United States District Court, S.D. Georgia, Savannah Division
FINAL JUDGMENT BY DEFAULT AS TO DEFENDANT RICHARD
"RIC" P. UNDERWOOD
LISA GODBEY WOOD, JUDGE.
Securities and Exchange Commission filed its Complaint
against Richard "Ric" P. Underwood
("Underwood" or "Defendant") on August
11, 2017. The SEC served defendant Underwood personally at
the Chatham County Detention Center, and Underwood's
answer or responsive pleading was due September 26, 2017.
Underwood failed to file an answer or responsive pleading.
The SEC moved for entry of default against Underwood, and the
Clerk granted the entry of default on September 27. 2017.
Shortly thereafter this matter was stayed by Order of the
Court pending resolution of three related criminal cases.
United States v. Underwood. No. CR417-197 (S.D.
Ga.); United States v. Greenlee, No. CR417-203
<S.D. Ga.); and United States v.
Stewart, No. CR417-213 (S.D. Ga.), all
of which arose from the same facts and circumstances as this
civil enforcement action. By later order of this Court, the
stay was extended to December 6, 2019. On that day, the SEC
filed its motion for default judgment against Underwood. The
Court hereby grants the SECs motion and has set forth
relevant findings of fact and conclusions of law below, in
addition to injunctive relief, and the imposition of
disgorgement, prejudgment interest, and a civil penalty as
Declaration of Stephen E. Donahue, provided by the Commission
establishes that from the Commission's investigation,
disgorgement and prejudgment interest in specific amounts are
appropriate based upon the knowledge of the declarant.
(Donahue Declaration, ¶¶ 6-13). Given the failure
of defendant Underwood to answer or otherwise defend the
allegations against him, the following allegations of the
SEC's Complaint are now deemed to be true as to Underwood
and are made the findings of this Court:
Findings of Fact
Between at least January 2013 and February 2016, Greenlee and
Stewart, acting individually and through a network of
salesmen whom they recruited and controlled, fraudulently
sold to more than 150 investors at least $15 million of
interests in various limited partnerships and joint ventures
that were purportedly created to extract and sell oil from
existing wells in Kansas, Oklahoma and Texas, (¶1,
Greenlee and Stewart operated their scheme through two
Tennessee corporations, Southern Energy Group, Inc.
("SEG"), which is now administratively dissolved,
and Black Gold Resources, Inc. ("BGR"), which later
changed its name to Tennstar Energy, Inc.
("Tennstar"). (¶2, Complaint).
Richard P. Underwood ("Underwood") substantially
assisted in the scheme. He acted as a principal salesman of
the offerings, helped draft the false offering materials
given to investors and oversaw the operations of one of the
boiler room sales teams that solicited and sold these
investments. (¶3, Complaint).
soliciting investors, Greenlee, Stewart and Underwood
represented that the limited partnerships and joint ventures
would use investor funds to (a) acquire "working
interests" in various oil wells and (b) employ enhanced
oil recovery techniques, such as fracking, to develop and
recover oil from the wells. Greenlee, Stewart and Underwood
also told investors that the entities would sell the oil in
order to earn for investors returns ranging from 15 to 55
percent, or more, per year "for decades." (¶4,
These representations were false. Although Greenlee and
Stewart used a portion of investor money to produce oil from
several wells that they controlled, they used nearly
two-thirds of the $15 million of investor funds raised for
their own benefit, to pay salesmen, such as Underwood, or to
advertise for new investors for their scheme. (¶5,
the funds they actually used for oil production, most was
spent at only a few of the wells in order to create an
appearance of activity to dupe investors who wanted to see
the wells in production. The small amount of oil produced was
sold to generate nominal profits which, in turn, were
distributed to various investors to lull or induce further
investments. (¶6, Complaint).
Greenlee, Stewart, and Underwood also represented that SEG
would manage the limited partnerships and Tennstar would
manage the joint ventures, and that each of these companies
was headed by an individual experienced in the oil industry.
fact, neither SEG, nor Tennstar was managed by someone with
experience in the oil industry. Instead, Greenlee and Stewart
installed figureheads that had little or no experience in the
oil industry and created and distributed false biographies
for these figureheads that misrepresented that they had
significant relevant experience. (¶8, Complaint).
soliciting investors themselves, Greenlee and Stewart used
fake names to hide their identities and criminal records.
Underwood knew of these falsehoods, helped facilitate the
sales, and was aware that investor funds were being
dissipated. (¶10, Complaint).
a result of the conduct described in this Complaint,
Tennstar, Greenlee, Stewart and Underwood (collectively, the
"Defendants"), directly or indirectly, have engaged
and unless enjoined, will engage in violations of Section
17(a) of the Securities Act of 1933 ("Securities
Act") [15 U.S.C. § 77q(a)] and Section 10(b) of the
Securities Exchange Act of 1934 ("Exchange Act")
[15 U.S.C. § 78j(b)], and Rule 10b-5 thereunder [17
C.F.R. § 240.10b-5]. (¶11, Complaint).
Commission brings this action pursuant to Sections 20(b), (c)
and (d) of the Securities Act [15 U.S.C. §§
77t(b)-(d)] and Sections 21(d) and 21(e) of the Exchange Act
[15 U.S.C. §§ 78u(d)-(e)] to enjoin the Defendants
from engaging in the transactions, acts, practices and
courses of business alleged in this Complaint, and
transactions, acts, practices and courses of business of
similar purport and object, for disgorgement of illegally
obtained funds, prejudgment interest and other equitable
relief, and for civil money penalties. (¶12, Complaint).
This Court has jurisdiction over this action pursuant to
Sections 20(b), 20(d) and 22(a) of the Securities Act [15
U.S.C. §§77t(b), 77t(d) and 77v(a)] and Sections
21(d), 21(e) and 27 of the Exchange Act [15 U.S.C.
§§78u(d), 78u(e) and 78aa]. (¶13, Complaint).
Defendants, directly and indirectly, have made use of the
mails, the means and instrumentalities of transportation and
communication in interstate commerce, and the means and
instrumentalities of interstate commerce, in connection with
the transactions, acts, practices, and courses of business
alleged in this Complaint. (¶14, Complaint).
Venue lies in this Court pursuant to Section 22(a) of the
Securities Act [15 U.S.C. § 77v(a)] and Section 27 of
the Exchange Act [15 U.S.C. § 78aa] because certain of
the transactions, acts, practices and courses of business
constituting violations of the Securities Act and Exchange
Act have occurred within the Southern District of Georgia.
Moreover, the Defendants have solicited and obtained
investors in this fraudulent offering who reside within the
State of Georgia, including within the Southern District of
Georgia. (¶15, Complaint).
Tennstar Energy Inc. is a Tennessee corporation
formerly known as Black Gold Resources, Inc. It was formed in
December 2013 to serve as the purported manager of the joint
ventures that Greenlee, Stewart and Underwood offered and
sold to investors. In January 2016, BGR changed its name to
Tennstar following a trademark dispute with another,
unrelated entity. (¶16, Complaint).
David R. Greenlee, aged 41 at the time of the
SEC's Complaint, and a resident of Gallatin, Tennessee,
was convicted in state court and served time in a Kentucky
prison during 1999 to 2000 for forgery and burglary, and
again in 2004 for vehicular manslaughter. Following his most
recent incarceration from 2007 to 2009 for probation
violations, Greenlee became involved in various unregistered
securities offerings. Through one such offering, he became
friends with Stewart, who was a fellow salesman. When
communicating with investors regarding the offer and sale of
the investments at issue here, Greenlee frequently used the
aliases "David Johnson" or "David
Morrill" to conceal his criminal record, (¶l 7,
David A. Stewart Jr., aged 46 at the time of the
SEC's Complaint, and a resident of Gallatin, Tennessee,
is a former registered representative of two
Commission-registered broker-dealers in 2001 and 2002. He
previously held FINRA series 22 and 63 licenses. Stewart
became friends with Greenlee while working with him in
selling unregistered securities offerings. In 1998, the
Wisconsin Division of Securities issued a prohibition and
revocation of exemptions order against Stewart, among others,
for fraud in the offer of securities by an unlicensed
broker-dealer which had falsely claimed in a filing with
state regulators that the entity did not pay commissions for
the sale to investors of its natural gas well investment
"units." In April 2007, Stewart was convicted of
federal income tax evasion and sentenced to federal prison.
Later, in 2008, the Alabama Securities Commission issued a
cease-and-desist order against Stewart, among others, for
previously participating in a separate oil and gas offering
scheme. As part of the SEG and Tennstar schemes, Stewart used
the alias "David Johnson," to conceal his criminal
and disciplinary history from investors, (¶l 8,
Richard "Ric" P. Underwood, aged 65 at the
time of the SEC's Complaint, and a resident of Fort
Lauderdale, Florida, held the title of Tennstar's Vice
President of Sales. In addition to his selling duties,
Underwood assisted in drafting many of the limited
partnerships' and joint ventures' offering materials.
From 1994 to 1997, Underwood was a registered representative
of a broker-dealer unrelated to this case and held FINRA
series 22, 24, 39, 62 and 63 licenses. In 1996, a former
customer won a $25, 000 arbitration award against him for
investment misrepresentations. Underwood worked with Stewart
for a period of time at another broker-dealer. The State of
Wisconsin also issued a cease-and-desist order against
Underwood in 1998 for his role in the fraudulent offer and
sale of securities. The State of Alabama also issued a
cease-and-desist order against Underwood in 2006 for his role
in offering and selling securities while unregistered with
the state. In 2007, Underwood pled guilty to federal income
tax evasion. (¶19, Complaint).
Southern Energy Group, Inc. was a Tennessee
corporation that Greenlee and Stewart formed, through an
intermediary whom they controlled, in January 2013. SEG
served as the purported manager of oil and gas limited
partnerships in which Stewart, Greenlee and Underwood sold
interests to investors. In August 2016, the State of
Tennessee administratively dissolved SEG. (¶20,
Robert Dorrance ("Dorrance"), aged 60 at
the time of the SEC's Complaint, and a resident of
Gallitin, Tennessee was a relative of Greenlee's wife and
was recruited by Greenlee to serve as the President of SEG.
Despite his title of President, Dorrance had no control over
SEG. Instead, Greenlee and Stewart controlled SEG, providing
Dorrance with assignments and tasks and determining his
salary. (¶21, Complaint).
Dorrance was featured prominently on the SEG website, which
described him as having "nearly 40 years of business
experience" and "association with some of the most
capable and experienced professionals in the oil
industry." In truth, Dorrance never worked in oil
development. His prior work was selling stereos and helping
to manage his spouse's dental practice. (¶22,
Jared G. Forrester ("Forrester"), aged 33
at the time of the SEC's Complaint, and a resident of
Glasgow, Kentucky, was a friend of Stewart. Stewart and
Greenlee directed Forrester to incorporate BGR (later known
as Tennstar) with the State of Tennessee and installed him as
the company's CEO and president to conceal their
involvement with their company given their criminal
backgrounds. (¶23, Complaint).
Despite his title, Forrester had no control over BGR or
Tennstar. Instead, he worked under the direction of Greenlee
and Stewart, as they set Forrester's salary and gave him
assignments to complete. At the direction of Greenlee and
Stewart, Forrester sold interests in the BGR/Tennstar oil
joint ventures to investors in numerous states and signed
ownership unit certificates that were sent to investors on
behalf of BGR/Tennstar. (¶24, Complaint).
Contrary to statements in the websites and offering
literature for BGR/Tennstar, Forrester had no meaningful
experience in the oil industry. He previously worked as a
stockbroker trainee, a hotel worker, and a furniture store
salesman. (¶25, Complaint).
Stewart and Greenlee Create SEC and Tennstar and Install
Figureheads to Conceal Their Involvement
After becoming friends while selling investments at an
unrelated broker-dealer, Greenlee and Stewart began working
together again selling oil investments through TexStar Energy
Corp. ("TexStar"), an entity that they did not own
or control. (¶26, Complaint).
long thereafter, Greenlee and Stewart decided to create their
own entity to offer and sell investments in oil development
ventures. Specifically, in January 2013, Greenlee and
Stewart, through an intermediary, incorporated SEG in
Tennessee in order to receive investor funds and otherwise
help orchestrate the fraud. (¶27, Complaint).
run SEG over the longer term while hiding their involvement
due to their criminal histories, they installed Dorrance, a
relative of Greenlee's wife, to become SEG's nominal
president. Although Dorrance had no experience in the oil
industry, Greenlee and Stewart drafted fake biographical
information for SEG's website and brochures, falsely
describing Dorrance as having, among other attributes,
"years of experience in finance, sales, oil & gas,
and almost every capacity of corporate America."
truth, Dorrance's prior work involved selling stereos and
helping manage his spouse's dental practice. (¶29,
Later, in 2013, Greenlee and Stewart created a second entity,
using an intermediary as they did with SEG, to help them
perpetrate the fraud. Specifically, in December 2013,
Greenlee and Stewart recruited Forrester to file
incorporation documents for BGR (later known as Tennstar)
with the State of Tennessee. (¶30, Complaint).
Stewart and Greenlee then installed Forrester as the
company's CEO and president to conceal their involvement
with their company given their criminal backgrounds.
Installing Forrester as the CEO-in-name-only of BGR/Tennstar
was necessary, Greenlee explained to Forrester in a message
on August 20, 2014, because "[t]he rest of us are the
Manson family," alluding to the criminal and
disciplinary records of others ...