The Commission's complaint, filed in the
According to the complaint, Mullins and Guardian failed to disclose to investors Guardian's deteriorating financial condition, including significant amounts owed on pre-existing bank loans. The Commission further alleges that defendants falsely represented to investors that their contributions would be used solely for the specific drilling project in which they had invested but instead, under Mullins's direction, Guardian and GONG redirected investor funds for other unrelated purposes. The complaint also alleges that defendants falsely represented to investors that they would directly receive revenue from the sale of any oil and gas production from the project in which they were invested when, in truth, operators were deducting from production revenue expenses due on other unrelated projects, a process known as "net checking." Moreover, according to the Complaint, Mullins made direct misrepresentations to investors. When, after collecting money from investors for one project and spending that money on unrelated expenses, Guardian was unable to obtain an interest in the oil and gas drilling project that it had purported to sell to investors, Mullins further lied to investors, telling them, among other things, that the well was unproductive and that Defendants had been approached by a possible purchaser of the partnership's interest. The Commission alleges that Defendants never disclosed that the investors' funds had been spent elsewhere and that Defendants had been unable to actually obtain an interest in the drilling project they sold.
The complaint alleges that Mullins, Guardian, and GONG violated Section 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint seeks permanent injunctions and disgorgement of ill-gotten gains plus prejudgment interest against all Defendants, and civil penalties against Mullins.
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