U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18084 / April 10, 2003
UNITED STATES OF AMERICA v. BARRY REED and JAMES HAMMONDS (Case No. 03-CR-65-ALL) (C.D.Cal.)
RECIDIVIST SECURITIES VIOLATOR AND FORMER COMPANY PRESIDENT INDICTED IN OIL AND GAS FRAUD
On March 19, 2003, a federal grand jury in Orange County, California returned an indictment against a recidivist securities violator and the former president of a company who were previously charged with securities fraud by the Securities and Exchange Commission.
James E. Hammonds, 62, of Inglewood, California, and Barry V. Reed, 58, of Las Vegas, Nevada, were charged by the United States Attorney for the Central District of California in Santa Ana with using the United States mails to perpetrate an oil and gas investment scheme to defraud investors.
In November 2001, Hammonds and Reed, along with two Nevada corporations, Texon Energy Corp. and Lonestar Petroleum Corp., were charged by the Commission with violating the securities registration provisions of the federal securities laws, Sections 5(a) and 5(c) of the Securities Act of 1933, and the antifraud provisions, Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Reed was Texon's president and Hammonds was Texon's vice-president. The defendants raised $1.25 million from the sale of Texon stock to about 65 investors nationwide. Investors were promised a dividend of 12% per year on their investment. The Commission's complaint charged that Hammonds and Reed, through Texon and Lonestar, operated a Ponzi-like investment scheme in which they paid dividends to existing investors with money raised from new investors.
The Commission's case against Texon and Lonestar was previously settled. Through a court-appointed receiver, Texon and Lonestar, without admitting or denying the Commission's allegations, consented to the entry of a judgment, entered on July 8, 2002, by the U.S. District Court in Los Angeles, permanently enjoining them from future violations of the antifraud and securities registration provisions of the federal securities laws. On August 7, 2002, the Court entered a final judgment against Hammonds and Reed that enjoins them from future violations of the antifraud and securities registration provisions. The judgment orders Hammonds and Reed to pay civil penalties of $110,000 each and to disgorge $1,254,100, the amount they fraudulently raised from investors, plus prejudgment interest.
Hammonds and Reed were also indicted in Missouri on July 26, 2002, on nine felony counts of securities fraud and other charges arising from their involvement in Texon. They were charged by the Prosecuting Attorney of Boone County, Missouri and the Missouri Commissioner of Securities with fraudulently offering and selling unregistered securities in Missouri and employing a sales agent without registration.
In 1994, Hammonds was enjoined by the Commission for his part in a similar oil and gas fraud in which investors were also falsely promised a 12% return. In 1996, Hammonds was barred by the Commission from the securities industry.
For further information, see Litigation Release No. 17231 (November 14, 2001).