Litigation Release No. 16490 / March 29, 2000
Securities and Exchange Commission v. Redbank Petroleum, Inc., et al., #3-99CV1267-T, USDC, NDTX (Dallas Division)
On March 24, 2000, Judge Barbara M.G. Lynn of the U.S. District Court for the Northern District of Texas (Dallas Division) granted the Commission's Motion for Summary Judgment against Brent A. Wagman. Judge Lynn permanently enjoined Mr. Wagman from future violations of the antifraud and registration provisions of the federal securities laws. Judge Lynn further ordered Mr. Wagman to disgorge approximately $24 million, which represents investor losses resulting from the fraudulent distribution of nine-month promissory notes on behalf of Redbank Petroleum, Inc. and AmeriTech Petroleum, Inc. from 1996 through 1999. In addition, Judge Lynn ordered Mr. Wagman to pay the maximum civil penalty of $110,000.
Mr. Wagman, and two of his colleagues, Warren T. Donohue and Margaret F. Swinney, were indicted by a grand jury in the U.S. District Court for the Northern District of Texas with two counts of securities fraud on March 21, 2000. The indictment alleged that the defendants made material misrepresentations and omissions to the public to encourage investments in Redbank and AmeriTech.
Mr. Wagman, the former president of Redbank and AmeriTech, is presently in the custody of federal authorities. On March 10, 2000 he was arrested in Panama and brought back to the United States to face criminal charges. He and his family had fled to Panama last summer after the Commission filed its lawsuit against him.
The Commission's complaint alleged that Redbank and Ameritech, at Wagman's direction, offered and sold approximately $30 million in so-called high interest corporate notes to investors in numerous states. The corporate notes were offered to retirees and others as risk-free investments with above market rates of return, and backed by an unconditional guarantee by an independent insurance company. In fact, no such guarantee existed. Rather than using investors' monies for the stated purposes, funds were diverted to fund the operations of several other entities under Wagman's control, and for personal expenses of Wagman. The defendants also used investors' funds as "Ponzi" payments to lull existing investors and to lure new ones.