Opinion
Civil No. 2:03CV0914K
December 19, 2003
Thomas M. Melton, Karen L. Martinez, Salt Lake City, Utah, for Plaintiff
FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING PRELIMINARY INJUNCTION AGAINST F10 OIL AND GAS PROPERTIES, INC.
Plaintiff Securities and Exchange Commission (the "Commission"), by and through its counsel of record, hereby submits Proposed Findings of Facts and Conclusions of Law.
INTRODUCTION
On October 16, 2003, the Commission filed a civil action against FIO Oil and Gas Properties, Inc. ("FIO") and others for Preliminary Injunction for violations of federal securities laws. The Commission has submitted evidence supporting the allegations that FIO violated Section 17(a) of the Securities Act of 1933 ("Securities Act") [ 15 U.S.C. § 77q(a)], Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act") [ 15 U.S.C. § 78j(b)] and Rules 1 Ob-5, 12b-20, 13a-1 and 13a-13 promulgated thereunder [17C.RF.R. § 240.10b-5].
FINDINGS OF FACT
1. F10 Oil Gas Properties, Inc. is a Nevada corporation with offices in Willis, Texas and Newport Beach, California. F10 offered its stock to foreign investors through Sukumo.
2. Jon H. Marple of Willis, Texas and Newport Beach, California, was President of FIO until July 23, 2003, when he resigned and was replaced by Charles Blake, his brother-in-law. Jon H. Marple is now a consultant to F10.
3. Mary E. Blake also of Willis, Texas, and Newport Beach, California, is Jon H. Marple's wife and was Chief Financial Officer of FIO.
4. Jon R. Marple, of Colorado Springs, Colorado, is the President of Grateful Internet Associates, LLC, a Colorado limited liability company, and the son of Jon H. Marple. He is a consultant for F10.
5. On December 18, 2002, F10 entered into an Offshore Agreement to sell Sukumo Limited, ("Sukumo") up to 10 million shares of Fl 0 stock at a price of 30% of the bid price of F10 stock.
6. Jon H. Marple signed the agreement on behalf of F10 and M. Wiseman signed as the President and CEO of Sukumo.
7. F10 entered into a Finder's Fee Agreement dated December 4, 2002, with NuWay. Under the terms of a Finder's Fee Agreement an aggregate of 17.5% of the bid price of the stock was to be paid to two entities controlled by David Wolfson.
8. Sukumo never bought stock from F10. Frost Dec., ¶ 68, 73. Instead, Sukumo acted as an agent of F10, receiving a 70% commission when funds were wired by investors to an escrow account. NuWay received its 17.5% consulting fee at the same time. Id., ¶ 68.
9. From the time Sukumo started offering F10's stock to overseas investors through June 30, 2003, more than $5.8 million flowed through the F10 escrow accounts in Salt Lake City and Laguna Beach, California. Frost Dec., ¶ 73.
10. In all likelihood, the amount of money raised through offshore sales of F10 stock is much higher because investors have stated Sukumo continued to aggressively market FIO stock through August and well into September 2003. Campbell Dec., ¶ 9; Thaxter Dec., ¶ 8; Swift Dec., ¶ 3.
11. On February 14, 2003, F10 filed a Form 10-QSB with the Commission for the quarter ended December 31, 2002.
12. The February 2003 Form 10-QSB stated that F10 had issued 10 million shares of stock to Sukumo, F10 would receive approximately 12.5% of its bid price per share, that the agreement had been signed on December 10, 2002, and that no shares had been sold as of December 31, 2002. The company stated that it started receiving funds in January 2003.
13. Jon H. Marple, as CEO, and Mary E. Blake, as CFO, certified the filing.
14. FIO filed its Form 10-KSB for the year ended March 31, 2003, on July 11, 2003, although the disclosures were more detailed than they had been in February, the disclosures were inconsistent and contained false information. There are two descriptive accounts of the transaction with Sukumo. Both versions state that Sukumo would purchase stock from F10, and neither description of the transaction discloses Sukumo was receiving 70% of the sales price of the stock.
15. The Offshore Agreement between F10 and Sukumo and the agreement between F10 and NuWay were attached as exhibits to the filing.
16. The Form 10-KSB was signed and certified by both Jon H. Marple, as CEO, and Mary E. Blake, as CFO.
17. On August 14, 2003, F10 filed its Form 10-QSB for the quarter ended June 30, 2003. The filing stated that by June 30, 2003, FIO had received $420,668 in proceeds from stock purchased by Sukumo.
18. FIO received 12.5% of the bid price for its stock. All payments for stock by foreign investors passed through F10's escrow agent who distributed the funds according to the agreements with Sukumo and NuWay. Thus, by the end of June 2003, the escrow agent had received approximately $3.3 million and distributed 70% of that amount to Sukumo. In addition, by the time the Form 10-QSB had been filed, F10's transfer agent had reissued significant amounts of the Sukumo stock to foreign purchasers.
19. On September 5, 2003, F10 filed a Form 8-K to announce that it had provided notice to Sukumo of its intent to terminate the agreement. F10 established 30 days to complete any on-going transactions.
This agreement was filed as an exhibit to F10's Form 10-KSB for the year ended March 31, 2003; this annual report was filed on July 11, 2003.
M. Wiseman appears to be Michael Sydney Newman. E-mail addressed to Michael Sydney Newman has been sent to an email address for Marcus Wiseman.
Like the Offshore Agreement, the Finder's Fee Agreement was filed as an exhibit to F10's Form 10-KSB.
CONCLUSIONS OF LAW
1. The Commission has made a prima facie case that F10 violated Section 17(a) of the Securities Act;
2. The Commission has made a prima facie showing that F10 violated Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder; and
3. The evidence shows that unless restrained, there is a reasonable likelihood that F10 will, in the future, violate Section 17(a) of the Securities Act and Section 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder.