UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Securities Exchange Act of 1934
Release No. 48715 / October 29, 2003
File No. 3-11319
COMMISSION INITIATES ADMINISTRATIVE PROCEEDINGS AGAINST PAUL A. BARRIOS III AND DENNIS P. O'CONNELL, JR.
On October 29, 2003, the Securities and Exchange Commission instituted administrative proceedings against Paul A. Barrios III and Dennis P. O'Connell, Jr. based on the entry of a final judgment of permanent injunction against them. The Division of Enforcement alleges that from 2000 to August 2002, the respondents, through Shoreline Development Company ("Shoreline"), raised at least $3.8 million from more than 120 investors nationwide selling fractional undivided interests in oil and gas rights. The Complaint alleges that Shoreline's principals made material misrepresentations about the performance of Shoreline's wells, a purported business relationship with El Paso Field Services, and their use of investor funds. Shoreline purchased the fractional undivided interests in oil and gas rights in its own name and then resold the interests to public without disclosing to the investors that it was selling its own securities and marking them up in price from 50% to 66%. This mark up was not disclosed to investors.
Shoreline's offering materials stated in the "use of proceeds" section that either "all" of the investor funds will be used for well drilling and completion costs, including production equipment and expenses, or that the purchase price of the securities includes the costs of drilling and completing the well, production equipment, and management fees. Roughly 65% of the amount raised from investors was paid to Shoreline's well operators for the purchase of investors' fractional interests in the wells and for drilling and completion costs. About 35% of investor funds was misused by Shoreline's principals for their personal use.
A hearing will be held before an Administrative Law Judge to determine whether the Division's allegations are true, to provide respondents an opportunity to dispute the allegations, and to determine what sanctions, if any, are appropriate and in the public interest. The Commission directed that an administrative law judge issue an initial decision in this matter within 210 days from the date of service of the Order Instituting Proceedings.
On October 8, 2002, in an action brought by the Commission, the United States District Court for the Central District of California entered a final judgment of permanent injunction enjoining Barrios and O'Connell from violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act and from committing violations of the broker-dealer registration provisions of Section 15(a) of the Exchange Act.
For more information, see Litigation Release Nos. 17702 (August 28, 2002) and 17716 (September 10, 2002).