This is your May 1, 2014 issue of the State Securities Board Bulletin, an occasional roundup of regulatory news and investor education information.
Even before a Collin County grand jury recently indicted him on charges stemming from the sale of investment
contracts in oil and gas projects, Garry B. Smith had a slew of regulatory problems, judgments and orders of restitution
from civil court lawsuits. Not mention that a previous company he operated made a Chapter 11 filing in U.S. Bankruptcy Court in Dallas in 2009. Smith, of Garland, was indicted March 25
on charges of theft, securities fraud, and money laundering and arrested last
month. Smith’s co-defendant, Robert James Nelson of Prosper, was indicted on the same charges. Both
men were taken into custody last month.
Smith and Nelson allegedly sold
units of interest in the Hamilton 6-Well Joint Venture, a supposed project of
Acorn Energy Inc. in Archer County. The indictments of both men allege that
they failed to tell investors that the money they expected to be used for the
Archer County project was used to pay for expenses unrelated to drilling and
other costs. The indictment of Smith alleges that he did not disclose to
investors that the Alabama Securities Commission in 2006 ordered Smith not to
sell investments in oil and gas projects until he and Triton EP, LLC, became
registered.
Smith also failed to disclose breach
of contract lawsuits in state and federal courts related to Triton’s failure to
perform oil field work for which it contracted.
The Collin County District
Attorney has appointed State Securities Board enforcement attorneys
Dale Barron, Angela Cole, and Melanie Good as special prosecutors. Enforcement
Division financial examiner Eliza Lujan is assisting in the prosecution.
Derek A. Nelson, an Oklahoma
resident who allegedly operated a Ponzi scheme based on a real estate
investment program, has been indicted on charges of securities fraud, theft, and money laundering in Collin County State
District Court. The March 25 indictment alleges that Nelson raised $11.9
million from U.S. investors who
purchased investment contracts, notes, and other securities. Nelson sold and
offered for sale unit shares in a series of programs known as the CMHC
Investment Program.
According to the indictment, Nelson
failed to disclose that CMHC was not earning sufficient profits from the
buying, rehabilitating, renting and sale of profits to make monthly payments to
investors. Nelson didn’t disclose to investors in CMHC that some of the profits
and principal payments to investors were paid with funds from other investors,
and he failed to disclose that investors’ funds paid for his personal expenses
and members of his family.
The Collin County District
Attorney has appointed State Securities Board enforcement attorneys
Tina Lawrence, Matthew Leslie, and Dale Barron as special prosecutors. Financial
examiner Letha Sparks of the State Securities Board is assisting in the
prosecution.
The Texas Securities Commissioner
entered an Emergency Cease and Desist Order April 28 against James Dean French and
Morning Tower Ltd., whose most recent addresses were in Mansfield. The
Commissioner found that the State Securities Board’s enforcement division had
provided evidence sufficient for the Order. French and Morning Tower can
request a state administrative law hearing before the 31st day after
they were served with the Order.
French and Morning Tower were offering
for sale fractionalized units in a four-well oil and gas project in Jones
County called the Swede Church Development Project. The company and French have
described Crooked Oak Energy LLC and its founder, Cord Johnson, as the operator
of the Swede Church project. Taken as a whole, the parties have a history of
regulatory orders and civil and criminal lawsuits, according to the Order.
French is a defendant in a pending
civil suit in Harris County State District Court. In 2007, he paid small
amounts of restitution after being charged with theft of services. The IRS in
2010 filed a lien against him, the amount of which is $665,827 and remains
unpaid.
Johnson’s background includes two sanctions
issued by the Texas Railroad Commission. In February, Johnson settled a fraud
lawsuit in Tarrant County State District Court suit and is a defendant in a
suit in Harris County State District Court that alleges fraud and breach of
contract.
The State Securities Board
registers securities offered or sold in Texas; oversees the firms and
individuals selling securities or providing investment advice; enforces the
Securities Act through criminal, civil and administrative penalties; and
provides investor education presentations and material. For more information, contact Robert Elder,
Communications Coordinator & Investor Education Specialist, at relder@ssb.state.tx.us or 512 305 8386.
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