U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17231 / November 14, 2001
SECURITIES AND EXCHANGE COMMISSION v. TEXON ENERGY CORPORATION, LONESTAR PETROLEUM CORPORATION, JAMES E. HAMMONDS aka JAKE HAMMONDS aka JAKE DAVIS and BARRY V. REED (Case No. CV-01-09706-LGB(MANx) (C.D.Cal.)
The United States Securities and Exchange Commission ("Commission") announced that on November 14, 2001, the Honorable Gary A. Feess, United States District Judge for the Central District of California, issued a temporary restraining order halting an ongoing $1 million securities fraud by Texon Energy Corporation ("Texon"); Lonestar Petroleum Corporation ("Lonestar"); James E. Hammonds ("Hammonds"), age 60 of Inglewood, California and a recidivist securities violator; and Barry V. Reed ("Reed"), age 56, of Las Vegas, Nevada. The Court: (1) granted the Commission's application for a temporary restraining order and receiver; (2) froze the assets of the defendants; (3) prohibited the destruction of documents by the defendants; (4) ordered accountings from the defendants; and (5) granted expedited discovery. A hearing on whether a preliminary injunction should be issued against the defendants is scheduled for November 21, 2001.
The Commission's complaint, filed yesterday, alleges that since 1998, the defendants have raised over $1 million from investors, purportedly for investments in oil and gas wells, and promising investors a monthly dividend equal to 12% per year. In fact, the defendants are operating a Ponzi-like scheme in which they are making payments to existing investors with the money that they raise from new investors. As part of the defendants' sales pitch in September and October 2001, the defendants have tried to capitalize on the September 11th tragedy by telling elderly investors, that because of "the War," the demand and price of oil would increase and Texon is in a "good position" to benefit from all of this because it purchases domestic oil and gas wells.
Hammonds is the vice president of Lonestar and in some documents is identified as the vice president of Texon. In 1994, Hammond was enjoined for his part in a similar oil and gas fraud in which investors were also falsely promised a 12% return. SEC v. Southern California Securities, Inc., et al., (CV-94-6156-HLH) (C.D. Cal. November 17, 1994) (LR14794). In 1996, he was barred from the securities industry. In the Matter of Raymond Charles Gross and James Eugene Hammonds, Exchange Act Release No. 36802.
The Commission obtained an order temporarily restraining the defendants from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Court's order also temporarily restrains the defendants from committing violations of the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. In addition to the interim relief granted today, the Commission seeks a final judgment against the defendants enjoining them from future violations of the foregoing securities registration and antifraud provisions, and ordering the defendants to disgorge all ill-gotten gains, and assessing civil penalties against them.