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U.S. Securities and Exchange Commission

Litigation Release No. 18531 / January 6, 2004

Recidivist Securities Violator and Former Company President Plead Guilty in Oil and Gas Fraud

United States of America v. Barry Reed and James Hammonds, (Case No. 03-CR-65-ALL) (C.D.Cal.)

On December 22, 2003, a recidivist securities violator and the former president of a company who were previously charged with securities fraud by the Securities and Exchange Commission pleaded guilty to six counts of mail fraud.

James E. Hammonds, 62, formerly of Inglewood, California, and Barry V. Reed, 58, formerly 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. They 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 scheme in which they paid dividends to existing investors with money raised from new investors. Texon and Lonestar, without admitting or denying the Commission's allegations, consented to the entry of a judgment permanently enjoining them from future violations of the antifraud and securities registration provisions of the federal securities laws. A final judgment entered against Hammonds and Reed enjoins them from future violations of the antifraud and securities registration provisions, and orders them to pay civil penalties of $110,000 each and to disgorge $1,254,100 plus prejudgment interest.

Hammonds and Reed are scheduled to be sentenced on March 24, 2004. The total maximum sentence for all offenses to which Hammonds and Reed pleaded guilty is 120 years imprisonment, a three-year period of supervised release, a fine of $1.5 million or twice the gross gain or gross loss resulting from the offenses, whichever is greatest, full restitution to the victims, and a mandatory special assessment of $600. In addition to those penalties, convictions arising out of the conduct of telemarketing that victimized ten or more persons over the age of 55 may be subject to an additional prison term of up to 10 years.

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).



Modified: 01/06/2004