Texon Energy Corporation, Lonestar Petroleum Corporation, James E. Hammonds aka Jake Hammonds aka Jake Davis and Barry V. Reed

Litigation Release No. 17672 / August 9, 2002

SECURITIES AND EXCHANGE COMMISSION v. TEXON ENERGY CORPORATION, LONESTAR PETROLEUM CORPORATION, JAMES E. HAMMONDS aka JAKE HAMMONDS aka JAKE DAVIS and BARRY V. REED (Case No. CV-01-09706-LGB(MANx) (C.D.Cal.)

RECIDIVIST SECURITIES VIOLATOR AND FORMER COMPANY PRESIDENT INDICTED FOR SECURITIES FRAUD IN MISSOURI FOLLOWING CIVIL CHARGES BROUGHT BY SEC

On July 26, 2002, a recidivist securities violator and the former president of a company were indicted in Missouri on nine felony counts of securities fraud and other wrongful conduct, the Securities and Exchange Commission announced today.

The repeat violator, James E. Hammonds, and Barry V. Reed were charged by the Prosecuting Attorney of Boone County, Missouri, Kevin Crane, and the Missouri Commissioner of Securities with fraudulently offering and selling unregistered securities in Missouri and for employing a sales agent without registration. The SEC cooperated with the investigation by the Securities Division of the office of the Missouri Secretary of State, Matt Blunt, of the allegedly unlawful conduct occurring in Missouri that led to the indictment of Hammonds and Reed.

The SEC brought civil charges against Hammonds and Reed in November 2001. In the SEC's civil action, Hammonds and Reed, along with two Nevada corporations, Texon Energy Corp. and Lonestar Petroleum Corp., were charged with violating the registration and antifraud provisions of the federal securities laws. Texon purportedly was in the business of acquiring oil and natural gas wells. Between 1998 and November 2001, when the SEC brought civil charges, $1.25 million was raised from about 65 investors nationwide. Investors were sold "preferred shares" in the company and were promised a dividend of 12% per year on their investment. Reed was Texon's president, and the SEC alleged that Hammonds was Texon's vice president.

The SEC's complaint charged that Hammonds, 61, formerly of Inglewood, CA and Reed, 57, of Las Vegas, NV, through Texon and Lonestar, operated a Ponzi-like scheme that made dividend payments to existing investors with money raised from new investors. The SEC alleged that Texon solicited investors through a cold-call telemarketing campaign, falsely telling investors that its dividend-paying stock was a good way to increase income and that Texon was a profitable business and a safe investment. The SEC alleged that Texon was secretly operated by Hammonds even though the public was told the company was based in Las Vegas and Reed was its president. The SEC charged that Texon received mail and phone calls in Las Vegas that were simply routed to Hammonds in Inglewood.

In 1994, Hammond was enjoined by the SEC for his part in a similar oil and gas fraud in which investors were also falsely promised a 12% return. In 1996, Hammonds was barred by the SEC from the securities industry. Hammonds' involvement in Texon was not disclosed to investors.

Through a court-appointed receiver, Texon and Lonestar, without admitting or denying the SEC's allegations, consented to the entry of a judgment, entered on July 8, 2002 by the Federal District Court in Los Angeles, permanently enjoining them from future violations of the antifraud and securities registration provisions of the federal securities laws.

The SEC's civil case against Hammonds and Reed is still pending.