New investment fraud cases arise weekly in the form of oil and gas investments, real estate scams, Ponzi schemes, or even an occasional pump and dump case. But when the SEC sues seven defendants and four relief defendants in one case, you just know someone has put a lot of effort into stealing investors’ money.
Richard Dale Sterritt, Jr. (a/k/a Richard Richman) is accused of a laundry list of crimes including securities offering fraud, market manipulation, and a Ponzi scheme. Instead of outlining the whole case for you, which would be twice as long as it takes for you to enjoy a nap, below, you’ll find a cast of characters made for a movie and relevant case tidbits to help you spot how an investment scam comes together.
Over two and a half years, defendants raised $16 million from 300 investors through traditional investment fraud and what should have been a private placement offering of stock. On the way to the deal, Sterritt and friends misappropriated most of the funds.
The market manipulation part of the case involved stock in two separate companies and an undercover agent.
The defendants in the case include a fascinating cast of characters.
- Repeat offender. In 2003 Sterritt (the primary defendant from Garland, Texas) pled guilty to money laundering, filing false tax returns, and conspiracy to commit securities fraud, for which he was sentenced to five years in prison.
- From burglary to securities fraud. Michael G. Greer, a Dallas resident, was previously convicted of burglary in 1995.
- Buy a suit with a pocket of investments. Robert W. Magness Jr. owns a luxury men’s clothing store in Manhattan. He hired a salesperson in the store who provided an additional service for customers. Magness’s customers were solicited for fraudulent investments. Talk about hands in your pockets!
- The lawyer gets his hands dirty. James Christopher Pittman of Dallas was a friend of Sterritt and served as a Director of Zona, the original company that was the subject of the private placement.
- Another repeat offender. Mark Ross of Miami held Series 4, 7, 24, 55, and 63 licenses for many years. However, in 2007, FINRA suspended Ross for money laundering. When he failed to pay his fines, in 2008 FINRA expelled Ross from the securities industry altogether. Ross focused his sales efforts on the elderly, including a 90-year-old disabled woman.
- $2.4 million to all the women I love. Sterritt shared his ill-gotten gains with his love interests—two girlfriends and an ex-wife. All three are relief defendants in the case (people who receive money as part of the scheme) Together the two girlfriends received around $300,000, but his ex-wife received $2.1 million.
The Companies Sterritt Controlled Also Had Unusual Histories
- Either Zona Energy Inc. or Zona Resources, Inc. was the original company subject to the first public offering. Zona was advertised as an oil and gas company focused on acquisition, development in the Texas Permian Basin. By June 2020, Zona Resources completed a share exchange with Zona. Zona ceased to exist, and shareholders received shares of ERF Wireless, Inc.
- From fleet cleaning to wireless communications. ERF was originally FleetClean Systems, Inc. The company changed its name to ERF when it changed its state of incorporation from Texas to Nevada.
- From auto towing to cannabis. ORGH was incorporated in Delaware as an auto-towing business under a different name. After several name and business changes, the company became OrgHarvest, Inc (ORGH).
Oil and Gas Lease
In many oil and gas investment fraud cases, no actual oil and gas interest materializes. Not so here. Zona acquired partial leasehold interests in La Escalera Ranch, an oil and gas-rich Permian Basin working cattle ranch with 220,000 acres. The acquisition trail from the Ranch to Zona was slightly reminiscent of an old western trail ride, however. In acquiring the leasehold rights, Zona signed demand notes to Richman Energy for $20 million, a company Sterritt controlled by installing a friend as CEO.
Under the terms of Zona’s lease, Zona was required to drill a well within three months or extend the lease or pay liquidated damages. Zona was also required to maintain two working wells, along with paying $12 million in annual acquisition payments.
The leasehold mineral interests gave Sterritt and crew what they needed to attract oil and gas investors. Not surprisingly, Zona did not register its offering. And, the sales materials contained a number of false statements such as:
- Geologist and energy consultant was part of Zona’s management team
- Drilling project would provide immediate cash flows
- “Little risk in making a commercially viable well.”
- “No debt” and a “corporate policy of no debt.”
Once investors received security purchase agreements, they were provided wiring instructions. Many of these transfers were made not to Zona, but to other Sterritt-controlled companies. Zona received $800,000 in transfers, but four other companies received over $15 million transfers from Zona investors.
A Rogue Employee
In 2019 a Richman Energy employee sent an email to management and senior employees concerned that very few intercompany transfers were accompanied with any documentation, and seemingly had no basis for the transfer. The employee went so far as to say the situation looked “intentional and nefarious.” The employee was terminated within the month.
A Former Employee
In 2020 a former Richman Energy employee emailed a number of investors the true identity of Sterritt. When one investor demanded his investment be returned, his demand was met.
Like most investment fraud, the Zona deal came crashing down thanks to the employees’ efforts and the SEC. But then there was the matter of stock manipulation plans for two companies.
ORGH and EFRB Stock Manipulation
Through several companies and players, Sterritt gained control of ORGH. Sterritt and his pals were going to manipulate ORGH’s stock price using the brokerage firm, Legal Metrics. Sterritt revealed his plan to an undercover agent. After several days of matched trades, the Commission suspended trading in ORGH’s securities for 10 days. Everyone met to start hiding their tracks. And then, they started a plan to manipulate ERFB shares. Thankfully, the Commission put an end to the ERFB saga too.
And now it’s up to the courts to decide the fate of Sterritt and his buddies. The information in this article was extracted from the SEC Complaint.
Now what? Stay vigilant. Do your research before investing. Don’t blindly take investment advice from anyone. Discover the background of the people in the deal.
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