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Habitual Violator Pleads Guilty to Oil, Gas Fraud Scheme

Habitual Violator Pleads Guilty to Oil, Gas Fraud Scheme

A habitual securities violator and the former president of an oil and gas company pleaded guilty to six counts mail fraud related to a ponzi-like scheme in which they paid dividends to existing Texon Energy Corp. investors with money raised from new investors, the Securities and Exchange Commission said Wednesday.

James E. Hammonds, 62, formerly of Inglewood, CA, and Barry V. Reed, 58, formerly of Las Vegas, were charged by the U.S. Attorney for the Central District of California in Santa Ana with using the U.S. mail to perpetrate the oil and gas investment scheme to defraud investors.

In November 2001, the individuals and two Nevada corporations, Texon Energy Corp. and Lonestar Petroleum Corp., were charged by the SEC with violating the securities registration provisions of the federal securities laws and the antifraud provisions of the Securities Exchange Act. Reed was Texon's president and Hammonds was Texon's vice-president.

The SEC said the two 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 dividends were paid with funds from new investors.

A final judgment 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 $1.3 million plus prejudgment interest. The two are scheduled to be sentenced on March 24. The total maximum sentence for all offenses is 120 years in prison, 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. Convictions on other charges are possible.

The SEC said that in 1994, Hammonds was enjoined by for his part in a similar oil and gas fraud in which investors were also falsely promised a 12% return. In 1996, he was barred from the securities industry.

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