U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17607 / July 11, 2002
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.)
$1.2 MILLION JUDGMENT ENTERED AGAINST COMPANIES IN PONZI SCHEME THAT USED SEPTEMBER 11 TERRORIST ATTACKS TO SELL INVESTMENTS TO THE ELDERLY
Following the September 11 terrorist attacks, Texon Energy Corp. solicited the elderly to invest in its oil and gas Ponzi scheme, claiming that Texon was in a "good position" to benefit from the war on terrorism because energy prices would rise and Texon owned oil and gas well interests. On July 8, 2002, a federal district court entered a judgment against Texon and a related company, Lonestar Petroleum Corp., pursuant to consent, enjoining each of them from committing further securities fraud and violating the securities registration provisions. The judgment also ordered Texon and Lonestar to pay jointly and severally in disgorgement $1,268,253, the amount raised from investors plus prejudgment interest. As part of the settlement, Texon and Lonestar did not admit or deny the SEC's allegations.
The SEC's complaint further alleged that Texon and Lonestar, which were controlled by Barry V. Reed and repeat securities-law violator James E. Hammonds, sold unregistered securities by fraudulently promising investors an annual 12% "dividend" derived from Texon's oil and gas profits and misrepresenting that Texon was a profitable business and safe investment. Instead, Texon paid investors the so-called "dividend" with money raised from other investors.
Previously, the U.S. District Court for the Central District of California appointed a Receiver to take control of Texon and Lonestar for the investors' benefit. The Receiver is in the process of collecting and liquidating Texon's and Lonestar's assets, the net proceeds of which will be distributed to investors pursuant to a plan approved at a later date by the district court. The judgment provides that if the Receiver's recovery and liquidation of Texon's and Lonestar's assets fail to satisfy the disgorgement and prejudgment interest amount of $1,268,253, then the unsatisfied amount shall be waived. The judgment further provides that if the Receiver collects more than $1,268,253, Texon and Lonestar shall pay civil penalties in an amount not to exceed $1,254,100.
The SEC enjoined Hammonds in 1994 for participating in a similar oil and gas fraud and barred Hammonds in 1996 from the securities industry. The SEC charged that Hammonds' involvement in Texon was never disclosed to investors. The Commission's case against Hammonds and Reed is still pending.
For further information, see Litigation Release No. 17231 (November 14, 2001), announcing the filing of the Commission's civil action against Texon, Lonestar, Hammonds, and Reed.