June 19, 2018/US SEC
On June 19, 2018, the Securities and Exchange Commission charged a Dallas-based oil-and-gas company and its chief executive officer in connection with a series of allegedly fraudulent unregistered oil-and-gas securities offerings that raised millions of dollars from investors.
In its complaint, the SEC alleges that Jefferey Gordon and Texas Coastal Energy Company, LLC (TCEC) cold-called investors across the country, soliciting their interest in financing the drilling and completion of oil-and-gas prospects in Kansas and Texas in exchange for a share of future oil-and-gas production revenue. According to the complaint, Gordon and TCEC used a combination of false and misleading offering materials and sales pitches to deceive investors. Among other things, Gordon and TCEC lied to investors about TCEC’s experience and track record, the advice and success rate of its geologists, the potential reserves on its prospects, the potential return on investments therein, and the manner in which TCEC would use investor funds. Ultimately, Gordon and TCEC raised more than $8 million from at least 80 investor victims. While investors lost almost every dollar invested, TCEC and Gordon misappropriated over $2.6 million of investor funds for their own use.
The SEC’s office of Investor Education and Advocacy has issued an Investor Alert describing 10 red flags that an unregistered offering may be a scam, many of which were present here.
The SEC’s complaint charges TCEC and Gordon with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC also charged Gordon with violating Section 15(a) of the Exchange Act based on his alleged role as an unregistered broker. Without admitting or denying the SEC’s allegations, TCEC and Gordon consented to the entry of a final judgment that permanently restrains and enjoins them from violating these provisions. TCEC and Gordon also agreed to be restrained and enjoined from certain activities in connection with the purchase, offer and sale of securities in the future. Additionally, TCEC and Gordon will be ordered to pay disgorgement, prejudgment interest and civil penalties totaling $7.2 million. Finally, Gordon has offered to consent to associational and penny stock bars.
The SEC’s investigation was conducted by Christopher Reynolds and Melvin Warren, with assistance from Joseph Dugan and Janie Frank, and supervised by Scott F. Mascianica, David Reece and Eric R. Werner.