U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21365 / January 8, 2010
Securities and Exchange Commission v. Thomas A. Labry and Cherokee Gas Systems, Inc., United States District Court for the Central District of California, Civil Action No. SACV10-00018 JVS(ANX)
SEC OBTAINS EMERGENCY RELIEF TO HALT UNREGISTERED OIL AND GAS OFFERING FRAUD
On January 7, 2010, the Securities and Exchange Commission filed a complaint in the United States District Court for the Central District of California against Thomas A. Labry, a resident of Newport Beach, California, and his Costa Mesa, California-based entity, Cherokee Gas Systems, Inc., for perpetrating an ongoing oil and gas offering fraud that raised at least $1.4 million from investors throughout the United States and Canada. The court entered an order halting the alleged fraud and freezing the assets of Labry and Cherokee.
The SEC's complaint alleges that from December 2008 to the present, the Defendants have been engaged in a fraudulent scheme whereby they solicit investors through cold-calling to invest in an unregistered oil and gas offering. The complaint alleges that Labry, using Cherokee investor monies, purchased dialing software that can automatically place outbound calls from a pre-loaded database of numbers. In these calls, Cherokee representatives allegedly offer investors the opportunity to purchase units in oil and gas wells purportedly owned by Cherokee located on Walters Field in Oklahoma, for $25,000 per unit. According to the complaint, Cherokee representatives tell investors that they will start receiving returns on their investments, paid monthly, within 45 to 60 days of the investment. The complaint alleges that Defendants represent projected minimum monthly returns of $725 per $25,000 unit purchased, or about a 35% annual return. According to the complaint, investor monies are not invested in oil and gas production and investors are not receiving returns. Instead, the SEC alleges that Labry has misappropriated investor funds for his own personal use. Of the $1.4 million raised so far, Labry has withdrawn $268,800 in cash, cashed $148,126 in cashier's checks made out to "SCS" and expended another $466,283 to purchase cashier's checks made payable to various individuals.
The complaint further alleges that the Cherokee offering materials are almost identical to the offering materials previously disseminated by an entity Labry controlled, Iron Horse Petroleum, Inc., which had offered similar oil and gas interests in Walters Field in Oklahoma. Five states have issued administrative orders prohibiting Labry and/or Iron Horse from offering or selling securities based on findings that Labry and/or Iron Horse were offering and selling unregistered securities.
In its lawsuit, the SEC obtained an order (1) freezing the assets of Labry and Cherokee; (2) appointing a temporary receiver over Cherokee; (3) preventing the destruction of documents; (4) granting expedited discovery; (5) requiring accountings from Labry and Cherokee; and (6) temporarily enjoining Labry and Cherokee from future violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and temporarily enjoining Cherokee from future violations of Sections 5(a) and (5) of the Securities Act. The SEC also seeks preliminary and permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against Labry and Cherokee. A hearing on whether a preliminary injunction should be issued against the Defendants and whether a permanent receiver should be appointed is scheduled for January 19, 2010 at 1:30 p.m.
See Also: SEC Complaint