Energy Firms Ordered to Repay Investors

An oil and gas investment operation that claimed it would benefit from rising energy prices after Sept. 11 has been ordered to repay $1.3 million to 65 investors, the Securities and Exchange Commission said Wednesday.

In a settlement filed Monday in federal court in Los Angeles, Texon Energy Corp. and Lonestar Petroleum Corp. did not admit or deny guilt. The SEC said it is unclear whether the companies, which are in receivership, have enough assets to repay the investors fully. If there are extra funds after the liquidation, they agreed to pay fines of up to $1.25 million.

The firms, incorporated in Nevada under the control of Barry V. Reed of Las Vegas, were run from Inglewood, the SEC said. Reed’s alleged accomplice, former stockbroker James E. Hammonds of Inglewood, was barred from the securities industry in 1996 for his prior role in an oil and gas scheme, said Lisa A. Gok, the SEC’s assistant regional director in Los Angeles.

The SEC said civil fraud charges are pending against Reed and Hammonds, who are acting as their own attorneys and couldn’t be reached for comment. Their former lawyer, Allan McPhee of Torrance, said they were trying to operate a legitimate business and any violations were unwitting.

The SEC said only about 25% of the funds collected from elderly investors nationwide were used to purchase oil and gas interests. Reed and Hammonds claimed that Texon was a safe and profitable investment paying a 12% annual dividend, the SEC said. But the company paid its “dividends” with money raised from other investors, the SEC said.

E. Scott Reckard