U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19467 / November 16, 2005
Accounting and Auditing Enforcement
Release No. 2345 / November 16, 2005
SEC v. Jonathan D. Nelson (Defendant), XIT Land & Energy, Inc., Chisum Travel Center, Ltd., Z8 Properties, Ltd., Three Stars Aviation, LLC, and Chisum Coach, Ltd. (Defendants Solely for Purposes of Equitable Relief), Case No. 5-05CV0266-C. (N.D. Tex., Lubbock Division, filed November 16, 2005)
SEC FREEZES ASSETS OF AND OBTAINS OTHER RELIEF AGAINST JONATHAN DWANE "JODY" NELSON, FORMER CFO OF PATTERSON-UTI ENERGY, INC., IN $69 MILLION EMBEZZLEMENT SCHEME
On November 16, 2005, U.S. District Judge Sam R. Cummings of the Northern District of Texas, Lubbock Division, entered orders freezing the assets of, and granting other relief against, Jonathan Dwane "Jody" Nelson, age 36, the former chief financial officer of Snyder, Texas-based Patterson-UTI Energy, Inc. Patterson-UTI, whose common stock trades on the Nasdaq National Market under the symbol PTEN, is the second-largest owner of land-based drilling rigs in North America. Nelson had abruptly resigned from the company on November 3, 2005, citing unspecified "personal reasons."
In its emergency lawsuit, the SEC alleged that Nelson, who resides in Dallas, Texas, orchestrated a massive phony-invoice scheme to embezzle more than $69 million from Patterson-UTI over five years. The SEC also named as relief defendants five Nelson-controlled companies alleged to have received proceeds from the scheme: XIT Land & Energy, Inc. ("XIT"), Chisum Travel Center, Ltd., Z8 Properties, Ltd., Three Stars Aviation, LLC, and Chisum Coach, Ltd.
The SEC's complaint alleges that Nelson created false invoices that caused Patterson-UTI to pay millions of dollars to XIT, a company he secretly controlled that was not a legitimate Patterson-UTI vendor. To accomplish his scheme, Nelson circumvented Patterson-UTI internal controls by, among other things, forging another company official's initials on payment documents. According to the complaint, Nelson finally confessed to Patterson-UTI on November 9 that he embezzled approximately $29 million, but company records show that he actually stole $69,434,342 from January 2001 through October 2005. To hide his scheme, Nelson, among other things, made false written representations to Patterson-UTI's independent auditor about the accuracy of the company's financial statements and signed false public certifications attesting to the truthfulness of the company's quarterly and annual SEC reports.
As the complaint alleges, Nelson transferred the embezzled funds from an XIT bank account to other entities he controlled, including Chisum Travel, Z8 Properties, Three Stars Aviation and Chisum Coach. The SEC contends that Nelson used these funds to purchase an airplane, an airfield, a cattle ranch, homes, vehicles and a full-service truck stop, among other things. The SEC named XIT and these other entities as relief defendants solely to secure equitable relief to prevent them from dissipating or hiding the fruits of Nelson's wrongdoing.
The SEC's complaint alleges violations of the antifraud, proxy-solicitation, record-keeping, reporting, internal controls, lying-to-accountants and report-certification provisions of the federal securities laws, specifically: Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), 13(b)(5), and 14(a) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-14, 13b2-1, 13b2-2, and 14a-9 thereunder. The court's order immediately freezes the assets of and appoints a receiver over Nelson and the relief defendants, and requires Nelson and the relief defendants to account for all proceeds stolen from Patterson-UTI, prohibits the destruction of documents and expedites discovery. In addition, the SEC seeks preliminary and permanent injunctions against Nelson, as well as disgorgement of ill-gotten gains, civil penalties and a bar against him ever serving as an officer or director of another public company. The SEC further seeks disgorgement of ill-gotten gains against each relief defendant.