Print VersionJuly 13, 2007
FORMER CEO INDICTED FOR SECURITIES FRAUD
(HOUSTON) – The former CEO of Rocky Mountain Energy Corporation has been indicted for securities fraud for engaging in a stock manipulation scheme involving shares of his company stock, United States Attorney Don DeGabrielle announced today.
John N. Ehrman, 52, of The Woodlands, Texas, is charged in a 13-count indictment with securities fraud and false Securities and Exchange Commission (SEC) filings. The indictment returned under seal on July 12, 2007, was unsealed today following Ehrman’s arrest this morning by special agents of the Federal Bureau of Investigation. Ehrman is expected to make an initial appearance this afternoon at 2:00 p.m. before U. S. Magistrate Judge Stephen William Smith.
Ehrman is accused in the first 10 counts of the indictment with securities fraud for devising a scheme to inflate the price and trading volume of Rocky Mountain stock and to profit by selling and directing others to sell and transfer shares issued under an obscure exemption to the registration provisions of the federal securities laws. According to the indictment, Ehrman signed separate agreements on behalf of Rocky Mountain to acquire small privately held oil and gas companies, or portions of the companies, in exchange for Rocky Mountain stock. Rocky Mountain, under Section 3(a)(10) of the 1933 Securities Act, then petitioned the District Court of Utah, to rule that the proposed acquisitions were fair to the shareholders or owners of the companies to be acquired, and to rule that Rocky Mountain’s plan to issue shares to exchange for ownership of the companies did not constitute a public securities offering by Rocky Mountain. The indictment alleges that the petition and sworn declarations filed with the Utah court falsely stated that a number of individuals were shareholders or owners of the companies to be acquired, when in fact the individuals were not.
Based on the petitions and at the conclusion of hearings on four separate acquisitions, the Utah court issued orders finding that Rocky Mountain’s plans to issue and exchange shares was fair to shareholders and owners of the acquired companies and did not constitute a public securities offering by Rocky Mountain.
Using the hearings in Utah, the indictment alleges that Ehrman caused Rocky Mountain to issue more than 46 million shares that did not bear a restrictive legend. Ehrman exerted control over these purported “free-trading” shares, according to the indictment, which represented around one-half of Rocky Mountain’s issued and outstanding stock, selling the shares and directing others to sell and transfer them. Ehrman allegedly received about $500,000 in proceeds from sales of Rocky Mountain shares during the scheme, which took place between June 1, 2002 and April 3, 2003.
At the same time Ehrman gained control of the shares, the indictment alleges that Ehrman caused Rocky Mountain to make a series of false and misleading statements to the investing public to artificially inflate the price and trading volume of the company stock. Rocky Mountain press releases touted the acquisitions, representing that acquisitions were completed and that financing was in place for acquisitions, when, according to the indictment, acquisitions were not completed and financing was not in place. Ehrman also allegedly caused Rocky Mountain to omit to disclose to the public that the corporation issued tens of millions of shares of stock, which diluted the value of shares held by investors. Investors allegedly lost approximately $1.1 million during the scheme. Rocky Mountain’s stock had been quoted on the OTC Bulletin Board.
Ehrman is accused in Counts 11 - 13 of making false and misleading statements in reports and documents filed with the Securities and Exchange Commission.
If convicted of the first count of the indictment, Ehrman faces a maximum of 10 years imprisonment and a $1 million fine. Counts 2 - 13 carry a maximum penalty of 20 years imprisonment and a $5 million fine, upon conviction.
The investigation leading to the charges was conducted by the Houston office of the Federal Bureau of Investigation and by the United States Securities and Exchange Commission Regional Office in Ft. Worth, Texas. The case is being prosecuted by Assistant U.S. Attorney Stephen Corso.
An indictment is a formal accusation of criminal conduct, not evidence. A defendant is presumed innocent unless and until convicted through due process of law.
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