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U.S. Securities and Exchange Commission

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION


SECURITIES AND EXCHANGE COMMISSION,  
         Plaintiff,
 
   vs
 
LA MESA GEOSCIENCE, INC.,
LA MESA GROUP, L.P.,
LA MESA PARTNERS, L.C.,
and
KENNETH HOOPER
 
     Defendants

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Civil Action No.    
 

COMPLAINT

Plaintiff Securities and Exchange Commission alleges as follows:

SUMMARY

  1. Since January 2000, Defendants La Mesa Geoscience, Inc., La Mesa Group, LP, La Mesa Partners, LC (collectively "La Mesa" or "the La Mesa entities") and Kenneth Hooper ("Hooper") (collectively "Defendants"), La Mesa's president and control person, raised more than $3 million by selling unregistered securities to over 200 investors throughout the United States.
     
  2. In the course of offering and selling these securities, in the form of limited and general partnerships, fractional undivided interests in oil and gas leases and debentures, the defendants made numerous misrepresentations and omissions concerning, among other things, risk factors, the prospects for return on the investment, and the financial condition of the La Mesa entities and business prospects of the La Mesa entities.
     
  3. By engaging in the conduct detailed in this Complaint, Defendants directly or indirectly, singly or in concert, have engaged in, and unless enjoined will continue to engage in, transactions, acts, practices and courses of business that constitute violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §§ 77e(a), 77e(c) and 77q(a)] and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and of Rule 10b-5 [17 C.F.R. § 240.10b-5], promulgated thereunder. By engaging in the conduct detailed in this Complaint, Defendant Hooper directly or indirectly, has engaged in, and unless enjoined will again engage in, transactions, acts and practices and courses of business that constitute violations of Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)].

JURISDICTION AND VENUE

  1. This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act [15 U.S.C. § 77v(a)], and Section 27 of the Exchange Act [15 U.S.C. § 78aa]. Defendants, directly or indirectly, made use of the means or instruments of transportation and communication, and the means or instrumentalities of interstate commerce, or of the mails, in connection with the transactions, acts, practices and courses of business alleged herein. Venue is proper in this Court because certain of the transactions, acts, practices and courses of business alleged herein took place in the Northern District of Texas.

DEFENDANTS

  1. Kenneth Hooper, age 40, a resident of Garland, Texas, has been the president and control person of all the La Mesa Companies since their inception. Hooper was associated with Touchstone Capital Corporation Services, Inc. (BD#8-42519) from 1991 to 1992, and with McAndrew & Associates, Inc. (BD#8-43341) from 1992 to 1993. Hooper has no known disciplinary history.
     
  2. La Mesa Geoscience, Inc. is a Texas corporation with its principal place of business in McKinney, Texas. Its principal business consists of raising capital for oil and gas exploration projects. The securities issued by La Mesa are not registered under the Securities Act, and La Mesa is not registered with the Commission as a broker-dealer.
     
  3. La Mesa Group, LP is a Texas limited partnership with its principal place of business in McKinney, Texas. The securities issued by La Mesa Group, LP are not registered under the Securities Act, and La Mesa Group, LP is not registered with the Commission as a broker-dealer.
     
  4. La Mesa Partners, LC is the general partner of La Mesa Group and a Texas limited liability company with its principal place of business in McKinney, Texas. The securities issued by La Mesa Partners, LC are not registered under the Securities Act, and La Mesa Partners, LC is not registered with the Commission as a broker-dealer.

STATEMENT OF FACTS
The Offer and Sale of La Mesa Securities
Oil and Gas Offerings

  1. Since January 2000, La Mesa has made at least seven offerings of fractional undivided interests in oil and gas wells, raising about $2 million from 219 investors nationwide. At least five of the offerings involved wells located in Texas, and the other two involved wells located in Kentucky. In each of these offerings, La Mesa relied upon an unspecified exemption, pursuant to Regulation D of the Securities Act, from registration of its securities.
     
  2. Each offering pertained either to a specific well, or to all wells encompassed by a specific lease, and investors purchased the right to receive a percentage of any earnings, over and above the cost of production, that the lease or well might eventually render. Individual investments ranged in amount from as little as $2,500 to as much as $25,000.
     
  3. In offering and selling the La Mesa securities, the Defendants knowingly or recklessly misrepresented a number of material facts to existing and prospective investors, and also omitted to disclose material facts that caused their affirmative representations to be false and misleading.
     
  4. Pro forma earnings projections in La Mesa's offering materials were very aggressive, indicating that investors would recover their principal within two to three years, and thereafter, earn profits for at least five years. In reality, no well to date has ever returned the investors' principal, much less made a profit for investors.
     
  5. The confidential private placement memoranda, prepared by La Mesa, contained a number of misleading statements and material omissions about Hooper's prowess as an oil and gas operator. For example, La Mesa touted Hooper's "10 years of capital formation and exploration experience in North Texas, including a new field discovery in Jack County." La Mesa failed to disclose, however, that the "discovery" in Jack County resulted in Hooper's previous company, Enervest, drilling only two wells. One was a dry hole, and the other had some production, but never produced enough petroleum to recoup the cost of drilling the well.
     
  6. Furthermore, with regard to sales of interests in the Kentucky wells, the Defendants failed to disclose material risks of the venture, including logistical constraints, such as pipeline location and availability. Nor did the Defendants disclose the material risk that demand in the gas markets within the delivery range of existing pipelines could be so low that gas produced could fail to prove commercially profitable.

The Equity and Debenture Offerings

  1. Throughout the period of its oil and gas offerings, La Mesa also solicited investors to purchase either convertible debentures of, or a limited partnership interest in, La Mesa Group, L.P., raising nearly $1 million from approximately 38 investors. Hooper was solely responsible for the offering materials and sales documents pertaining to these securities, none of which were registered.
     
  2. Initially, Hooper provided few specifics about the process for converting the debentures to shares of stock in La Mesa Group, L.P. but generally represented that the defendants intended to convert the limited partnership into a corporation and take it public, at which time they would convert the debentures into shares of stock.
     
  3. In May of 2002, Hooper unveiled more concrete plans for the conversion that advised investors that La Mesa Group, L.P., would be converted to a corporation in 2002, and would thereafter distribute ten million shares of common stock, on a pro rata basis, to its partners. Further, Hooper stated that the new corporation, prior to its initial public offering, would issue an additional two million shares of stock which would be sold to existing investors at $0.50 per share and to new investors at $0.60 per share.
     
  4. Despite the fact that La Mesa had no audited financial statements and had failed even to retain an auditor, Hooper stated, without a reasonable basis, that these shares of the new corporation would be registered with the Commission in 2003. In soliciting investments Hooper and LeDay, at Hooper's direction, claimed that upon going public, the stock was expected to sell for $2 per share, yielding investors a four-fold return on their .50 per share investment. This price prediction was made without a reasonable basis.
     
  5. Hooper also wrote to investors that La Mesa had secured a relationship with persons affiliated with a $15 billion pension fund that had a $300 million letter of credit to pursue oil and gas prospects. These claims were untrue.

FIRST CLAIM
Violations of Sections 5(a) and 5(c) of the Securities Act

  1. Paragraphs 1 through 19 are hereby realleged and incorporated herein by reference.
     
  2. Defendants La Mesa and Hooper, directly or indirectly, singly or in concert with others, have been offering to sell, selling and delivering after sale, certain securities and have been, directly and indirectly: (a) making use of the means and instruments of transportation and communication in interstate commerce and of the mails to sell securities, through the use of written contracts, offering documents and otherwise, (b) carrying and causing to be carried through the mails and in interstate commerce by the means and instruments of transportation such securities for the purpose of sale and for delivery after sale, and (c) making use of the means or instruments of transportation and communication in interstate commerce and of the mails to offer to sell such securities.
     
  3. Defendants offered and sold the securities identified in this Complaint to the public through a general solicitation of investors.
     
  4. No registration statements were on file with the Commission or were otherwise in effect with respect to these securities.
     
  5. By reason of the foregoing, the above-named defendants violated and, unless enjoined, will continue to violate Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. §§ 77e(a) and (c)].

SECOND CLAIM
Violations of Section 17(a) of the Securities Act

  1. Paragraphs 1 through 19 are hereby realleged and incorporated by reference herein.
     
  2. Defendants Hooper and La Mesa, in connection with the offer and sale of securities, by use of the means and instruments of transportation and communication in interstate commerce and by use of the mails, directly and indirectly, have employed schemes and artifices to defraud; made untrue statements of material fact and have omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; and engaged in acts, practices, courses of business which have operated as a fraud and deceit upon purchasers and sellers.
     
  3. As a part of and in furtherance of their scheme to defraud, the above-named defendants, directly and indirectly, prepared, disseminated or used contracts, written offering documents, promotional materials, investor and other correspondence and oral presentations which contained untrue statements of material facts and misrepresentations of material facts and which omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, including, but not limited to, those set forth above.
     
  4. The above-named defendants made these misrepresentations and omissions knowingly or with reckless disregard for the truth. Additionally, Defendants were negligent with respect to their representations about the securities alleged herein.
     
  5. By reason of the foregoing, the above-named defendants have violated and, unless enjoined, will continue to violate the provisions of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].

THIRD CLAIM
Violations of Section 10(b) of the Exchange Act
and Rule 10-5 Thereunder

  1. Paragraphs 1 through 19 are hereby realleged and incorporated by reference herein.
     
  2. Defendants Hooper and La Mesa directly or indirectly, in connection with the offer and sale of securities, by use of the means and instrumen-talities of interstate commerce and by use of the mails have: (a) employed devices, schemes and artifices to defraud; (b) made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and (c) engaged in acts, practices and courses of business which operate as a fraud and deceit upon purchasers, prospective purchasers and other persons.
     
  3. As a part of and in furtherance of their scheme, the above-named defendants, directly and indirectly, prepared, disseminated or used written offering documents and made oral presentations which contained untrue statements of material facts, and which omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, including, but not limited to, those set forth above.
     
  4. The above-named defendants made the above-referenced misrepresentations and omissions knowingly or recklessly disregarding the truth.
     
  5. By reason of the foregoing, the above-named defendants violated and, unless enjoined, will continue to violate the provisions of Sec-tion 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].

FOURTH CLAIM
Violations of Section 15(a) of the Exchange Act

  1. The Commission realleges and restates Paragraphs 1 through 19 of this Complaint and incorporates the same by reference as if set forth herein verbatim.
     
  2. Defendant Hooper has been in the business of effecting transactions in securities for the accounts of others.
     
  3. In connection therewith Hooper made use of the mails and of the means and instrumentalities of interstate commerce to effect transactions in and to induce or attempt to induce the purchase of those securities.
     
  4. Hooper was not and is not registered with the Commission as a broker or dealer, as required by section 15(a) of the Exchange Act, [15 U.S.C. § 78o(a)].
     
  5. By reason of the foregoing, Hooper violated and, unless enjoined, will continue to violate section 15(a) of the Exchange Act, [15 U.S.C. § 78o(a)].

PRAYER FOR RELIEF

WHEREFORE, Plaintiff respectfully requests that this Court:

I.

Permanently enjoin Defendants, their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act [15 U.S.C. §§ 77e(a) and (c) and 7:

II.

Permanently enjoin Defendants, their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].:

III.

Permanently enjoin Defendant Hooper, his agents, servants, employees, attorneys, and all persons in active concert or participation with him who receive actual notice of the injunction by personal service or otherwise, and each of them, from future violations of Section 15(a) of the Exchange Act, [15 U.S.C. § 78o(a)].:

IV.

Order the imposition of a civil penalty against Defendant Hooper, in the amount of $40,000, pursuant to Section 20(d) of the Securities Act, [15 U.S.C. § 77t(d)], and Section 21(d) of the Exchange Act, [15 U.S.C. § 78u(d)], for the violations alleged herein.:

V.

Order such other and further relief as the Court shall deem just and proper.

 

 
 
 
Dated: February ___, 2003
            Respectfully submitted,
 
________________________
Julia Watson Huseman
Attorney-in-Charge for Plaintiff
Texas Bar No. 00785192
U.S. Securities and Exchange Commission
Burnett Plaza, Suite 1900
801 Cherry Street, Suite 1900
Fort Worth, TX 76102-6882
(817) 978-6460
(817) 978-2700 (fax)

 

Of Counsel:

Spence C. Barasch
Harold R. Loftin
Victoria F. Prescott
United States Securities and Exchange Commission
801 Cherry Street, Suite 1900
Fort Worth, Texas 76102

 

http://www.sec.gov/litigation/complaints/comp17990.htm

Modified: 02/21/2003