Seven oil and gas promoters with Dallas-based Zona Energy Inc., were charged Tuesday by the Securities and Exchange Commission with fraud and market manipulation.
The charges are in connection with a complex “pump and dump” scheme involving a towing company turned cannabis firm, a convicted stock swindler, a Dallas real estate lawyer, a burglar, a wireless company and a West Texas cattle ranch.
The SEC complaint, brought in the Eastern District of New York, alleges that between March 2018 and November 2020 the group bilked more than $16 million from private placements with 300 investors. According to the SEC, the prospective stockholders were assured that their money would be used to develop mineral rights on a West Texas cattle ranch. Instead, the money was used for luxury goods, rental apartments, a car and cash payments to friends and family members.
At the center of the scheme is Richard Dale Sterritt Jr., a 64-year-old Garland businessman who in April 2003 pled guilty to securities fraud, money laundering and lying on his tax returns. Operating as Richard Richman, Sterritt is described as the undisclosed control person of at least seven companies involved in the scheme.
Other defendants in the SEC action include:
Michael G. Greer, 45, of Dallas, described as a convicted burglar who served as an officer in several of Sterritt’s companies; Deanna Looney, 53, of Fort Worth and Katie Mathews, 57, of Garland, both Sterritt employees; Robert W. Magness Jr., 51, the owner of a clothing store in New York; Mark Ross, 53, a defrocked stockbroker in Miami and James Christopher Pittman, 49, a Dallas real estate attorney.
Efforts to reach the defendants or their attorneys are on-going.
The case, according to the SEC filing, is built around recorded phone calls, emails and text messages preserved by a corrupt stockbroker who turned out to be an FBI agent operating under cover.
In April 2018, Le Cle Minerals, Inc. — a company controlled by Sterritt — agreed to purchase mineral leaseholds held on La Escalera, a West Texas cattle ranch located over the Permian Basin. Le Cle quickly assigned those rights to Richman Energy, another company Sterritt controlled. In May 2018 Richman Energy, in turn, assigned those same interests to Zona Energy in exchange for $20 million in demand notes.
The original leases from La Escalera, however, came with the obligation to drill an initial well by August 2018. Failure to do so would require a lease extension or the payment of liquidated damages. The company was also obligated to drill wells and make $12 million in scheduled acquisition payments.
In April 2018, even before they were acquired by Zona Energy, Sterritt and his colleagues began selling unregistered stock in Zona based on the value of the La Escalera leases. Their pitch included a PowerPoint that presented Zona operations as low-risk and debt free —exaggerating the involvement of a respected geologist, ignoring the company’s $20 million debt to Richman Energy and obfuscating the fact that Richman was actually Sterritt, a convicted felon.
Magness, the clothing story owner, recruited one of his luxury store consultants to sell Zona shares to his fashion industry colleagues. Pittman, the Dallas lawyer, promoted the Zona offering to executives at a family-owned investment services firm to which he provided legal advice. Ross, the defrocked Miami stockbroker focused Zona stock sales on elderly Palm Beach retirees, including a disabled woman in her 90s who agreed to host Sterritt’s presentation to retirees at a local country club. And Sterritt, for his part, offered deep discounts on Zona shares to associates who could land investors, and offered shares he himself held through his various companies — Accordant Services, Richman Energy and the Richman Organization.
The SEC alleges that through these various channels, Richman Energy received $10 million, the Richman Organization received $2.5 million, Accordant $1.8 million, with Greer — the former burglar — getting $850,000 and Zona itself receiving $800,000, according to the SEC filing.
When an employee complained, in writing, that there appeared to be no business purpose in a flood of transfers between Sterritt’s companies and individuals, the employee was fired. And in January 2020, when a former Richman Energy employee exposed Sterritt’s identity to several investors, funds from new investors were used to pay back, with interest, at least one old investor who complained about the deception.
At about the same time Sterritt began to use funds intended for Zona to forge a “pump and dump” play at ORGH, the would-be cannabis producer, according to the SEC.
First, Sterritt gained control of ORGH shares through an exchange of Zona shares held in companies and trusts controlled by friends and family.
In February 2020, Magness — the clothing store owner — deposited 5,250,000 shares of ORGH with a brokerage in the name of Legal Metrics, yet another Sterritt-controlled company. In May Ross, the defrocked stockbroker, was authorized to trade the ORGH stock on behalf of Legal Metrics.
With the help of the FBI’s undercover stockbroker, Sterritt and Magness participated in a series of “matched trades” designed to raise the company’s penny stock to a targeted price of $2.00 per share. When a registered offer was made, Sterritt, Magness or Ross matched the order via phone or text messages preserved by the FBI broker, lending the appearance of an arm’s length deal where there was none. In eight days of trading in May 2020, the matched transactions pumped the posted price of ORGH from $.99 to $1.72 per share.
However, the Sterritt group never got the chance to cash in. On June 1, 2020, the SEC suspended trading in ORGH. But instead of licking their wounds, the group attempted the same scheme again; this time, through another Sterritt-controlled company, ERF Wireless (ERFB).
ERFB, originally created in Texas as FleetClean Systems in 1999, allegedly provided “wireless communications products and services” connected to “the exploration, drilling and production phases of oil and gas.”
Like Sterritt, the company had a checkered history. In November 2014 the company was the subject of a cease-and-desist order from the SEC for its failure to register some of its securities and other reporting violations. The company asked the SEC to suspend its registration obligation in December 2016.
On June 29, 2020, Zona and ERFB conducted a share exchange. Zona investors received Series C. preferred shares of ERFB when ERFB’s wholly-owned subsidiary, Zona Resources, acquired Zona as a wholly-owned subsidiary. Sterritt promoted the exchange as evidence of Zona’s increased value when, in fact, Zona was already in danger of losing the La Escalera leases by default.
In November 2020, ERFB applied to the Federal Industry Regulatory Authority for a 10,000 to 1 reverse split of the company’s outstanding stock and permission to change the name of the company to “Zona.” On Jan. 28, 2021, FINRA issued a deficiency letter denying the application. Nonetheless, the company issued a press release declaring that the reverse split would be effective at 5pm that very day.
According to the SEC complaint, the press release resulted in the sale of more than a million ERFB shares. On Feb. 4, the SEC halted trading in ERFB. On Feb. 5, the company issued a bogus correction blaming the trading halt on the earlier bogus release — and the earlier bogus release on an “inaccurate advance from an outside technical advisor.”
In addition to the seven defendants, the SEC also named four “relief defendants” — three individuals and a company who received substantial funds from the fraud but are not accused of being involved in it.
They include:
Los Angeles resident Naomi Ross, 25, daughter of the defrocked stockbroker, Mark Ross. She is said to have received $160,855.
Dallas resident Robyn Straza, 58, is a licensed cosmetic esthetician and Sterritt’s ex-wife to whom $2,102,741 was transferred from investor proceeds.
Angeliki Touhouliotis, 39, Sterritt’s girlfriend received $140,485 from the investor funds.
Rainmaker Advisors, a Dallas-based company owned by a consultant to Richman Energy, received $448,000 in payments.