A recidivist securities violator and the former president of a company who were previously charged with securities fraud by the Securities and Exchange Commission were sentenced in a subsequent criminal prosecution arising from their fraudulent conduct.
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. Hammonds and Reed, who are currently incarcerated, pleaded guilty to six counts of mail fraud on December 22, 2003.
Reed was sentenced on March 24, 2004 and Hammonds was sentenced on April 15, 2004. Each defendant was sentenced to 27 months in a federal correctional facility and ordered to serve three years supervised release thereafter. Reed and Hammonds were also ordered to pay restitution of $1,172,905 jointly and severally.
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. The complaint alleged that 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, and 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.
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).