U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23453 / January 27, 2016
Securities and Exchange Commission v. Kenneth W. Crumbley, Civil Action No. 3:16-CV-00172 (N.D. Tex.)
SEC Obtains Asset Freeze and Appointment of a Receiver Over Kenneth W. Crumbley, Jr. and Sedona Oil and Gas Corporation
On January 21, 2016, the Securities and Exchange Commission filed an emergency civil action against Dallas-based Sedona Oil and Gas Corporation and its president, Kenneth "Kenny" W. Crumbley, Jr., to stop their allegedly fraudulent offer and sale of oil and gas investments. At the Commission's request, the court entered a temporary restraining order halting the offering, as well as orders appointing a receiver over, and freezing, the defendants' assets.
The Commission's complaint, which was unsealed late yesterday by the court, alleges that since at least June 2013, defendants have raised approximately $3.3 million from 55 investors through the fraudulent offer and sale of securities in six oil and gas investment programs. According to the complaint, defendants' offering materials represented that 100% of investor funds would be used to cover expenses associated with drilling, testing, and completing wells located in Texas, Tennessee, Kentucky. But the Commission alleges that defendants only spent a portion of investor funds for these purposes, and instead spent more than 60% of these funds on undisclosed and unapproved expenditures such as Sedona's daily operating expenses, defending a lawsuit by an earlier investor, repayment of loans from another Crumbley-controlled company, personal expenses of Crumbley and his family, and Ponzi payments to investors in earlier offerings.
The Commission also contends defendants made numerous other misrepresentations and omissions to investors. For instance, the Commission alleges that defendants misled investors about the use of geologists to assess and endorse the prospects, falsely promised annual investment returns ranging from 37% - 276%, lied about the sums paid out to prior investors, and failed to disclose the poor quality of several surrounding and nearby wells.
The Commission also claims that the defendants were engaged in the deliberate destruction of evidence in the months leading up to the action and that Crumbley threatened to terminate Sedona employees for speaking with Commission staff or other government authorities.
The complaint alleges that Sedona and Crumbley violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 thereunder, and that Crumbley also violated Exchange Act Section 20(b) and is liable under Exchange Act Section 20(a) as a control person for Sedona's violations. The complaint further alleges that Crumbley violated Exchange Act Rule 21F-17. In addition to the asset freeze, receivership and temporary restraining order, the Commission seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties against both defendants.
The SEC's investigation was conducted by Michael A. Umayam and Carol J. Hahn and was supervised by Jessica B. Magee of the SEC's Fort Worth Office. Matthew J. Gulde will conduct the Commission's litigation. The SEC thanks the FBI's Dallas office for their assistance and also thanks the Office of Inspector General for timely sharing relevant information obtained through its toll-free Hotline, 1-877-442-0854.