March 20, 2019/US SEC
On March 19, 2019, the Securities and Exchange Commission charged a Texas-based oil-and-gas penny stock company and its former CEO with fraudulently concealing the loss of the company’s major source of revenue.
According to the complaint, in mid-2017, Cardinal Energy Group, Inc. (“Cardinal”), based in Dallas, Texas, lost control of its interest in two oil-and-gas leases that accounted for nearly all of the company’s revenue. Following the bad news, the complaint alleges that Cardinal and its former CEO Timothy W. Crawford filed quarterly reports with the SEC that misrepresented to investors that the leases were still expected to be part of the company’s future business plans. During this period, while concealing the setback to the business, Cardinal and Crawford allegedly raised additional money from investors, misreported Crawford’s stock ownership, and Crawford failed to make the required disclosures that he sold millions of shares of Cardinal stock.
The complaint charges: Cardinal with violating the antifraud provisions of Section 17(a)(2) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and the reporting provisions of Sections 13(a) and 14(c) of the Exchange Act and Rules 12b-20, 13a-1, 13a-13, and 14c-6 thereunder, and seeks permanent injunctions and civil penalties. The complaint further charges Crawford with: (i) violating Section 17(a)(2) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (ii) violating Rule 13a-14 of the Exchange for filing false Sarbanes-Oxley certifications in Forms 10-Q; (iii) violating the reporting provisions of Sections 13(d)(1) and 16(a) of the Exchange Act and Rules 13d-1 and 16a-3 thereunder concerning his Cardinal stock holdings and transactions, and (iv) aiding and abetting Cardinal’s violations of Sections 13(a) and 14(c) of the Exchange Act and Rules 12b-20, 13a-13, and 14c-6 thereunder; and seeks permanent injunctions, disgorgement with prejudgment interest, civil penalties, an officer-and-director bar, and a penny stock bar.
In related proceedings, the SEC also instituted administrative proceedings against Cardinal pursuant to Section 12(j) of the Exchange Act based on its failure to file quarterly and annual reports with the SEC, and issued an Order temporarily suspending trading in Cardinal stock.
The SEC’s investigation was conducted by Emily Rothblatt and Scott Hlavacek of the Chicago Regional Office, and was supervised by Jeffrey Shank. The litigation will be led by Jonathan Polish.