FORT WORTH — Two key executives at a Texas company have been implicated by the U. S. Securities and Exchange Commission (SEC) in an alleged scheme that conned investors in fraudulent oil and gas ventures in which more than $5 million was raised, according to documents obtained by the Southeast Texas Record.
The lawsuit was filed Oct. 24 and the final judgment came Oct. 27. Southlake Resources Group LLC, the company's founder, President Cody M. Winters, and Vice President Nicholas R. Hamilton will pay $5.2 million for allegedly overstating how much money was to be used for drilling for natural oil and gas in their joint ventures.
Shamoil Shipchandler, the SEC's Forth Worth regional director released a statement about the settlement and the alleged misconduct discovered by the SEC. He said in addition to tricking the investors out of their money, the group used unlicensed sales staff to cold-call them for their investment, which is when the alleged swindling took place.
The executives, the defendants in the case, responded to the recent complaint and agreed to settle the claims without admitting or denying any of the allegations against them. They responded unopposed to an SEC motion with payment of disgorgement, prejudgment interest and civil penalties. The court must still approve the settlement terms.
Winters agreed to pay $1.15 million for disgorgement, nearly $63,000 for prejudgment interest and $160,000 for the civil penalty. Southlake Resources will pay $3.7 million, more than $200,000 and $160,000 for the same respective fees and Hamilton will pay more than $350,000, nearly $20,000 and $50,000.
According to reports, the SEC made a statement in their motion and said the proposed settlement is fair and negotiations were made in good faith.
The complaint stated Winters founded Southlake Resources Group in 2010 to raise capital in order to acquire oil and gas interests derived from several oil and gas wells that were drilled and operated by unknown third parties. Over about four years, the company formed several joint ventures and raised money from several different investors, much of it fraudulently according to the SEC.
They raised the money from more than 70 investors across several states allegedly, but none of the investment choices were officially registered with the SEC, the agency in charge of oversight of securities in the United States. Winters allegedly employed unregistered sales staff, including Hamilton. They were effectively unregistered brokers in eyes of regulators at the SEC.
The SEC contends Southlake Resources Group misled investors, even overstating projected well costs by nearly 100 percent and lied about the allocation of funds and about projections, according to reports. Among other allegations by the SEC were undisclosed profit and overhead payments that were used to obtain interests in transactions that were also not disclosed and proceeds were also manipulated by Southlake. Some interests were allegedly sold at discount, up to 50 percent.
According to the summary of complaint filed by the SEC within the unopposed motion to enter final judgments by consent:
"Southlake stated certain well revenue was being directed to well operators when, in fact, Southlake retained the revenue. Southlake commingled proceeds from multiple offerings."
Timothy Sean McCole, Jennifer R. Turner and Ty S. Martinez were the attorneys representing the SEC, and Jason S. Lewis of Greenberg Traurig LLP represented Southlake Resources Group, Winters and Hamilton. The case is Securities and Exchange Commission v. Southlake Resources Group LLC filed in the U.S. District Court for the Northern District of Texas. The judge presiding in the case was Reed O'Connor.