U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21348 / December 23, 2009
Securities and Exchange Commission v. Rockwell Energy of Texas, LLC, Rockwell Energy Management, LLC, Gregory S. Shindler, Bradley M. James, W. Todd Smith, Stuart E. Rawitt, and Brian W. Walsh, Civil Action No. 4:09-cv-4080 (U.S.D.C./S.D. Tex., Houston Division).
Commission Sues Houston Residents In Connection with $5.5 Million Oil-and-Gas Fraud
Today, the United States Securities and Exchange Commission filed a civil action against Gregory S. Shindler, Bradley M. James, Rockwell Energy of Texas, LLC (RET), and Rockwell Energy Management, LLC (REM), alleging that they participated in two fraudulent oil-and-gas offerings. According to the complaint, from March 2008 through February 2009, Shindler created and managed two unregistered funds using variations of the name "Rockwell Energy." James co-created the second Rockwell Energy fund and co-managed it for a period of several months. Together, the defendants raised $5.5 million from 139 investors based on a multitude of material misrepresentations.
In particular, the complaint alleges that Shindler and James, both of Texas, made material misrepresentations and omitted material facts concerning the profitability of the funds, the nature and extent of the investments that the funds had made or intended to make, and the use of investor proceeds. Among other misrepresentations, the offering materials claimed that the funds had existing and prospective investments in oil-and-gas properties, and that investors would immediately start earning and receiving returns of 1.5% per month from production revenue.
In reality, according to the complaint, the first fund owned no oil-and-gas properties when it began accepting investors, and the second fund has never acquired any producing oil-and-gas properties. Moreover, even though the oil-and-gas properties that the funds have invested in never generated sufficient production revenue to cover distribution payments to investors at the 1.5% monthly rate, Shindler made the monthly income distributions at the targeted rate for a number of months. To do so, he relied in part on "investment" income other than production revenue, including payments from sham transactions designed specifically to artificially create the promised returns. The complaint alleges that Shindler also converted some investor funds to personal and other improper uses, and some of the "returns" he paid investors were made from the principal payments of other investors (i.e., Ponzi payments).
The complaint alleges that, as a result of their misconduct, Shindler, James, RET, and REM violated Sections 5(a), 5(c), and 17(a) of of Section 17(a) of the Securities Act of 1933 (Securities Act), Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), and Rule 10b-5 thereunder. The Commission also charges salesmen W. Todd Smith, Stuart E. Rawitt, and Brian W. Walsh, with violating Sections 5(a) and 5(c) of the Securities Act, and Section 15(a) of the Exchange Act, based on their roles in selling unregistered Rockwell securities and selling securities without a license. The complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against all defendants.