (the 1996 Bar Order). After expiration of the one-year bar, defendant Rounds initiated, but did not complete, the process for becoming associated with a broker or dealer. Accordingly, the Commission's bar order against Rounds has remained in effect from the time of its issuance through the present.
11)  Rounds was also censured and fined by the National Association of Securities Dealers in 1993 in a different matter.

IV. RELATED PARTIES

12)  Daugherty Resources, Inc., is a publicly-held British Columbia Corporation headquartered in Lexington, Kentucky.
13)  Daugherty Petroleum, Inc. is a wholly owned subsidiary of Daugherty Resources, Inc. Daugherty Petroleum explores, drills and operates oil and gas wells, primarily in the Appalachian Basin. Daugherty Petroleum raises funds for its operations through offerings of limited partnership interests in oil and gas well drilling programs.

V. FACTS

14)  In July 2000, defendant Rounds and Daugherty Resources entered into an 18-month "Consulting and Broker-Dealer Finders Agreement." Under this agreement, defendant Rounds was to identify brokerage firms and professional advisors with clients that might be interested in investing in Daugherty oil and gas drilling programs. Daugherty Resources was to pay defendant Rounds a flat rate of approximately $42,000 for every five limited partnership interests sold by a brokerage firm or professional advisor introduced to Daugherty Resources or the Daugherty programs by Rounds.
15)  Defendant Rounds introduced at least five brokerage firms to Daugherty Resources and Daugherty drilling programs. Four of those five firms sold limited partnership interests in Daugherty oil and gas programs to investors, raising approximately $6.3 million. Daugherty Resources paid defendant Rounds approximately $884,000 based on the sale of the partnership interests to those investors.
16)  Under his agreement with Daugherty Resources, defendant Rounds actively promoted the oil and gas drilling programs. He corresponded and met with stockbrokers, and also corresponded with certified public accountants. He encouraged the stockbrokers and CPAs to introduce the Daugherty programs to their clients.
17)  In addition, defendant Rounds helped to set up informational meetings for potential investors at which they met the president of Daugherty Resources and Daugherty Petroleum, Bill Daugherty. In at least one of these meetings, defendant Rounds addressed the potential investors, speaking to them about Bill Daugherty's experience in the oil and gas industry.
18)  Defendant Rounds also communicated extensively with brokerage firms about the Daugherty programs, including answering their questions, coordinating the firms' "due diligence" reviews, and assisting in the preparation of a slide show for the firms to show their clients.
19)  Defendant Rounds also promoted the Daugherty programs directly to individual investors. He sent letters to at least five individuals, describing the programs and enclosing offering materials for the programs. In at least one instance, Rounds commented on past returns of the Daugherty programs and the integrity of Bill Daugherty. At times, Rounds followed these letters with telephone calls. He discussed the specific nature of the partnerships with some of the investors and answered investor questions.
20)  In addition, Rounds arranged both telephone conversations and face-to-face meetings among himself, individual investors and Bill Daugherty.
21)  At least one of the individual investors solicited by Rounds invested in the Daugherty programs.
22)  Defendant Rounds acted as a broker under the Exchange Act. He was engaged in the business of effecting transactions in securities for the account of others.
23)  By acting as a broker, Rounds violated the Commission's 1996 Bar Order.
24)  Defendant Rounds effected transactions in, and induced or attempted to induce the purchase and sale of, limited partnership interests in Daugherty oil and gas drilling programs.
25)  The limited partnership interests in the Daugherty programs promoted, offered and sold by and/or with the involvement of defendant Rounds were "securities" under the Exchange Act.
26)  At the time defendant Rounds effected transactions in and induced or attempted to induce the purchase and sale of the Daugherty program limited partnership interests he was not, nor has he ever been, registered with the Commission as a broker or dealer.
27)  At the time defendant Rounds effected transactions in and induced or attempted to induce the purchase and sale of the Daugherty program limited partnership interests he was not licensed as a stockbroker or employed by or associated with a broker or dealer registered with the Commission.
28)  At the time he entered into the agreement with Daugherty Resources, defendant Rounds did not tell Bill Daugherty that he had previously been disciplined by the Commission.
29)  Also, under his agreement with Daugherty Resources, Rounds was required to obtain a stockbroker's license, issued by the National Association of Securities Dealers and known as a "Series 7" license. To obtain this license, Rounds would have been required to apply to associate with a broker or dealer. As discussed above in paragraph 10, Rounds initiated but never completed this application process.
30)  When Bill Daugherty learned that defendant Rounds had been disciplined by the Commission and had not obtained his stockbrokers license, Bill Daugherty terminated his relationship with defendant Rounds.

FIRST CLAIM FOR RELIEF
(Violations of Section 15(a)(1) of the Exchange Act)
[15 U.S.C. § 78o(a)(1)]

31)  Paragraphs 1 through 30 are hereby re-alleged and incorporated by reference.
32)  Defendant Rounds acted as and was a broker and effected transactions in and induced and attempted to induce the purchase or sale of securities issued by Daugherty Resources and/or Daugherty Petroleum without being registered as a broker or dealer under the Exchange Act and without being associated with a broker or dealer registered under the Exchange Act.
33)  By reason of the foregoing, defendant Rounds violated, and unless restrained and enjoined will violate, Section 15(a)(1) of the Exchange Act [15 U.S.C. § 78o(a)(1)].

SECOND CLAIM FOR RELIEF
(Violations of Commission's 1996 Bar Order)

34)  Paragraphs 1 through 33 are hereby re-alleged and incorporated by reference.
35)  By virtue of the conduct alleged above, Rounds violated the Commission's 1996 Bar Order.
36)  Rounds will continue to violate the Commission's 1996 Bar Order unless ordered by the Court to comply with it.

PRAYER FOR RELIEF

WHEREFORE, the Commission respectfully requests that the Court:

I.

Find that defendant Rounds committed the violations alleged.

II.

Enter an injunction permanently restraining and enjoining defendant Rounds, directly or indirectly to the full extent provided by Rule 65(d) of the Federal Rules of Civil Procedure, from violating Section 15(a)(1) of the Exchange Act [15 U.S.C. § 78o(a)(1)].

III.

Order defendant Rounds to pay civil money penalties pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] in an amount to be determined by the Court.

IV.

Order defendant Rounds to disgorge and pay over, as the Court may direct, all ill-gotten gains received or benefits in any form derived from the unlawful conduct alleged in this Complaint, together with pre-judgment interest thereon.

V.

Order defendant Rounds to comply with the Commission's 1996 Bar Order barring Rounds in all capacities from associating with a broker or dealer with a right to reapply for such association after one year.

VI.

Grant such other relief as this Court may deem just or appropriate.

 

Dated: February 19, 2003.

  Respectfully submitted,
 
 
________________________
Thomas M. Piccone
Robert M. Fusfeld
Amy Sumner
Attorneys for Plaintiff
Securities and Exchange Commission
1801 California Street, Suite 1500
Denver, Colorado 80202
Telephone: (303) 844-1000
Facsimile: (303) 844-1068

 

http://www.sec.gov/litigation/complaints/comp17989.htm

Modified: 02/26/2003