U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21736 / November 10, 2010
United States Securities Exchange Commission v. Overland Energy, Inc., Acorn Energy, Inc., Garry B. Smith, Robert J. Nelson and Steven M. Ray, Defendants, and Tega Operating Company, Relief Defendant, Civil Action No. 4:10-cv-613 (E.D. Tex.)(November 9, 2010)
SEC Charges Texas Oil and Gas Promoters and their Companies with Fraud
On November 9, 2010, the Securities and Exchange Commission filed an emergency civil action against Garry B. Smith, Robert J. Nelson and their Lewisville, Texas-based companies, Overland Energy, Inc. and Acorn Energy, Inc., for their roles in defrauding investors in oil and gas securities offerings. The Commission also charged one of Overland's most prolific salesmen, Steven M. Ray, with violating federal broker-registration requirements. Another entity Smith and Nelson control, Tega Operating Company, was named as a relief defendant.
The same day, Judge Schneider of the U.S. District Court for the Eastern District of Texas entered a temporary restraining order against Smith, Nelson and Acorn. The Court also froze the assets of Overland, Acorn, Smith, Nelson and Tega, and granted the Commission other legal and equitable relief.
The Commission's complaint alleges that, from at least September 2007 to the present, Smith and Nelson raised approximately $11 million dollars from more than 180 investors nationwide, through six securities offerings conducted through Overland and Acorn. The complaint further alleges that the first five offerings were sold by unregistered salespeople employed by Overland, including Smith, Nelson and Ray. According to the Commission, Overland and Acorn gave prospective investors private placement memoranda (PPM), approved by Smith and Nelson, which contained material misrepresentations and omissions about the use of offering proceeds, potential oil and gas production, and potential investment returns. Specifically, the Commission contends that the PPMs represented that approximately 82% of funds raised would be spent on leasehold costs and to drill, test, complete and equip oil and gas wells. In fact, the Commission alleges that less than half of the funds raised went to these costs. Instead, according to the complaint, Smith and Nelson diverted the majority of funds to other purposes, including extensive international travel for themselves and family members; concerts; fine restaurants; private flight instruction; and lavish bonuses and "dividends" they frequently paid themselves. The complaint also alleges that the defendants enticed investors with claims that the wells would be highly productive and would return investors' initial investment in one to two years. The Commission contends that these claims were unfounded, speculative and materially misleading.
The complaint charges that Overland, Smith and Nelson violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Commission also alleges that Acorn violated Sections 17(a) of the Securities Act and Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder. Ray is charged with violating Section 15(a) of the Exchange Act. In addition to the relief already obtained, the Commission seeks appointment of a receiver, civil penalties, preliminary and permanent injunctive relief and disgorgement of ill-gotten gains against the defendants. Against Tega, the Commission seeks to recover investor funds it improperly received.
See Also: SEC Complaint