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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17248 / November 27, 2001

SECURITIES AND EXCHANGE COMMISSION v. TEXON ENERGY CORPORATION, LONESTAR PETROLEUM CORPORATION, JAMES E. HAMMONDS aka JAKE HAMMONDS aka JAKE DAVIS, and BARRY V. REED (Case No. CV-01-09706-LGB(MANx) (C.D.Cal.)

The United States Securities and Exchange Commission ("Commission") announced that on November 21, 2001, the Honorable Lourdes G. Baird, United States District Judge for the Central District of California, issued an order of preliminary injunction halting a $1 million securities fraud by Texon Energy Corporation ("Texon"); Lonestar Petroleum Corporation ("Lonestar"); and James E. Hammonds ("Hammonds"), age 60 of Inglewood, California and a recidivist securities violator. The Court: (1) granted the Commission's application for a preliminary injunction and appointment of a receiver; (2) froze the assets of the defendants; (3) prohibited the destruction of documents by the defendants; and (4) ordered accountings from the defendants.

Judge Baird also extended a temporary restraining order against the president of Texon, Barry V. Reed ("Reed"), age 56, of Las Vegas, Nevada. A hearing on whether a preliminary injunction should be issued against Reed is scheduled for November 30, 2001.

The Commission's complaint, filed November 13, 2001, alleges that since 1998, the defendants have raised over $1 million from investors, purportedly for investments in oil and gas wells, and promising investors a monthly dividend equal to 12% per year. In fact, the defendants are operating a Ponzi-like scheme in which they are making payments to existing investors with the money that they raise from new investors. As part of the defendants' sales pitch in September and October 2001, the defendants have tried to capitalize on the September 11th tragedy by telling elderly investors that because of "the War," the demand for and price of oil would increase and Texon is in a "good position" to benefit from all of this because it purchases domestic oil and gas wells. Hammonds is the vice president of Lonestar and in some documents is identified as the vice president of Texon. In 1994, Hammond was enjoined for his part in a similar oil and gas fraud in which investors were also falsely promised a 12% return. SEC v. Southern California Securities, Inc., et al., (CV-94-6156-HLH) (C.D. Cal. November 17, 1994) (LR14794). In 1996, he was barred from the securities industry. In the Matter of Raymond Charles Gross and James Eugene Hammonds, Exchange Act Release No. 36802.

The Commission obtained an order preliminarily restraining Texon, Lonestar, and Hammonds from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Court's order also preliminarily restrains the defendants from committing violations of the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. In addition to the interim relief granted on November 21, 2001, the Commission seeks a final judgment against all the defendants enjoining them from future violations of the foregoing securities registration and antifraud provisions, and ordering the defendants to disgorge all ill-gotten gains, and assessing civil penalties against them.


http://www.sec.gov/litigation/litreleases/lr17247.htm

Modified: 11/27/2001