U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17702 / August 28, 2002
SECURITIES and EXCHANGE COMMISSION v. SHORELINE DEVELOPMENT COMPANY, TODD J. TAYLOR, DEREK K. GRADWELL, PAUL A. BARRIOS III, DENNIS P. O'CONNELL, JR., EPIC CONSULTING SERVICES, INC., COASTAL RESOURCES, INC., NORTHSTAR ACQUISITIONS AND HOLDINGS, INC., SHORELINE HOLDINGS AND ACQUISITIONS, INC. and SPARTAN CONSULTING, INC. (Case No. CV02-6695 RSWL (Ex)) (C.D. Cal.)
COMMISSION HALTS ONGOING $3.8 MILLION OIL AND GAS WELL TELEMARKETING SCHEME
On August 27, 2002, the Securities and Exchange Commission obtained a temporary restraining order halting a $3.8 million securities fraud scheme run by Shoreline Development Company and four individuals.
The Commission's complaint alleges that since 2000, the defendants have scammed over $3.8 million from investors, purportedly for investments in oil and gas wells. The defendants include: Shoreline Development Co., a Delaware company, headquartered in Costa Mesa, California; Todd J. Taylor, 36; Derek K. Gradwell, 29; Paul A. Barrios III, 40; and Dennis P. O'Connell, 47, all of Orange County, California. Taylor and Barrios are repeat securities law violators. In 1999, in a prior case brought by the Commission, Taylor was ordered by a federal district court not to sell securities without registering with the Commission as a broker-dealer. In 2000, Barrios was the subject of a cease-and-desist order issued by the Commission suspending him for twelve months from association with any broker or dealer.
In its complaint, the Commission alleges that during the offering, Shoreline, Taylor and Gradwell made misrepresentations about the performance of Shoreline's wells; a purported business relationship with El Paso Field Services; and their use of investor funds. These defendants concealed their misappropriation of more than $1.2 million to pay for lavish vacations, a wedding and honeymoon, a vacation home, gambling debts, customized motorcycles and other luxury items.
The United States District Court for the Central District of California: (1) granted the Commission's application for a temporary restraining order 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. A hearing on whether a preliminary injunction should be issued against the defendants is scheduled for September 6, 2002.
The Commission obtained an order temporarily restraining Shoreline, Taylor and Gradwell from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) and Rule 10b-5 thereunder of the Securities Exchange Act of 1934 ("Exchange Act"). The Court's order also temporarily restrains Shoreline, Taylor, Gradwell, Barrios and O'Connell from violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. The Court's order also temporarily restrains O'Connell from committing violations of the broker-dealer registration provisions of Section 15(a) of the Exchange Act.
In addition to the interim relief granted on August 27, 2002, the Commission seeks a final judgment against all the defendants enjoining them from future violations of the securities and broker-dealer registration provisions, as well as the antifraud provisions, ordering the defendants to disgorge all ill-gotten gains, and assessing civil penalties against them.
Furthermore, the Commission also sought and obtained an order temporarily freezing the assets of relief defendants: Epic Consulting Services; Coastal Resources, Inc.; Northstar Acquisitions and Holdings, Inc.; Shoreline Holdings and Acquisitions, Inc.; and Spartan Consulting, Inc., who together received more than $1.3 million in cash from Shoreline during the scheme. The Commission seeks a final judgment against these relief defendants, ordering them to return all related earnings. The Commission does not allege that these relief defendants violated the securities laws, but rather that they received proceeds from the fraud.