U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23669 / September 30, 2016
Securities and Exchange Commission v. Paul R. Downey, et al., Civil Action No. 1:14-cv-185-C (N.D. Tex.)
Court Imposes Officer-And-Director Bars, Civil Penalties, Disgorgement, and Injunctions Against Promoters of Oil-And-Gas Scheme
On September 29, the Honorable Sam R. Cummings of the United States District Court for the Northern District of Texas entered final judgments against Defendants Paul R. Downey, Jeffry P. Downey, and John M. Leonard. The judgments followed summary-judgment rulings in the SEC's favor in July 2016, in which the court found that the Downeys raised $4.9 million from investors in a fraudulent oil-and-gas investment program and Leonard made $405,698 in commissions while serving as an unregistered broker.
Judge Cummings found the Downeys' misconduct to be "extremely egregious," describing it as "knowingly deceiving investors about virtually every aspect of the investment." The court ordered them to disgorge $4.9 million plus $1.1 million in interest and to pay a civil penalty of $178,156 apiece. The court barred them from serving as officers or directors of any SEC-reporting company and enjoined them from violating antifraud laws, specifically Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The court also enjoined the Downeys from soliciting or participating in securities transactions in the future, allowing them to purchase and sell securities only for their own accounts.
Judge Cummings found that Leonard's conduct "was extremely egregious, recurrent, and carried out with high scienter" and that it "involved deliberate or reckless disregard of a regulatory requirement." The court ordered Leonard to disgorge $405,698 in commissions plus $89,063 in interest, and to pay a civil penalty of $178,156. It also enjoined Leonard from violating the broker-registration provisions of the federal securities laws, specifically Section 15(a) of the Securities Exchange Act of 1934.
B. David Fraser and Timothy McCole led the SEC's litigation, and Jeffrey Cohen and Carol Hahn conducted the underlying investigation. The case was supervised by David Peavler, Jessica Magee, and David Reece.