U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18424 / October 24, 2003
SECURITIES and EXCHANGE COMMISSION v. SHORELINE DEVELOPMENT COMPANY, TODD J. TAYLOR, DEREK K. GRADWELL, PAUL A. BARRIOS III, DENNIS P. O'CONNELL, JR., EPIC CONSULTING SERVICES, INC., COASTAL RESOURCES, INC., NORTHSTAR ACQUISITIONS AND HOLDINGS, INC., SHORELINE HOLDINGS AND ACQUISITIONS, INC. and SPARTAN CONSULTING, INC. (Case No. CV02-6695 RSWL (Ex)) (C.D. Cal.)
The Securities and Exchange Commission announced that on October 8, 2003, the United States District Court in Los Angeles entered final judgments of permanent injunction against all defendants in an oil and gas well offering fraud scheme run by Shoreline Development Company and four individuals.
The Commission's complaint alleged that from 2000 to August 2002, the defendants fraudulently raised at least $3.8 million from investors, purportedly for investments in oil and gas wells. The defendants are Shoreline Development Co., a Delaware company that was headquartered in Costa Mesa, California; Todd J. Taylor, 37; Derek K. Gradwell, 30; Paul A. Barrios III, 42; and Dennis P. O'Connell, Jr., 31, all of Orange County, California. Taylor and Barrios were repeat securities law violators. In 1999, in a prior case brought by the Commission, Taylor was ordered by a federal district court not to sell securities without registering with the Commission as a broker-dealer. In 2000, Barrios was the subject of a cease-and-desist order issued by the Commission suspending him for twelve months from association with any broker or dealer.
In its complaint, the Commission alleged that during the offering, Shoreline, Taylor and Gradwell made misrepresentations about the performance of Shoreline's wells, a purported business relationship with El Paso Field Services, and their use of investor funds. These defendants concealed their misappropriation from investors of more than $1.2 million to pay for lavish vacations, a wedding and honeymoon, a vacation home, gambling debts, customized motorcycles and other luxury items.
Previously, the district court appointed a receiver to take control of Shoreline for the benefit of investors. The district court entered a final judgment of permanent injunction against Shoreline, pursuant to consent, enjoining it from violating the antifraud and the securities registration provisions. The judgment ordered Shoreline to pay in disgorgement $5,005,499.25, the amount raised from investors, including prejudgment interest. As part of the settlement, Shoreline did not admit or deny the Commission's allegations. The receiver is in the process of collecting Shoreline's assets, the net proceeds of which will be distributed to investors pursuant to a plan approved at a later date by the district court.
The Commission also obtained a final judgment of permanent injunction enjoining Taylor and Gradwell from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and from violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. Taylor and Gradwell were each ordered to pay a penalty in the amount of $120,000.
The final judgment of permanent injunction also enjoins 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. Barrios and O'Connell were each ordered to pay a penalty in the amount of $50,000.
In addition, Taylor and a shell corporation he controlled, Coastal Resources, Inc., were ordered to disgorge the sum of $488,773.99. Gradwell and a shell corporation he controlled, Epic Consulting, Inc., were ordered to disgorge the sum of $670,624.46. A shell corporation controlled by Taylor and Gradwell, Shoreline Holdings and Acquisitions, Inc., was ordered to disgorge the sum of $42,424.37. Barrios was ordered to disgorge the sum of $13,328.31. O'Connell and a shell corporation he controlled, Northstar Acquisitions and Holdings, Inc., were ordered to disgorge the sum of $233,409.05. The disgorgement amounts represent the amounts of the defendants' ill-gotten gains as a result of the conduct alleged in the complaint, including prejudgment interest.
Finally, in a separate default judgment, Spartan Consulting, Inc., a relief defendant which received investor funds from Shoreline, was ordered to disgorge $78,321.82, which represents the amount of Spartan's ill-gotten gains as a result of the conduct alleged in the complaint, including prejudgment interest. Spartan failed to file an answer to the Commission's complaint.
The judgments entered against Shoreline, Taylor, Gradwell, Barrios, O'Connell, Coastal, Epic, Northstar, Shoreline Holdings and Acquisitions, and Spartan conclude the Commission's action.
For further information, see Litigation Release No. 17702 (August 28, 2002).