Southlake Resources & Execs Pay $5.4 million in Securities Fraud Case

© 2016 The Texas Lawbook.

By Mark Curriden

(Oct. 25) – The U.S. Securities and Exchange Commission announced Tuesday that it has charged a North Texas oil and gas company and two of its senior officials with violating federal securities laws.

Southlake Resources Group, the company’s founder and its vice president agreed to pay the SEC $5.4 million for their role in a dozen fraudulent oil and gas schemes that impacted more than 70 investors.

The SEC’s Fort Worth Regional Office filed the official complaint and settlement agreement Monday in U.S. District Court for the Northern District of Texas.

According to court documents, Southlake founder and president Cody M. Winters employed sales agents, including his own vice president, to attract investors from 26 states to promote and sell joint venture interests in the company between 2010 and 2014.

The SEC claims that Southlake and Winters provided investors with “untrue and misleading” information in their offering documents.

The investment proposals “misrepresented the use of the offering proceeds, contained unsubstantiated projections regarding future oil production and revenue, and overstated expected well costs,” according to the complaint.

“Winters directed Southlake to engage in conduct that operated as a fraud on investors, including taking undisclosed profit and overhead payments from the offering proceeds, using offering proceeds to acquire working interests for itself, and selling joint-venture interests to certain investors at an undisclosed 50 percent discount,” the SEC claims in a written statement.

The SEC also charged Winters and Southlake Vice President Nicholas R. Hamilton with “acting as unregistered brokers in the transactions underlying the fraud.”

“According to our complaint, defendants used unlicensed sales staff to cold call investors and they significantly overstated how much of investors’ money would actually be used to drill for oil and gas,” said Shamoil Shipchandler, who is the director of the SEC’s Fort Worth Regional Office.

Court documents show that the defendants agreed to pay $5,235,650 plus prejudgment interest of $285,761.70 as a disgorgement. Winters and Southlake are paying civil penalties of $160,000 each. Hamilton is paying a $50,000 penalty. None of the defendants are required to admit they are guilty of the charges.

SEC enforcement lawyers Jennifer R. Turner, Ty S. Martinez and Timothy S. McCole led the investigation against Southlake.

Greenberg Traurig shareholder Jason Lewis is representing Southlake, Winters and Hamilton in the case.

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