U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20280 / September 13, 2007
SEC v. Terax Energy, Inc., et al., United States District Court for the Northern District of Texas (Dallas Division)
SEC Files Emergency Civil Action, Obtains Temporary Restraining Order and Asset Freeze Against Terax Energy, Inc., Westar Oil, Inc., and Mark Roy Anderson
On September 12, 2007, U.S. District Judge Barbara M. G. Lynn, of the Northern District of Texas, issued a temporary restraining order and asset freeze against Terax Energy Inc., Westar Oil, Inc., and Mark Roy Anderson, in an emergency civil action filed by the Securities and Exchange Commission. The Commission's complaint alleges that Anderson, of Los Angeles, California, is orchestrating an ongoing fraudulent scheme involving the stock of Terax Energy, Inc., a Dallas, Texas based oil and gas company that trades on the OTC BB. According to the complaint, after Anderson obtained undisclosed control of Terax in April 2007, Terax issued several false and misleading press releases, and the company's stock price increased from approximately $0.30 to as much as $4.88 per share. The complaint also alleges that Anderson fraudulently raised about $1 million from about 30 investors in a private placement of common stock by Westar, a private Nevada corporation he controls, after making false claims regarding its oil and gas operations, its purported pending initial public offering, and plans to exchange Westar stock for Terax stock.
The defendants in the Commission's civil action are:
The Commission's complaint also names two entities controlled by Anderson as relief defendants, The September Trust and Camden Holdings, Inc., which are also subject to the Court's asset freeze order.
According to the Commission's complaint, Anderson was disbarred by the State Bar of Nevada in 1993 and was convicted in 1994 on federal mail fraud charges. The Commission's complaint alleges that through July 2007, while under Anderson's control, Terax has issued several materially false and misleading press releases announcing, among other things: (1) that the company intended to extend its leases and rework its wells in Erath County, Texas, resulting in expected net revenues from the wells of $750,000 per month; (2) Westar had executed a $175 million financing agreement on behalf of Terax with an unnamed New York energy lender; and (3) Terax had acquired a controlling interest in a publicly-held Canadian oil company. The Commission's complaint alleges that in fact, at the time the press releases were issued: (1) the Erath County leases had been placed into receivership by a state court judge and the lessor had advised Terax that he was terminating the leases; (2) the New York lender had never committed to the financing; and (3) the acquisition of the Canadian company did not close because Anderson stopped payment on the $2 million check to the Canadian brokerage firm that brokered the deal.
The complaint further alleges that Anderson and Contreras caused Terax to issue approximately 1 million "free trading" shares of its common stock in violation of the registration provisions of the Securities Act of 1933 ("Securities Act"). Camden Holdings and The September Trust, which Anderson controls, received 500,000 of those shares.
The complaint alleges that Terax and Anderson violated Sections 5 (a), (c) and 17(a) of the Securities Act, and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder, that Westar violated Section 17(a) of the Securities Act, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and that Contreras violated Sections 5(a) and (c) of the Securities Act. The Commission's complaint seeks preliminary and permanent injunctive relief and a civil monetary penalty against all the defendants, as well as disgorgement of all illicit profits from Terax, Westar, Anderson, September Trust and Camden Holdings. The complaint also seeks officer and director and penny stock bars against Anderson.
Separately, the Commission issued an order, pursuant to Section 12(k) of the Securities Exchange Act of 1934, temporarily suspending trading in the securities of Terax, beginning at 9:30 a.m. EDT on September 12, 2007, and terminating at 11:59 p.m. EST on September 25, 2007. The Commission's order cites concerns about the accuracy and adequacy of publicly disseminated information concerning, among other things: (1) the status of Terax's oil and gas operations, (2) Terax's purported financing agreements, (3) Terax's supposed acquisition of a controlling interest in a foreign oil and gas firm, (4) the existence, terms and status of a purported share exchange agreement between Terax and Westar Oil, Inc., and (5) the identity of the persons in control of the operations and management of Terax. For further information, please see the Commission's order suspending trading, at www.sec.gov/litigation/suspensions/2007/34-56389-o.pdf, and its release regarding the suspension, at www.sec.gov/litigation/suspensions/2007/34-56389a.pdf.