Court Imposes Officer and Director Bars, Civil Penalties, Disgorgement, and Injunctions Against Promoters of Oil and Gas Scheme
Oct. 3, 2016
The U.S. District Court for the Northern District of Texas entered final judgments against defendants Paul R. Downey, Jeffry P. Downey, and John M. Leonard. The judgments followed summary-judgment rulings in which the court found that the Downeys raised $4.9 million from investors in a fraudulent oil and gas investment program and Leonard made $405,698 in commissions while serving as an unregistered broker.
The Court found the Downeys’ misconduct to be “extremely egregious,” describing it as “knowingly deceiving investors about virtually every aspect of the investment.” The court ordered them to disgorge $4.9 million plus $1.1 million in interest and to pay a civil penalty of $178,156 apiece. The court barred them from serving as officers or directors of any SEC-reporting company and enjoined them from violating antifraud laws. The court also enjoined the Downeys from soliciting or participating in securities transactions in the future, allowing them to purchase and sell securities only for their own accounts.
The Court also found that Leonard's conduct “was extremely egregious, recurrent, and carried out with high scienter” and that it “involved deliberate or reckless disregard of a regulatory requirement.” The court ordered Leonard to disgorge $405,698 in commissions plus $89,063 in interest, and to pay a civil penalty of $178,156. It also enjoined Leonard from violating the broker-registration provisions of the federal securities laws.
B. David Fraser and Timothy McCole led the SEC’s litigation, and Jeffrey Cohen and Carol Hahn conducted the underlying investigation. The case was supervised by David Peavler, Jessica Magee, and David Reece. See here for more information.