Litigation Release No. 18069 / April 3, 2003
S.E.C. v. Rocky Mountain Energy Corporation, Inc., John N. Ehrman, W. Roderick Johnson, and John W. Ehrman, Jr. (Defendant Solely for Purposes of Equitable Relief) Case No. H-03-CV-1133 (U.S.D.C., S.D. Tex.)
SEC Halts Fraudulent Stock Manipulation Scheme Orchestrated by CEO and General Counsel of Rocky Mountain Energy Corporation
On April 3, 2003, the Securities and Exchange Commission ("SEC") filed a lawsuit in U.S. District Court for the Southern District of Texas (Houston) to halt a fraudulent stock manipulation scheme involving Rocky Mountain Energy Corporation, a Houston-based oil-and-gas company whose stock is quoted on the OTC Bulletin Board (symbol, "RMEC"). U.S. District Judge Sim Lake granted the SEC's requests for a temporary restraining order and an asset freeze against Rocky Mountain, its CEO, John N. Ehrman, and its General Counsel, W. Roderick Johnson, Sr. The Court also appointed a temporary receiver to take control of Rocky Mountain and the assets of Ehrman. The complaint also named John W. Ehrman, Jr., Ehrman's father, as a relief defendant to recover proceeds from the alleged fraud in his possession or control.
The complaint alleges that, from July 2002 to the present, Ehrman and Johnson used four bogus share-exchange transactions to secretly obtain control of approximately 50% of Rocky Mountain's issued and outstanding stock. Additionally, it is alleged that Rocky Mountain and Ehrman issued a stream of glowing but false and misleading press releases to artificially inflate the price and trading volume of the company's stock. The press releases and other promotional statements, touted numerous "acquisitions" of valuable oil-and-gas properties, or agreements to acquire such properties, along with expected revenues and other benefits from the acquisitions. The complaint alleges that Rocky Mountain had neither the assets nor the financing to complete these acquisitions. Concurrent with the misleading public announcements, it is alleged that Ehrman and Johnson dumped more than $800,000 of Rocky Mountain stock into the unsuspecting marketplace.
In carrying out the fraudulent scheme, Ehrman allegedly caused Rocky Mountain to file false and misleading reports and registration statements with the SEC. Among other things, these filings failed to disclose that Ehrman and Johnson caused Rocky Mountain to issue approximately 47 million shares of stock in the four sham share-exchange transactions. The filings also misrepresented, among other things, Ehrman and Johnson's ownership, transfer, and sale of approximately 31 million of these shares.
The SEC also alleged that, as part of the orchestrated manipulation, Ehrman and Johnson caused Rocky Mountain to file a number of false and misleading petitions and other documents in fairness proceedings in a Utah state court in an attempt to cloak their fraudulent activities from detection.
It is alleged in the complaint that, in connection with the scheme, Rocky Mountain, Ehrman, and Johnson violated the anti-fraud and securities-registration provisions of the federal securities laws, specifically Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. It is also alleged that Rocky Mountain violated, and that Ehrman aided and abetted violations of, the issuer-reporting provisions of the federal securities laws, specifically Sections 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. It is further alleged that Ehrman violated the beneficial-ownership and principal-shareholder reporting provisions of the Exchange Act, specifically Sections 13(d) and 16(a) and Rules 13d-1 and 16a-3 thereunder. In addition to the relief already obtained in this action, the SEC seeks preliminary and permanent injunctions against each defendant, disgorgement and civil penalties against Ehrman and Johnson, an officer-and-director bar against Ehrman, a penny-stock bar against Ehrman and Johnson, and disgorgement against John W. Ehrman, Jr.
The SEC acknowledges the assistance of the National Association of Securities Dealers in this matter.
