The Securities and Exchange Commission has charged seven individuals, including criminal recidivist Richard Dale Sterritt Jr., with defrauding more than 300 investors through a $16 million oil-and-gas offering fraud and a related market manipulation scheme that occurred between March 2018 and November 2020.
The SEC’s complaint alleges that Sterritt – who used the pseudonym “Richard Richman” – Michael Greer*, Deanna Looney, Robert Magness Jr., Katie Mathews, James Christopher Pittman, and Mark Ross raised millions through an unregistered private placement of Zona Energy Inc., a Dallas-based company that claimed to be focused on the oil and gas industry.
According to the complaint, the defendants made various false and misleading statements to solicit investors, including that their funds would be used to develop the mineral rights on a West Texas cattle ranch.
The SEC claims that instead of using investors’ money to capitalize Zona, Sterritt and his co-defendants misappropriated millions and used the funds to pay for luxury goods, rental apartments, a Bentley, travel expenses, and to make cash payments to friends, family members, and Sterritt’s girlfriends.
According to the SEC, the offering materials falsely claimed that Zona had no debt when the company actually owed millions of dollars in demand notes to various Sterritt-controlled companies.
Sterritt, Magness, and Ross were also accused of conducting a manipulative trading scheme in the securities of OrgHarvest Inc., a purported cannabis production company that Sterritt controlled, in an attempt to inflate the price of the stock so that they could sell their shares to investors for a profit.
Last February, Sterritt and Magness arranged to deposit nearly 5.3 million shares of OrgHarvest’s common stock at a U.S. brokerage firm. Sterritt, Magness, Ross, and another individual planned to conduct a series of matched trades prior to a pump and dump scheme.
According to the complaint, Sterritt, Magness, and Ross were introduced to an individual claiming to be the leader of a network of corrupt stockbrokers who would buy the stock that Magness and Ross sold in the open market for their customers’ accounts, in exchange for a 35 percent kickback.
Unbeknownst to the trio, the leader of the “corrupt broker network” was actually an undercover FBI agent, and the planned matched trading scheme was recorded on phone calls and preserved in email and text messages, the SEC said.
According to the SEC, on every trading day between May 19 and May 29, 2020, Sterritt, Magness, and Ross colluded with the undercover agent on the number of shares to trade and their price. They purportedly carried out the alleged matched trading over recorded communications, selling a total of 20,400 shares.
Their alleged pump-and-dump was stymied when the SEC suspended trading in OrgHarvest securities for 10 business days beginning on June 1, 2020.
The SEC claims that Sterritt almost immediately began planning a similar market manipulation scheme with the undercover agent, but this time in the common stock of ERF Wireless Inc, another microcap issuer he controlled. His plans were again thwarted when the SEC suspended trading in ERF Wireless for 10 business days beginning on February 4, 2020.
“Investors should be wary of individuals using aggressive sales tactics to pitch unregistered offerings that promise high investment returns with little or no risk,” said Richard R. Best, Director of the SEC’s New York Regional Office. “As alleged, Sterritt and his accomplices defrauded and victimized investors by inducing them to invest using false statements and then misappropriating their funds.”
The SEC’s complaint, filed in U.S. District Court for the Eastern District of New York, charges the defendants with violating the registration and antifraud provisions of federal securities laws. The SEC seeks injunctive relief, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.
In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York announced criminal charges against Sterritt and four others.
*Editor’s note: Please be advised that Michael Greer is not referring to Michael Greer, the founder and chief executive officer of Waveland Energy Partners LLC located in Irvine, California.