SEC v. SOUTHLAKE RESOURCES GROUP

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
FORT WORTH DIVISION

SECURITIES AND EXCHANGE
COMMISSION,

Plaintiff,
  Civil Action No.: 4:16-cv-992
v.

SOUTHLAKE RESOURCES GROUP, LLC,
CODY M. WINTERS, and
NICHOLAS R. HAMILTON,

Defendants.

COMPLAINT

 For its Complaint against Defendants Southlake Resources Group, LLC (“Southlake”),
Cody M. Winters, and Nicholas R. Hamilton, Plaintiff Securities and Exchange Commission
(“SEC” or the “Commission”) alleges as follows:
SUMMARY
1. From approximately June 2010 through approximately September 2014, Winters,
directly and through Southlake, a company he owned and controlled, sold interests in 12 oil-and-
gas joint ventures, raising more than $5.2 million from more than 70 investors in 26 states.  None
of the offerings were registered with the Commission, and none of the individuals that Winters
and Southlake employed to cold call potential investors, including Hamilton, were registered
with the SEC as a broker or associated with a registered broker.
2. In written offering material provided to investors, Winters and Southlake made
untrue and misleading statements and omissions of material facts regarding, among other things,
the use of offering proceeds, the allocation of and title to working interests, projections for oil-

and-gasproductionand revenue, commingling and loaning investor funds, and volume discounts
on the purchaseofinterests.  In each offering, Winters overstated the projected well costs by
almost100%andomittedtodisclosetoinvestorsSouthlake'sactualcostandprofitinformation.
3.AtWinters'direction,Southlakealsoengagedinconductthatwascontraryto
writtenrepresentationsto investors about the useofoffering proceeds.  For example, Southlake
tookundisclosedprofitand overhead payments  from theofferingproceedsand usedoffering
proceedstoacquireworkinginterestsforitselfinundisclosedtransactions.Southlakestatedthat
certainwellrevenuewasbeingdirectedto welloperators,when,  in fact,Southlakeretainedthe
revenue.Southlakecommingledproceeds frommultipleofferings.  And itselectivelysold
intereststocertaininvestorsata50%discountinundisclosedtransactions.
4.Bycommittingthe acts alleged  in thisComplaint,DefendantsWintersand
Southlakedirectlyandindirectlyengagedin, and unlessrestrainedandenjoinedwillcontinueto
engagein, acts,transactions,practices,  and coursesofbusiness thatviolatesecurities-registration
andanti-fraudprovisionsofthe federalsecuritieslaws,specificallySections5(a), 5(c),  and17(a)
ofthe Securities Actof1933 ("Securities Act") [15 U.S.C. § 77e(a), 77e(c),  and 77q(a)] and
Section10(b)oftheSecuritiesExchange Actof1934("ExchangeAct")[15 U.S.C.  § 78j(b)]  and
ExchangeActRule10b-5[17C.F.R.  §240.10b-5].DefendantsWintersandHamiltonalso
directly andindirectlyengaged in, and unless restrained and enjoined willcontinueto engage in,
acts,transactions,practices,  and coursesofbusiness that violate thebroker-registrationprovision
ofthe federal securities laws, specifically Section 15(a)ofthe Exchange Act [15 U.S.C.  §
78o(a)].
5.The SEC brings this action seeking permanentinjunctions,disgorgementplus
prejudgment interest, and civil penalties as to each Defendant and all other equitable and
ComplaintPage 2
of18

ancillaryreliefto which the Court determines the SEC is entitled.
JURISDICTIONANDVENUE
6.The SECbringsthis action under Securities ActSection20(b)[15U.S.C.  §77t(b)]
and Exchange Act Section 21(d)  [15 U.S.C. §78u(d)], seeking torestrainand enjoin the
Defendantspermanentlyfrom engaging in such acts and practices as alleged herein.
7.The Court hasjurisdictionover this action under Section 20(d) and 22(a)ofthe
SecuritiesAct [15 U.S.C.  §§ 77t(d)  and 77v(a)] andSections21(d),21(e),and 27ofthe
ExchangeAct  [15 U.S.C.  §§78u(d),78u(e),  and 78aa].
8.Each
ofthejoint-ventureinterests offered  and sold asdescribedin thiscomplaint
is a"security"as thattermis definedunderSecuritiesActSection2(a)(1)[15U.S. C. §
77b(a)(l)]andExchangeActSection3(a)(10)[5 U.S.  C. §78c(a)(10)].
9.TheDefendants,directlyandindirectly,madeuseofthemailsorofthemeans
andinstrumentalities
ofinterstatecommerceinconnectionwiththetransactions,acts,practices,
andcourses
ofbusinessdescribedin thiscomplaint.
10.Venueis properbecauseDefendantsresidein, and asubstantialpartoftheevents,
acts,  andomissionsgivingriseto theclaimsoccurredin, theNorthernDistrictofTexas.
PARTIES
11.PlaintiffSEC is anagencyofthe U.S.governmentchargedwithregulatingthe
country'ssecuritiesindustryandprosecutingcivil  andadministrativecasestoenforcethe
country'ssecuritieslaws.
12.DefendantSouthlakeis alimitedliabilitycompanyorganizedunderMissourilaw,
withitsheadquartersinFortWorth,Texas.
13.DefendantWintersis a natural personresidingin FortWorth,Texas.
ComplaintPage 3of18

14.DefendantHamiltonis anaturalpersonresidinginFortWorth,Texas.
STATEMENTOFFACTS
TheJointVentures
15.Inorabout2010,WintersfoundedSouthlaketo raisecapitaltoacquireworking
interestsinoil-andgas-wellsdrilledandoperatedby third parties.Between2010and2014
Southlakeformed12jointventures.Duringthat period,  it offered  and sold  unitsofinterestin
thejointventures("Units"),raising$5,235,650from 70 investors  in 26 states.Someinvestors
investedmorethanonce.ForeachofferingofUnits,  the tablebelowsets out thejointventure's
name,  thenumberofwellstheventureplannedto drill, the date theofferingbegan,theamount
Southlakesoughtto raise,  thenumberofsales,  and the totalamountactuallyraised.
JointVentureName,;-3,U
Number
ofWells
Offering
Date
Offering
Amount
Number
ofSales
Total
Raised
SkywalkerProspectInfield
DrillingProgram
1
06/27/10$700,0004
$83,750
RansomDrillingProspect112/01/10$500,000
3$125,000
Patriot3 WellDrillingFund103/01/11
$1,100,0005
$150,000
Laforce#1JointVenture1
08/01/11$600,0008
$110,000
SRG20114-WellDrilling
Program
4
10/20/11$1,400,000
9$238,000
SRGParkersonBazineJoint
Venture
303/20/12
$800,0004
$60,000
SRGK-4JointVenture404/27/12
$800,000
18$467,500
SRGReinAldrichJoint
Venture
4
01/04/13
$1,200,00019
$747,000
SRGBettyBetzField
Development
4
05/20/13$800,00012
$552,500
SRGSheriffJointVenture
310/07/13
$2,250,000
9
$512,500
SRGAldrichJointVenture4
11/29/13
$3,200,00021
$774,400
SRGRaymondDoxonJoint
Venture
204/28/14
$4,340,00018
$1,415,000
TOTAL32
$17,690,000130
$5,235,650
16.Southlakecontrolledeachjointventure.Wintersinturnownedandcontrolled
Southlake.  Through Southlake, Winters exercised ultimate control and authority over each
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Page4
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venture,includingitsdirection,the contentofitspublicstatements,thedecisiontodisseminate
suchstatements,itsdisclosuresto investors,  and alldecisionsregardingitsfunctions,operations,
andactivities.
17.Foreachjointventure,Wintersdrafteda ConfidentialInformationMemorandum
("CIM")toprovideinvestorsinformationabout the venture.   Each CIMcontainedthenumber
andprice
oftheUnitson offer, the amount sought to be raised,  and a tablesettingout the
anticipateduse
ofinvestmentproceeds.TheCIMsweresubstantiallysimilarfor eachjoint
venture,exceptfortheUnitcostandquantityand therespectivedescriptionsofthewell
prospects.Afterinitialcontact,Winterstypicallysent theprospectiveinvestora CIM
byFedEx
oremail.
TheUnitsWereSecurities
18.TheCIMsportrayedtheinvestorsandSouthlakeasgeneralpartnersofone
another,havingall the rightsofgeneral partners under Texas  law.  In reality,however,thejoint
ventures did not function  as general partnerships.  Eachjointventure wasgovernedby a non-
negotiablejoint-ventureagreement,  which delegated toSouthlaketheexclusiveright and
authorityto control  andobligatethe venture.  Thejoint-ventureagreementstherebyrendered
illusorythe
CIM'sclaimsthat investors were general partners.
19.Investorshad no input concerning which wells to drill orcompleteorregarding
when or whether to do so.  They had no input on how the venture spent investment proceeds or
allocated assets.  They had no input on the decision to hire drillers or operators.  They had no
directaccesstoventurebankaccountsor financial  records.Theyreceivednoinformationfrom
Southlake that would allow them to even identify, much less contact, thejointventure'sother
investors—theirso-called"partners."And although thejoint-ventureagreement provided that
ComplaintPage 5of18

investorscouldvoteoncertainlimitedactions,Southlakecontrolledtheballotingprocessand
neversoughtsucha vote  on anyaction.
20.Given thejoint-ventureagreement'sassignmentofcontrol  toSouthlake,the
investors'rolein eachventurewaspassive,limitedtomakinganinvestmentofmoney.
Investorsthereforereasonablyexpectedtheventure'ssuccesstocomefrom  themanagerial
effortsofWintersandSouthlake.Consequently,eachjoint-ventureUnitoffered  and sold  by
WintersandSouthlakeconstitutedaninvestmentcontractand was,therefore,a security.
21.Noregistrationstatementwas ever filed with the SECrelatedtoSouthlake'soffer
andsaleofsecurities.
WintersandHamiltonActedasBrokersintheSecuritiesTransactions
22.WintersandHamiltonactedasbrokersinSouthlake'ssecuritiestransactions.
WintersidentifiedprospectiveinvestorsthroughouttheUnitedStates fromreferralsand from
lead lists hepurchased.Hesuperviseda staffofcommissionedtelephonesolicitors tocold-call
theseinvestorstoofferandselltheUnits.He  alsoclosedsalesinitiatedbythecold-callers.He
engaged incold-callinghimself.   He negotiated securitiestransactions,advisedprospective
investorsregardingtheinvestment,andprovidedthem salesmaterials,includingCIMs.  And he
completelycontrolledtheUnit-saleproceeds, from which he paidhimself$1,150,473.87.
23.From April2012throughSeptember2014,Hamiltonserved  as a VicePresident
atSouthlake.In this role, hecold-calledprospectiveinvestorstoofferUnits,distributedsales
materials,includingCIMs,advisedinvestorsabouttheinvestment,andnegotiatedandclosed
sales.Heearneda15%commissiononeachsaleandreceivedcommissioncompensation
totaling$357,570.
24.Despiteactingasbrokers,neitherHamiltonnorWintershaseverbeenregistered
ComplaintPage  6of18

as abrokerwiththe  SEC,  andHamiltonhasneverbeenassociatedwith  aregisteredbroker.
AlthoughWinterswasassociatedwith aregisteredbroker fromJuly2007throughOctober2010,
hecontinuedtobrokerSouthlakesecuritiestransactionsfor more thanthreeyearsafterthis
associationended.
WintersandSouthlake'sMisrepresentationsandMisconduct
25.TheCIMscontaineduntruestatementsandstatementsthatwererendered
misleadingbecausetheyomittedinformationthat Winters  andSouthlakehad a duty todisclose.
In thejoint-ventureofferings,WintersandSouthlakealso engaged inmisleadingconduct.
UseofProceeds
26.Each  CIMincludeda tableentitled"UseofProceeds,"whichpurportedto
discloseSouthlake's"anticipated"useofinvestormoney.   In each CIM, thetableprovidedthat
Southlakeanticipatedusingnotmorethan15%
oftheproceedsfor feesrelatingto sales,
marketing,anddue-diligence.TheCIMsgenerallynotedthat afractionofa percentageofthe
proceedswouldbeusedfororganizationalandofferingexpensesand that thebalance—
approximately85%—wouldbe used for actual well costs such as leaseacquisition,drilling,
testing,completion,andgeologicalandgeophysicalcosts.Althoughthepercentagesvaried
slightlyfromCIMtoCIM,theexamplebelowfrom  the SRGAldrichVentureCIMillustrates
howSouthlakediscloseditsanticipateduse
ofproceeds:
USEOFPROCEEDS
AMOUNT
%
Organizational&OfferingExpenses
$20,160.00
.63%
LeaseAcquisition,Geological&GeophysicalCosts
$184,000.005.75%
Drilling&TestingCosts
$2,027,200.0063.35%
CompletionCosts{Plugging)$488r640.0015.27%
Sales&Marketing,DueDiligence&OtherFees
$480,000.0015.00%
TOTALS
$3,2Q0,G00.00
100.00%
Complaint
Page7of18

27.Inreality,in eachjointventure,Southlakespentapproximately50% onwell
costs,spentapproximately20% on salescommissionsandoverhead,andretainedapproximately
30% asprofit.
ThetableswereuntruebecausetheymisstatedSouthlake'sactualanticipateduse
ofproceeds.AndtheyweremisleadingbecausetheyomittedtodiscloseSouthlake'sprofitand
overhead,disclosuresnecessaryto give acompleteand accurateaccountingofSouthlake's
anticipateduseofproceeds.WhenWintersdraftedanddisseminatedtheCIMs,hekneworwas
severelyrecklessin
notknowingthat thetableswereuntrueandmisleading.
28.
Theseuntrueandmisleadingstatementswerematerial.Areasonableinvestor
wouldconsidersuchoverstatedanticipatedexpenses  andundisclosedanticipatedprofitand
overheadimportantinmakinganinvestmentdecisionabout thejointventure.
29.Bytakingundisclosedprofitandoverheadpaymentsfrom theofferingproceeds,
WintersandSouthlakeactedknowinglyorseverelyrecklessly..
InterestAllocations
30.EachCIMcontaineda statementthat thejointventureintendedtoacquirea
specifiedmaximumpercentageoftheworkinginterest in each wellprospectifthejointventure
becamefullycapitalized.Amongthe12CIMs, thisspecifiedmaximumrangedfrom
20%to
100%oftheworkinginterest.Thetablebelowsets out themaximumworkinginteresttobe
acquiredby eachjointventureiffullycapitalized,asspecifiedin the CIMs.
JointVentureName%
MaximumWorkingInterest;#4i|::
SkywalkerProspectInfieldDrillingProgram75%
RansomDrillingProspect75%
Patriot3WellDrillingFund
20%
Laforce#1JointVenture100%
SRG20114-WellDrillingProgram
50%
SRGParkersonBazineJointVenture
50%
SRGK-4JointVenture25%
SRGReinAldrichJointVenture40%
SRGBettyBetzFieldDevelopment25%
Complaint
Page8of18

JointVentureNameMaximumWorkingInterest
SRGSheriffJointVenture100%
SRGAldrichJointVenture100%
SRGRaymondDoxonJointVenture100%
31.EachCIMcontaineda tableentitled"InterestAllocations,"showingwhowould
own orotherwiseshare in eachprospectwell'sroyaltyinterest("RI"),workinginterest("WI"),
and netrevenueinterest("NRI").Thetablebelowfrom theSRGRaymondDoxonJointVenture
is anexampleshowinggenerallyhow theCIMsdisclosedwell-prospectinterestallocations:
INTERESTALLOCATIONS
RI
WINRI
OVERRIDINGROYALTYINTEREST
20.00%
-
20.00%
SRGRAYMONDDOXONJOINTVENTURE
-
100.00%80.00%
TOTALS20.00%
100.00%100.00%
32.TheCIMs'interest-allocationstatementswereinaccurate.Inreality,Southlake
intendedto use, and did use,offeringproceedsinundisclosedtransactionstoacquireforitself
approximatelythree percentage pointsofthe working interestearmarkedfor eachjointventure.
Therefore,evenifthejointventurewas  fullycapitalized,it couldnothaveacquiredthe
maximumworkinginterestpercentagespecifiedin the CIM.Theinterestallocationtableswere
misleadingbecausethey did notincludeSouthlake'sworkinginterestallocationor its
correspondingnetrevenueinterestallocation.
33.WhenWintersdraftedanddisseminatedeachCIM,hekneworwasseverely
recklessin notknowingthat thestatementsregardingworking-interestacquisitionandinterest
allocationwere untrue  andmisleading.Theseuntrueandmisleadingstatementswerematerial.
AreasonableinvestorwouldconsiderSouthlake'sundiscloseduseofproceedstoacquirea share
oftheworkinginterestearmarkedfor thejointventureimportantinmakinganinvestment
decisionaboutthejointventure.Areasonableinvestorwouldlikewiseconsiderinterest
Complaint
Page9of18

allocationsin the wellsimportantinmakinganinvestmentdecisionabout  theventure.
34.Byusingofferingproceedsto acquireworkinginterests forthemselvesin
undisclosedtransactions,WintersandSouthlakeactedknowinglyorseverelyrecklessly.
35.Inaddition,10ofthe CIMscontaineda statementthat a thirdpartywelloperator
wouldreceiveapproximately20%ofthe netrevenueinterestinexchangefor itsservices.This
statementwasmisleadingbecauseit omittedtodisclosethat theoperatormaintainedonlya
"back-ininterest."Theback-ininterest—describedincontractsthatWintersnegotiatedbetween
Southlakeand theoperator—entitledtheoperatorto 20%ofthe netrevenuesonlyafterthe well
reached"payout."Payoutis thepointatwhichthe wellgeneratesrevenuesgreaterthan  the cost
chargedby theoperatortodrill,test,complete,andoperatethe well.Unbeknownsttoinvestors,
untilpayout,Southlakekeptthe
20%netrevenueinterestfor itself.
36.Wintersknew
orwasseverelyrecklessin notknowingthat  thestatements
regardingtheoperator's20% netrevenueinterestweremisleading.Thesemisleadingstatements
were material.   AreasonableinvestorwouldconsiderSouthlake'sreceiptoftheoperator's20%
netrevenueinterestimportantinmakinganinvestmentdecisionabout thejointventure.
37.Byreceivingtheoperator's20%netrevenueinterestinundisclosedtransactions,
WintersandSouthlakeactedknowinglyorseverelyrecklessly.
38.The foregoingundisclosedinterest allocations had a material impact on the
distributionofwell revenues.  Southlake received approximately $1.3 million inoil-and-gas
revenues,but itonlydistributedapproximately$800,000toinvestors.
Projections
39.The CIMscontainedunsubstantiatedperformanceprojectionsthatwerenot
consistentwithSouthlake'spriorexperience.   For example,  by the timeSouthlakestartedthe
ComplaintPage 10of18

SRGAldrichJointVenturein2013,ithaddrilledmorethan30wellssince2010inthesame
geographicalarea as the SRGAldrichwell prospects.   The SRGAldrichCIMprojectedthat
producingwells could returninvestorsinitial principal in 7 to 42months,assumingtotal oil
productionbetween100,000barrelsand 400,000  barrels.  In reality,  no wells  in anySouthlake
jointventurehad everproducedoil insufficientquantities  to returninvestorprincipal.Noneof
the wells  inSouthlake'spreviousjointventureshad ever evenreachedtheminimum100,000-
barrel assumption.  Moreover, the SRG Aldrich projections assumed oilproductionrangingfrom
50 to 300 barrelsofoil per day.  But only twoofSouthlake'swells had ever produced more than
100barrels per day, and even those wells failed to sustain that level
ofproductionfor more than
afewmonths.
40.Moreover,eachCIMcontaineda misleadinganalysisofexistingoil-and-gas
activity in proximity to the prospect wells.  In particular, the CIMs included projectedproduction
rates forSouthlake'sprospectwells based on the most successful wells in thesurroundingarea,
but ignored dry holes and lesser producing wells.  As a result, the CIMs conveyed the misleading
impression that the well prospects were far morefavorablethan they actually were.
41.Wintersknewor wasseverelyreckless in notknowingthat theforegoing
projections were misleading because they had noreasonablebasis.  These misleading statements
werematerial.AreasonableinvestorwouldconsiderSouthlake'saccurateproductionand
revenue estimates important in making an investment decision about thejointventure.
Working-InterestTitle
42.EachCIMstatedthattitleto thejointventure'spropertywouldbeheldinthe
nameofthe joint venture.  This statement was untrue.  In reality, Southlake held the title to the
jointventure'sworking interests.   Southlake never took steps to transferjoint-ventureproperty
ComplaintPage11of18

fromSouthlake'snameto thejointventure'sname.
43.Wintersknew or wasseverelyreckless  in notknowingthat the CIMstatements
regardingtitle to thejointventure'spropertywere untrue.Theseuntruestatementswere
material.  A reasonable investor would consider the title holderofjoint-ventureproperty to be
importantinmakinganinvestmentdecisionaboutthejointventure.
CommingledFundsandLoans
44.TheCIMsassertedthattherewouldbe nocomminglingoffundsbetweenthe
ventureandSouthlakeor any
ofitsaffiliates.For at least the firstthreeventures,however,all
investor
moneywasdepositedinto  asingleSouthlakebankaccountand noeffortsweremadeto
ensurethatthefundswerenotcommingled.Subsequently,Wintersset upseparate
bank
accountsforeachjointventure,but he usedSouthlake'staxidentificationnumberto set up all
theaccounts.Therefore,despitethenameon theaccount,Southlake,not  the
jointventure,was
theaccountholder.
45.TheCIMsalsoincludea "dealingsamongrelatedparties"clause,whichstated
thattherewill  be noloansbetweentheventureand  anyotherentitiescontrolled
bySouthlakeor
itsaffiliates.However,Wintersonoccasionusedfunds  from  one
jointventuretoloanmoneyfor
expensesofanotherjointventure that was not fully funded yet.  Areasonableinvestorwould
considerit importantto know thatinvestorfunds were used to pay fordrillingexpensesunrelated
to thejointventure.
46.Wintersknewor wasseverelyrecklessin notknowingthatthe
CIMstatements
regardingcomminglingandloanswereuntrue.Theseuntruestatementswerematerial.A
reasonableinvestorwouldconsiderit importantinmakinganinvestmentdecisionaboutajoint
venturethat thejointventure'sfunds were held  in anon-joint-ventureaccount,commingledwith
ComplaintPage12of18

otherfunds,orusedforloanstootherentities.
47.By commingling and loaning investor funds among the joint ventures, contrary to
their writtenrepresentations,Winters and Southlake acted knowingly orseverelyrecklessly.
DiscountsforCertainInvestors
48.Each CIMprovidedthat Units would be offered to investors at a fixed price and
thatSouthlake"mayprovidea VolumeDiscountof5% to10%forpurchasesof3 ormore
Units."Thisstatementregardinga discountwasuntrue.Inreality,Wintersoffereddiscountsto
certaininvestors,regardlessofthevolumeofUnitspurchased.Severalinvestorsacceptedthe
offerandreceiveda50%discount,payingforhalfa Unit butreceivinga full Unit.These
discountedsaleswereneverdisclosedtotheotherinvestors.
49.Winterskneworwasseverelyrecklessin notknowingthattheCIMstatements
regardingdiscountswereuntrue.Theseuntruestatementswere material.   Areasonableinvestor
wouldconsidersuchdiscountsforcertaininvestorsto beimportantinmakinganinvestment
decisionaboutthejointventure.
50.BysellingUnits  at a 50%discountinundisclosedtransactions,Wintersand
Southlakeactedknowinglyorseverelyrecklessly.
FIRSTCLAIMFORRELIEF
ViolationsofExchangeActSection10(b)andExchangeActRule10b-5
AgainstWintersandSouthlake
51.PlaintiffSECre-allegesandincorporatesparagraphs1 through50ofthis
Complaint by reference asifset forth verbatim in this Claim.
52.DefendantsWintersandSouthlakedirectlyorindirectly,singlyor inconcertwith
others, inconnectionwith thepurchaseand saleofsecurities, by useofthemeansand
instrumentalitiesofinterstatecommerceor by useofthemails,have(a)employeddevices,
ComplaintPage13of18

schemes,andartificestodefraud;(b)madeuntruestatementsofmaterialfacts  andhaveomitted
to state material  factsnecessaryin order to make the statements made, in lightofthe
circumstancesunder which they were made, not misleading; and (c) engaged in acts,practices,
and courses
ofbusinesswhichoperatedas a fraud and deceit uponpurchasers,prospective
purchasers,andotherpersons.
53.DefendantsWintersandSouthlakeengaged  in theabove-referencedconductand
madetheabove-referenceduntrueandmisleadingstatementsknowinglyorwithsevere
recklessness.
54.Byreasonoftheforegoing,DefendantsWinters  andSouthlakehaveviolated,and
unless enjoined will continue to violate, Section10(b)of the Exchange Act[15U.S.C. § 78j(b)]
and Rule10b-5[17C.F.R.§ 240.10b-5]thereunder.
SECONDCLAIMFORRELIEF
ViolationsofSecuritiesActSection17(a)
AgainstWintersandSouthlake
55.PlaintiffSECre-allegesand incorporates paragraphs  1 through 50ofthis
Complaint by reference asifset forth verbatim in this Claim.
56.By engaging in the engaging in the acts and conduct alleged herein, Defendants
Winters and Southlake directly or indirectly, singly or in concert with others, in the offer and sale
ofsecurities, by useofthe means and instrumentsoftransportation andcommunicationin
interstatecommerceor by useofthe mails, have (a) employed devices, schemes, or artifices to
defraud; (b) obtained money or property by means of untrue statementsofmaterial fact or
omissionsto statematerialfactsnecessaryin order to make thestatementsmade, inlightofthe
circumstancesunderwhichtheyweremade,  not misleading; and (c)engagedintransactions,
practices, or coursesofbusiness  which operated or would operate as a fraud or deceit.
ComplaintPage14of18

57.With respect to violationsofSecurities Act Sections17(a)(2)and (3),Defendants
Winters and Southlake were negligent in their conduct and in the untrue andmisleading
statementsalleged herein.   With respect to violationsofSecurities Act Section17(a)(1),
DefendantsWintersandSouthlakeengagedin thereferencedconductandmadethereferenced
untrueandmisleadingstatementsknowinglyor withsevererecklessness.
58.Byreasonofthe foregoing,DefendantsWintersandSouthlakehaveviolatedand,
unlessenjoined,willcontinuetoviolateSection  17(a)
oftheSecuritiesAct  [15U.S.C.§ 77q(a)].
THIRDCLAIM
ViolationsofSecuritiesActSections5(a)and5(c)
AgainstWintersandSouthlake
59.PlaintiffSECre-allegesandincorporatesparagraphs1 through50ofthis
Complaintbyreferenceas
ifset forth verbatim  in this Claim.
60.DefendantsWintersandSouthlake,directlyorindirectly,singlyor inconcert with
others,haveofferedto sell, sold,  anddeliveredafter sale,certainsecuritiesandhave(a)made
useofthemeansandinstrumentsoftransportationandcommunicationininterstatecommerce
and
ofthemailsto sellsecurities,through the useofemail,interstatecarrier,brokerage
transactions,orotherwise;(b)carriedand caused to be carriedthroughthemailsand ininterstate
commerce by the means and instruments oftransportationsuch securities for the purposeofsale
and for delivery after sale; and (c) made use of the means or instruments
oftransportation and
communicationininterstatecommerceorofthemailstooffertosellsuchsecurities.
61.By reasonofthe foregoing, Defendants Winters and Southlake have violated, and
unlessenjoinedwill continue to violate, Sections 5(a) and 5(c)oftheSecuritiesAct [15 U.S.C.
§§77e(a)and77e(c)].
FOURTHCLAIM
ViolationsofSecuritiesExchangeActSection15(a)
ComplaintPage15of18

AgainstWintersandHamilton
62.PlaintiffSECre-allegesand incorporatesparagraphs1 through50ofthis
Complaintbyreferenceasifset forthverbatimin this Claim.
63.Defendants Winters and Hamilton, while engaged in the businessofeffecting
transactionsinsecuritiesfortheaccountofothers,madeuseofthemailsorthemeansor
instrumentalitiesofinterstatecommerceto effecttransactionsin, or toinduceorattemptto
inducethepurchaseor sale of, asecuritywithoutbeingregisteredinaccordancewithSection
15(a)oftheExchangeAct.
64.Byreason
oftheforegoing,DefendantsWintersandHamiltonhaveviolated,and
unlessrestrainedandenjoinedwillcontinueto violate,Section15(a)oftheExchangeAct[15
U.S.C.§ 78o(a)].
PRAYERFORRELIEF
WHEREFORE,the SECrespectfullyrequests that theCourtentera judgment:
I.
Permanently enjoining DefendantsWintersand Southlake from future violationsof
Sections 5(a), 5(c), and 17(a)oftheSecuritiesAct [15 U.S.C. §§ 77e(a), 77e(c), and 77q(a)], and
Section 10(b)ofthe Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §
240.10b-5].
II.
Permanently enjoining Defendants Winters and Hamilton from future violationsof
Section15(a)oftheExchangeAct[15U.S.C.§78o(a)].
III.
OrderingDefendantWintersto disgorgeill-gottengains from theconduct allegedherein
ComplaintPage16of18

in the amountof$1,150,473.87plusprejudgmentinterestof$62,792.83.
IV.
Ordering Defendant Hamilton to disgorge ill-gotten gains from the conduct alleged
herein in theamountof$357,570.00plusprejudgmentinterestof$19,516.18.
V.
OrderingDefendantSouthlaketo disgorge ill-gotten gains from theconductalleged
hereinin theamountof$3,727,606.13plusprejudgmentinterestof$203,452.69.
VI.
Imposinga civilpenaltyof$160,000.00againstDefendantWinterspursuanttoSection
20(d)oftheSecuritiesAct[15U.S.C.§ 77t(d)]andSection21(d)(3)oftheExchangeAct[15
U.S.C.§ 78u(d)(3)]forviolations
ofthe federalsecuritieslaws  asallegedherein;
VII.
Imposinga civilpenaltyof$50,000.00 against DefendantHamiltonpursuantto Section
21(d)(3)oftheExchangeAct [15 U.S.C.  § 78u(d)(3)] forviolationsofthe federalsecuritieslaws
asallegedherein;
VIII.
Imposing a civil penaltyof$160,000.00 against Defendant Southlakepursuantto Section
20(d)oftheSecuritiesAct  [15 U.S.C.  § 77t(d)] and Section 21(d)(3)oftheExchangeAct [15
U.S.C. § 78u(d)(3)]  forviolations
ofthe federalsecuritieslaws asallegedherein;  and
ComplaintPage17
of18

IX.
Imposingsuchotherandfurtherreliefas the SECmayshowitselfentitled.
Dated:October24,2016Respectfullysubmitted,
TimothyS/McCole
MississippiBar No.10628
UnitedStatesSecuritiesandExchangeCommission
Fort WorthRegionalOffice
801CherryStreet,Suite1900
FortWorth,Texas76102
(817)978-6453
(817)978-4927(facsimile)
[email protected]
AttorneyforPlaintiff
ComplaintPage18
of18

js44Keverse(Kev.3/yy;
CIVILCOVERSHEET
TheJS-44civilcoversheetand  the informationcontainedherein  neither replace  norsupplementthefilingandserviceofpleadingsorotherpapersas  required by
law,exceptas  provided  by local  rules  of court.   This  form,approvedby the  JudicialConferenceof the  UnitedStatesinSeptember1974,isrequiredfor the  use  of
the  Clerk ofCourtfor thepurposeof initiating  the  civildocketsheet.(SEEINSTRUCTIONSON THEREVERSEOF THE  FORM.)
I.(a)PLAINTIFFS
U.S.SECURITIESANDEXCHANGE
COMMISSION
(b)COUNTYOFRESIDENCEOFFIRSTLISTEDPLAINTIFF
Defendants-
SouthlakeResourcesGroup,LUC,
CodyM.Winters,and
NicholasR.Hamilton
CountyofResidenceofFirstListedDefendant:
(EXCEPTIN U.S.  PLAINTIFFCASES)
(INU.S.PLAINTIFFCASESONLY)Tarrant
NOTE:INLANDCONDEMNATIONCASES,USETHELOCATIONOFTHE
TRACTOFLANDINVOLVED.
(C)ATTORNEY(FIRMNAME,ADDRESS,ANDTELEPHONENUMBER)
TimothyS.McCole
U.S.Securities&ExchangeCommission
801CherryStreet,Suite1900,Unit18
FortWorth,TX76102-6882(817)978-6453
ATTORNEYS(IFKNOWN)
JasonLewis,Esq.
GreenbergTraurig,LLP
2200RossAvenue,Suite5200
Dallas,Texas75201
214-556-3606
II.BASISOFJURISDICTION(placeanxinoneboxonly)
III.CITIZENSHIPOF PRINCIPAL PARTIES<p^"a£INon°nebox*f§r
(ForDiversityCasesOnly)defendant)
PTF   PTFPTFPTF
H1  U.S.Government•3FederalQuestion
Plaintiff(U.S.GovernmentNot  aParty)
•    2 U.S.Government•    4 Diversity
Defendant(IndicateCitizenshipofParties
in  Item  III)
Citizen  of ThisStateD1Q1IncorporatedorPrincipalPlaceL7J4Q4
ofBusinessInThisState
CitizenofAnotherStateD2D2
IncorporatedandPrincipalPlace•5   •5
Citizen  or
Subjectof aL~~J3D3ofBusinessinAnotherState
ForeignCountry
ForeignNation•6•6
IV.NATUREOFSUIT{PLACEAN"X"INONE BOXONLY)
CONTRACT
TORTSFORFEITURE/PENALTYBANKRUPTCYOTHERSTATUTES
•110Insurance
•120Marine
•130Miller Act
•140  Negotiable  Instrument
•150  Recovery  ofOverpayment
&EnforcementofJudgment
PERSONALINJURYPERSONALINJURY
•310 AirplaneO362PersonalInjury -
D  315 Airplane  ProductMed.Malpractice
LiabilityLI365PersonalInjury-
•320 Assault,LibelaProductLiability
Slander
•330FederalD368AsbestosPersonal
Employers'LiabilityInjuryProductLiability
D340MarinePERSONALPROPERTY
•345MarineProduct•370OtherFraud
Liability•371  Truth in Lending
•350  MotorVehicle•380OtherPersonal
PropertyDamage
•    355  Motor Vehicle•385   Property  Damage
ProductLiabilityProductLiability
•360OtherPersonal
Injury
•610  Agriculture
D  620  Other  Food & Drug
•625   Drug RelatedSeizureof
Property21USC881
D630   Liquor Laws
•640R.R.&Truck
•650 Airline Regs.
D   660OccupationalSafety/Health
•690Other
•422  Appeal  28  USC  156
•423Withdrawal
28USC157
•400StateReapprotionment
•410Antitrust
•    430   Banks and  Banking
•450Commerce/ICC
Rates/etc.
•460Deportation
•151MedicareAct
PROPERTYRIGHTS
•470RacketeerInfluenced
andCorruptOrganizations
•152Recovery of Defaulted
StudentLoans(Excl.Veterans)
•    820  Copy rights
•830Patient
•840Trademark
D810SelectiveService
H850Securities
Commodities/Exchange
•153Recovery OF Overpayment
ofVeteran'sBenefits
LABORSOCIALSECURITY
•875CustomerChallenge
12USC3410
•160Stockholders'Suits
•190OtherContract
•195ContractProductLiability
•710FairLaborStandardsAct
•    720  Labor/Mgmt.Relations
Q730  Labor/Mgmt. Reporting  &
DisclosureAct
•    740  Railway Labor Act
•    790  Other  Labor Litigation
D  791Empl.Ret.  Inc.
SecurityAct
D  861HIA(1395FF)
•    862  Black Lung (923)
D863DIWC/DIWW(405(g))
•864SSIDTitleXVI
•    865 RSI (405(g))
•    891AgriculturalActs
•892EconomicStabilization
Act
REALPROPERTYCIVILRIGHTS
PRISONERPETITIONS
•893EnvironmentalMatters
•894  Energy  Allocation Act
•210LandCondemnation
•441  Voting
D  442  Employment
•    443  Housing/
Accommodations
•444Welfare
•440OtherCivil
Rights
D510MotionstoVacate
Sentence
HabeasCorpus:
•530General
D  535  Death  Penalty
•540Mandamus&Other
•550CivilRights
FEDERALTAXSUITS
•895Freedomof
InformationAct
•220Foreclosure
•230  RentLease& Ejectment
•240TortstoLand
D  245 Tort ProductLiability
•290  AllOther  RealProperty
D  870  Taxes  (U.S.  Plaintiff or
Defendant)
•    871IRS- Third Party
26USC7609
D   900  Appeal  ofFee
DeterminationUnder
EqualAccesstoJustice
•    950 Constitutionalityof
StateStatutes
•890 Other Statutory  Actions
V.ORIGIN
I 1  Original
Proceeding
•2Removedfrom
StateCourt
(PLACE AN  "X"INONE BOXONI.V)
•3Remandedfrom
AppellateCourt
•4Reinstatedor
Reopened
D   5Transferredfrom
anotherdistrict
(Specify)
•6Multidistrict
Litigation
•7 Appeal  to District
JudgefromMagistrate
Judge
VI.CAUSEOFACTION(CITETHEU.S.CIVILSTATUTEUNDERWHICHYOUAREFILINGANDWRITEBRIEFSTATEMENTOFCAUSE.DONOTCITEJURISDICTIONALSTATUTESUNLESS
diversity.)SecuritiesFraud
Violations of Section:Sections5(a),5(c),and17(a)oftheSecuritiesActof1933("SecuritiesAct")[15U.S.C.§ 77e(a),77e(c),and77q(a)]and
Section10(b)oftheSecuritiesExchangeActof1934("ExchangeAct")[15U.S.C.§ 78j(b)]andExchangeAct  Rule  10b-5  [17C.F.R.§
240.10b-5],
VII.REQUESTEDIN
COMPLAINT:
CHECKIFTHISISACLASSACTION
•UNDERF.R.C.P.23
VIII.RELATEDCASE(S)(SeeInstructions):
IFANY
DATE
October24,2016
FOROFFICEUSEONLY
Receipt#
AMOUNT
JUDGEDOCKETNUMBER
SIGNATUREOFATTORNEYOFRECORD
APPLYINGIFP
DEMAND$
CHECKYESonlyifdemandedincomplaint:
JURYDEMAND•yesBno
f^i^jijsa^
7
JUDG
MAG.JUDGE

UNITED STATES DISTRICT COURT 
NORTHERN DISTRICT OF TEXAS 

FORT WORTH DIVISION 
 
  
SECURITIES AND EXCHANGE 
COMMISSION, 

 

  
Plaintiff,  

  Civil Action No.: 4:16-cv-992 
v.  

  
SOUTHLAKE RESOURCES GROUP, LLC, 
CODY M. WINTERS, and 
NICHOLAS R. HAMILTON, 

 

  
Defendants.  

  
 

COMPLAINT 
 
 For its Complaint against Defendants Southlake Resources Group, LLC (“Southlake”), 

Cody M. Winters, and Nicholas R. Hamilton, Plaintiff Securities and Exchange Commission 

(“SEC” or the “Commission”) alleges as follows: 

SUMMARY 

1. From approximately June 2010 through approximately September 2014, Winters, 

directly and through Southlake, a company he owned and controlled, sold interests in 12 oil-and-

gas joint ventures, raising more than $5.2 million from more than 70 investors in 26 states.  None 

of the offerings were registered with the Commission, and none of the individuals that Winters 

and Southlake employed to cold call potential investors, including Hamilton, were registered 

with the SEC as a broker or associated with a registered broker.   

2. In written offering material provided to investors, Winters and Southlake made 

untrue and misleading statements and omissions of material facts regarding, among other things, 

the use of offering proceeds, the allocation of and title to working interests, projections for oil-

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 1 of 18   PageID 1



and-gas production and revenue, commingling and loaning investor funds, and volume discounts

on the purchase of interests. In each offering, Winters overstated the projected well costs by

almost 100% and omitted to disclose to investors Southlake's actual cost and profit information.

3. At Winters' direction, Southlake also engaged in conduct that was contrary to

written representations to investors about the use of offering proceeds. For example, Southlake

took undisclosed profit and overhead payments from the offering proceeds and used offering

proceeds to acquire working interests for itself in undisclosed transactions. Southlake stated that

certain well revenue was being directed to well operators, when, in fact, Southlake retained the

revenue. Southlake commingled proceeds from multiple offerings. And it selectively sold

interests to certain investors at a 50% discount in undisclosed transactions.

4. By committing the acts alleged in this Complaint, Defendants Winters and

Southlake directly and indirectly engaged in, and unless restrained and enjoined will continue to

engage in, acts, transactions, practices, and courses ofbusiness that violate securities-registration

and anti-fraud provisions of the federal securities laws, specifically Sections 5(a), 5(c), and 17(a)

of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77e(a), 77e(c), and 77q(a)] and

Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and

Exchange Act Rule 10b-5 [17 C.F.R. § 240.10b-5]. Defendants Winters and Hamilton also

directly and indirectly engaged in, and unless restrained and enjoined will continue to engage in,

acts, transactions, practices, and courses of business that violate the broker-registration provision

of the federal securities laws, specifically Section 15(a) of the Exchange Act [15 U.S.C. §

78o(a)].

5. The SEC brings this action seeking permanent injunctions, disgorgement plus

prejudgment interest, and civil penalties as to each Defendant and all other equitable and

Complaint Page 2 of 18

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 2 of 18   PageID 2



ancillary relief to which the Court determines the SEC is entitled.

JURISDICTION AND VENUE

6. The SEC brings this action under Securities Act Section 20(b) [15 U.S.C. §77t(b)]

and Exchange Act Section 21(d) [15 U.S.C. §78u(d)], seeking to restrain and enjoin the

Defendants permanently from engaging in such acts and practices as alleged herein.

7. The Court has jurisdiction over this action under Section 20(d) and 22(a) of the

Securities Act [15 U.S.C. §§ 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].

8. Each of the joint-venture interests offered and sold as described in this complaint

is a "security" as that term is defined under Securities Act Section 2(a)(1) [15 U.S. C. §

77b(a)(l)] and Exchange Act Section 3(a)(10) [5 U.S. C. § 78c(a)(10)].

9. The Defendants, directly and indirectly, made use of the mails or of the means

and instrumentalities of interstate commerce in connection with the transactions, acts, practices,

and courses ofbusiness described in this complaint.

10. Venue is proper because Defendants reside in, and a substantial part of the events,

acts, and omissions giving rise to the claims occurred in, the Northern District ofTexas.

PARTIES

11. Plaintiff SEC is an agency of the U.S. government charged with regulating the

country's securities industry and prosecuting civil and administrative cases to enforce the

country's securities laws.

12. Defendant Southlake is a limited liability company organized under Missouri law,

with its headquarters in Fort Worth, Texas.

13. Defendant Winters is a natural person residing in Fort Worth, Texas.

Complaint Page 3 of 18

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 3 of 18   PageID 3



14. Defendant Hamilton is a natural person residing in Fort Worth, Texas.

STATEMENT OF FACTS

The Joint Ventures

15. In or about 2010, Winters founded Southlake to raise capital to acquire working

interests in oil-and gas-wells drilled and operated by third parties. Between 2010 and 2014

Southlake formed 12 joint ventures. During that period, it offered and sold units of interest in

the joint ventures ("Units"), raising $5,235,650 from 70 investors in 26 states. Some investors

invested more than once. For each offering of Units, the table below sets out the joint venture's

name, the number of wells the venture planned to drill, the date the offering began, the amount

Southlake sought to raise, the number of sales, and the total amount actually raised.

Joint Venture Name,;- 3 ,U Number

ofWells

Offering
Date

Offering
Amount

Number

of Sales

Total

Raised

Skywalker Prospect Infield
Drilling Program

1 06/27/10 $700,000 4 $83,750

Ransom Drilling Prospect 1 12/01/10 $500,000 3 $125,000
Patriot 3 Well Drilling Fund 1 03/01/11 $1,100,000 5 $150,000
Laforce #1 Joint Venture 1 08/01/11 $600,000 8 $110,000
SRG 20114-Well Drilling
Program

4 10/20/11 $1,400,000 9 $238,000

SRG Parkerson Bazine Joint

Venture

3 03/20/12 $800,000 4 $60,000

SRG K-4 Joint Venture 4 04/27/12 $800,000 18 $467,500
SRG Rein Aldrich Joint

Venture

4 01/04/13 $1,200,000 19 $747,000

SRG Betty Betz Field
Development

4 05/20/13 $800,000 12 $552,500

SRG Sheriff Joint Venture 3 10/07/13 $2,250,000 9 $512,500
SRG Aldrich Joint Venture 4 11/29/13 $3,200,000 21 $774,400
SRG Raymond Doxon Joint
Venture

2 04/28/14 $4,340,000 18 $1,415,000

TOTAL 32 $17,690,000 130 $5,235,650

16. Southlake controlled each joint venture. Winters in turn owned and controlled

Southlake. Through Southlake, Winters exercised ultimate control and authority over each

Complaint Page 4 of 18

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 4 of 18   PageID 4



venture, including its direction, the content of its public statements, the decision to disseminate

such statements, its disclosures to investors, and all decisions regarding its functions, operations,

and activities.

17. For each joint venture, Winters drafted a Confidential Information Memorandum

("CIM") to provide investors information about the venture. Each CIM contained the number

and price of the Units on offer, the amount sought to be raised, and a table setting out the

anticipated use of investment proceeds. The CIMs were substantially similar for each joint

venture, except for the Unit cost and quantity and the respective descriptions of the well

prospects. After initial contact, Winters typically sent the prospective investor a CIM by FedEx

or email.

The Units Were Securities

18. The CIMs portrayed the investors and Southlake as general partners of one

another, having all the rights of general partners under Texas law. In reality, however, the joint

ventures did not function as general partnerships. Each joint venture was governed by a non-

negotiable joint-venture agreement, which delegated to Southlake the exclusive right and

authority to control and obligate the venture. The joint-venture agreements thereby rendered

illusory the CIM's claims that investors were general partners.

19. Investors had no input concerning which wells to drill or complete or regarding

when or whether to do so. They had no input on how the venture spent investment proceeds or

allocated assets. They had no input on the decision to hire drillers or operators. They had no

direct access to venture bank accounts or financial records. They received no information from

Southlake that would allow them to even identify, much less contact, the joint venture's other

investors—their so-called "partners." And although the joint-venture agreement provided that

Complaint Page 5 of 18

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 5 of 18   PageID 5



investors could vote on certain limited actions, Southlake controlled the balloting process and

never sought such a vote on any action.

20. Given the joint-venture agreement's assignment of control to Southlake, the

investors' role in each venture was passive, limited to making an investment ofmoney.

Investors therefore reasonably expected the venture's success to come from the managerial

efforts of Winters and Southlake. Consequently, each joint-venture Unit offered and sold by

Winters and Southlake constituted an investment contract and was, therefore, a security.

21. No registration statement was ever filed with the SEC related to Southlake's offer

and sale of securities.

Winters and Hamilton Acted as Brokers in the Securities Transactions

22. Winters and Hamilton acted as brokers in Southlake's securities transactions.

Winters identified prospective investors throughout the United States from referrals and from

lead lists he purchased. He supervised a staff of commissioned telephone solicitors to cold-call

these investors to offer and sell the Units. He also closed sales initiated by the cold-callers. He

engaged in cold-calling himself. He negotiated securities transactions, advised prospective

investors regarding the investment, and provided them sales materials, including CIMs. And he

completely controlled the Unit-sale proceeds, from which he paid himself $1,150,473.87.

23. From April 2012 through September 2014, Hamilton served as a Vice President

at Southlake. In this role, he cold-called prospective investors to offer Units, distributed sales

materials, including CIMs, advised investors about the investment, and negotiated and closed

sales. He earned a 15% commission on each sale and received commission compensation

totaling $357,570.

24. Despite acting as brokers, neither Hamilton nor Winters has ever been registered

Complaint Page 6 of 18

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 6 of 18   PageID 6



as a broker with the SEC, and Hamilton has never been associated with a registered broker.

Although Winters was associated with a registered broker from July 2007 through October 2010,

he continued to broker Southlake securities transactions for more than three years after this

association ended.

Winters and Southlake's Misrepresentations and Misconduct

25. The CIMs contained untrue statements and statements that were rendered

misleading because they omitted information that Winters and Southlake had a duty to disclose.

In the joint-venture offerings, Winters and Southlake also engaged in misleading conduct.

Use ofProceeds

26. Each CIM included a table entitled "Use of Proceeds," which purported to

disclose Southlake's "anticipated" use of investor money. In each CIM, the table provided that

Southlake anticipated using not more than 15% of the proceeds for fees relating to sales,

marketing, and due-diligence. The CIMs generally noted that a fraction of a percentage of the

proceeds would be used for organizational and offering expenses and that the balance—

approximately 85%—would be used for actual well costs such as lease acquisition, drilling,

testing, completion, and geological and geophysical costs. Although the percentages varied

slightly from CIM to CIM, the example below from the SRG Aldrich Venture CIM illustrates

how Southlake disclosed its anticipated use ofproceeds:

USE OF PROCEEDS

AMOUNT %

Organizational & Offering Expenses $20,160.00 .63%

Lease Acquisition, Geological & Geophysical Costs $184,000.00 5.75%

Drilling & Testing Costs $2,027,200.00 63.35%

Completion Costs {Plugging) $488r640.00 15.27%

Sales & Marketing, Due Diligence & Other Fees $480,000.00 15.00%

TOTALS $3,2Q0,G00.00 100.00%

Complaint Page 7 of 18

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 7 of 18   PageID 7



27. In reality, in each joint venture, Southlake spent approximately 50% on well

costs, spent approximately 20% on sales commissions and overhead, and retained approximately

30% as profit. The tables were untrue because they misstated Southlake's actual anticipated use

ofproceeds. And they were misleading because they omitted to disclose Southlake's profit and

overhead, disclosures necessary to give a complete and accurate accounting of Southlake's

anticipated use ofproceeds. When Winters drafted and disseminated the CIMs, he knew or was

severely reckless in not knowing that the tables were untrue and misleading.

28. These untrue and misleading statements were material. A reasonable investor

would consider such overstated anticipated expenses and undisclosed anticipated profit and

overhead important in making an investment decision about the joint venture.

29. By taking undisclosed profit and overhead payments from the offering proceeds,

Winters and Southlake acted knowingly or severely recklessly..

Interest Allocations

30. Each CIM contained a statement that the joint venture intended to acquire a

specified maximum percentage of the working interest in each well prospect if the joint venture

became fully capitalized. Among the 12 CIMs, this specified maximum ranged from 20% to

100% of the working interest. The table below sets out the maximum working interest to be

acquired by each joint venture if fully capitalized, as specified in the CIMs.

JointVenture Name % Maximum Working Interest ;# 4i|::
Skywalker Prospect Infield Drilling Program 75%

Ransom Drilling Prospect 75%

Patriot 3 Well Drilling Fund 20%

Laforce #1 Joint Venture 100%

SRG 2011 4-Well Drilling Program 50%

SRG Parkerson Bazine Joint Venture 50%

SRG K-4 Joint Venture 25%

SRG Rein Aldrich Joint Venture 40%

SRG Betty Betz Field Development 25%

Complaint Page 8 of 18

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 8 of 18   PageID 8



Joint Venture Name Maximum Working Interest
SRG Sheriff Joint Venture 100%

SRG Aldrich Joint Venture 100%

SRG Raymond Doxon Joint Venture 100%

31. Each CIM contained a table entitled "Interest Allocations," showing who would

own or otherwise share in each prospect well's royalty interest ("RI"), working interest ("WI"),

and net revenue interest ("NRI"). The table below from the SRG Raymond Doxon Joint Venture

is an example showing generally how the CIMs disclosed well-prospect interest allocations:

INTEREST ALLOCATIONS

RI WI NRI

OVERRIDING ROYALTY INTEREST 20.00% - 20.00%

SRG RAYMOND DOXON JOINT VENTURE - 100.00% 80.00%

TOTALS 20.00% 100.00% 100.00%

32. The CIMs' interest-allocation statements were inaccurate. In reality, Southlake

intended to use, and did use, offering proceeds in undisclosed transactions to acquire for itself

approximately three percentage points of the working interest earmarked for each joint venture.

Therefore, even if the joint venture was fully capitalized, it could not have acquired the

maximum working interest percentage specified in the CIM. The interest allocation tables were

misleading because they did not include Southlake's working interest allocation or its

corresponding net revenue interest allocation.

33. When Winters drafted and disseminated each CIM, he knew or was severely

reckless in not knowing that the statements regarding working-interest acquisition and interest

allocation were untrue and misleading. These untrue and misleading statements were material.

A reasonable investor would consider Southlake's undisclosed use ofproceeds to acquire a share

of the working interest earmarked for the joint venture important in making an investment

decision about the joint venture. A reasonable investor would likewise consider interest

Complaint Page 9 of 18

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 9 of 18   PageID 9



allocations in the wells important in making an investment decision about the venture.

34. By using offering proceeds to acquire working interests for themselves in

undisclosed transactions, Winters and Southlake acted knowingly or severely recklessly.

35. In addition, 10 of the CIMs contained a statement that a third party well operator

would receive approximately 20% of the net revenue interest in exchange for its services. This

statement was misleading because it omitted to disclose that the operator maintained only a

"back-in interest." The back-in interest—described in contracts that Winters negotiated between

Southlake and the operator—entitled the operator to 20% of the net revenues only after the well

reached "payout." Payout is the point at which the well generates revenues greater than the cost

charged by the operator to drill, test, complete, and operate the well. Unbeknownst to investors,

until payout, Southlake kept the 20% net revenue interest for itself.

36. Winters knew or was severely reckless in not knowing that the statements

regarding the operator's 20% net revenue interest were misleading. These misleading statements

were material. A reasonable investor would consider Southlake's receipt of the operator's 20%

net revenue interest important in making an investment decision about the joint venture.

37. By receiving the operator's 20% net revenue interest in undisclosed transactions,

Winters and Southlake acted knowingly or severely recklessly.

38. The foregoing undisclosed interest allocations had a material impact on the

distribution of well revenues. Southlake received approximately $1.3 million in oil-and-gas

revenues, but it only distributed approximately $800,000 to investors.

Projections

39. The CIMs contained unsubstantiated performance projections that were not

consistent with Southlake's prior experience. For example, by the time Southlake started the

Complaint Page 10 of 18

                                                                                         
 Case 4:16-cv-00992-O   Document 1   Filed 10/24/16    Page 10 of 18   PageID 10



SRG Aldrich Joint Venture in 2013, it had drilled more than 30 wells since 2010 in the same

geographical area as the SRG Aldrich well prospects. The SRG Aldrich CIM projected that

producing wells could return investors initial principal in 7 to 42 months, assuming total oil

production between 100,000 barrels and 400,000 barrels. In reality, no wells in any Southlake

joint venture had ever produced oil in sufficient quantities to return investor principal. None of

the wells in Southlake's previous joint ventures had ever even reached the minimum 100,000-

barrel assumption. Moreover, the SRG Aldrich projections assumed oil production ranging from

50 to 300 barrels of oil per day. But only two of Southlake's wells had ever produced more than

100 barrels per day, and even those wells failed to sustain that level of production for more than

a few months.

40. Moreover, each CIM contained a misleading analysis of existing oil-and-gas

activity in proximity to the prospect wells. In particular, the CIMs included projected production

rates for Southlake's prospect wells based on the most successful wells in the surrounding area,

but ignored dry holes and lesser producing wells. As a result, the CIMs conveyed the misleading

impression that the well prospects were far more favorable than they actually were.

41. Winters knew or was severely reckless in not knowing that the foregoing

projections were misleadingbecause they had no reasonable basis. These misleading statements

were material. A reasonable investor would consider Southlake's accurate production and

revenue estimates important in making an investment decision about the joint venture.

Working-Interest Title

42. Each CIM stated that title to the joint venture's property would be held in the

name of the joint venture. This statement was untrue. In reality, Southlake held the title to the

joint venture's working interests. Southlake never took steps to transfer joint-venture property

Complaint Page 11 of 18

                                                                                         
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from Southlake's name to the joint venture's name.

43. Winters knew or was severely reckless in not knowing that the CIM statements

regarding title to the joint venture's property were untrue. These untrue statements were

material. A reasonable investor would consider the title holder ofjoint-venture property to be

important in making an investment decision about the joint venture.

Commingled Funds and Loans

44. The CIMs asserted that there would be no commingling of funds between the

venture and Southlake or any of its affiliates. For at least the first three ventures, however, all

investor money was deposited into a single Southlake bank account and no efforts were made to

ensure that the funds were not commingled. Subsequently, Winters set up separate bank

accounts for each joint venture, but he used Southlake's tax identification number to set up all

the accounts. Therefore, despite the name on the account, Southlake, not the joint venture, was

the account holder.

45. The CIMs also include a "dealings among related parties" clause, which stated

that there will be no loans between the venture and any other entities controlled by Southlake or

its affiliates. However, Winters on occasion used funds from one joint venture to loan money for

expenses of another joint venture that was not fully funded yet. A reasonable investor would

consider it important to know that investor funds were used to pay for drilling expenses unrelated

to the joint venture.

46. Winters knew or was severely reckless in not knowing that the CIM statements

regarding commingling and loans were untrue. These untrue statements were material. A

reasonable investor would consider it important in making an investment decision about a joint

venture that the joint venture's funds were held in a non-joint-venture account, commingled with

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other funds, or used for loans to other entities.

47. By commingling and loaning investor funds among the joint ventures, contrary to

their written representations, Winters and Southlake acted knowingly or severely recklessly.

Discountsfor Certain Investors

48. Each CIM provided that Units would be offered to investors at a fixed price and

that Southlake "may provide a Volume Discount of 5% to 10% for purchases of 3 or more

Units." This statement regarding a discount was untrue. In reality, Winters offered discounts to

certain investors, regardless of the volume of Units purchased. Several investors accepted the

offer and received a 50% discount, paying for half a Unit but receiving a full Unit. These

discounted sales were never disclosed to the other investors.

49. Winters knew or was severely reckless in not knowing that the CIM statements

regarding discounts were untrue. These untrue statements were material. A reasonable investor

would consider such discounts for certain investors to be important in making an investment

decision about the joint venture.

50. By selling Units at a 50% discount in undisclosed transactions, Winters and

Southlake acted knowingly or severely recklessly.

FIRST CLAIM FOR RELIEF

Violations of Exchange Act Section 10(b) and Exchange Act Rule 10b-5
Against Winters and Southlake

51. Plaintiff SEC re-alleges and incorporates paragraphs 1 through 50 of this

Complaint by reference as if set forth verbatim in this Claim.

52. Defendants Winters and Southlake directly or indirectly, singly or in concert with

others, in connection with the purchase and sale of securities, by use of the means and

instrumentalities of interstate commerce or by use of the mails, have (a) employed devices,

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schemes, and artifices to defraud; (b) made untrue statements of material facts and have omitted

to state material facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading; and (c) engaged in acts, practices,

and courses ofbusiness which operated as a fraud and deceit upon purchasers, prospective

purchasers, and other persons.

53. Defendants Winters and Southlake engaged in the above-referenced conduct and

made the above-referenced untrue and misleading statements knowingly or with severe

recklessness.

54. By reason of the foregoing, Defendants Winters and Southlake have violated, and

unless enjoined will continue to violate, Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)]

and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder.

SECOND CLAIM FOR RELIEF

Violations of Securities Act Section 17(a)
Against Winters and Southlake

55. Plaintiff SEC re-alleges and incorporates paragraphs 1 through 50 of this

Complaint by reference as if set forth verbatim in this Claim.

56. By engaging in the engaging in the acts and conduct alleged herein, Defendants

Winters and Southlake directly or indirectly, singly or in concert with others, in the offer and sale

of securities, by use of the means and instruments of transportation and communication in

interstate commerce or by use of the mails, have (a) employed devices, schemes, or artifices to

defraud; (b) obtained money or property by means of untrue statements of material fact or

omissions to state material facts necessary in order to make the statements made, in light of the

circumstances under which they were made, not misleading; and (c) engaged in transactions,

practices, or courses of business which operated or would operate as a fraud or deceit.

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57. With respect to violations of Securities Act Sections 17(a)(2) and (3), Defendants

Winters and Southlake were negligent in their conduct and in the untrue and misleading

statements alleged herein. With respect to violations of Securities Act Section 17(a)(1),

Defendants Winters and Southlake engaged in the referenced conduct and made the referenced

untrue and misleading statements knowingly or with severe recklessness.

58. By reason of the foregoing, Defendants Winters and Southlake have violated and,

unless enjoined, will continue to violate Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)].

THIRD CLAIM

Violations of Securities Act Sections 5(a) and 5(c)
Against Winters and Southlake

59. Plaintiff SEC re-alleges and incorporates paragraphs 1 through 50 of this

Complaint by reference as if set forth verbatim in this Claim.

60. Defendants Winters and Southlake, directly or indirectly, singly or in concert with

others, have offered to sell, sold, and delivered after sale, certain securities and have (a) made

use of the means and instruments of transportation and communication in interstate commerce

and of the mails to sell securities, through the use of email, interstate carrier, brokerage

transactions, or otherwise; (b) carried and caused to be carried through the mails and in interstate

commerce by the means and instrumentsof transportation such securities for the purpose of sale

and for delivery after sale; and (c) made use of the means or instruments of transportation and

communication in interstate commerce or of the mails to offer to sell such securities.

61. By reason of the foregoing, Defendants Winters and Southlake have violated, and

unless enjoined will continue to violate, Sections 5(a) and 5(c) of the Securities Act [15 U.S.C.

§§ 77e(a) and 77e (c)].

FOURTH CLAIM

Violations of Securities Exchange Act Section 15(a)

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Against Winters and Hamilton

62. Plaintiff SEC re-alleges and incorporates paragraphs 1 through 50 of this

Complaint by reference as if set forth verbatim in this Claim.

63. Defendants Winters and Hamilton, while engaged in the business of effecting

transactions in securities for the account of others, made use of the mails or the means or

instrumentalities of interstate commerce to effect transactions in, or to induce or attempt to

induce the purchase or sale of, a security without being registered in accordance with Section

15(a) of the Exchange Act.

64. By reason of the foregoing, Defendants Winters and Hamilton have violated, and

unless restrained and enjoined will continue to violate, Section 15(a) of the Exchange Act [15

U.S.C. § 78o(a)].

PRAYER FOR RELIEF

WHEREFORE, the SEC respectfully requests that the Court enter a judgment:

I.

Permanently enjoining DefendantsWinters and Southlakefrom future violations of

Sections 5(a), 5(c), and 17(a) of the Securities Act [15 U.S.C. §§ 77e(a), 77e(c), and 77q(a)], and

Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §

240.10b-5].

II.

Permanently enjoining Defendants Winters and Hamilton from future violations of

Section 15(a) of the Exchange Act [15 U.S.C. §78o(a)].

III.

Ordering Defendant Winters to disgorge ill-gotten gains from the conduct alleged herein

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in the amount of $1,150,473.87 plus prejudgment interest of $62,792.83.

IV.

Ordering Defendant Hamilton to disgorge ill-gotten gains from the conduct alleged

herein in the amount of $357,570.00 plus prejudgment interest of $19,516.18.

V.

Ordering Defendant Southlake to disgorge ill-gotten gains from the conduct alleged

herein in the amount of $3,727,606.13 plus prejudgment interest of $203,452.69.

VI.

Imposing a civil penalty of $160,000.00 against Defendant Winters pursuant to Section

20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15

U.S.C. § 78u(d)(3)] for violations of the federal securities laws as alleged herein;

VII.

Imposing a civil penalty of $50,000.00 against Defendant Hamilton pursuant to Section

21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)] for violations of the federal securities laws

as alleged herein;

VIII.

Imposing a civil penalty of $160,000.00 against Defendant Southlake pursuant to Section

20(d) of the Securities Act [15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15

U.S.C. § 78u(d)(3)] for violations of the federal securities laws as alleged herein; and

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IX.

Imposing such other and further relief as the SEC may show itself entitled.

Dated: October 24, 2016 Respectfully submitted,

Timothy S/McCole
Mississippi Bar No. 10628
United States Securities and Exchange Commission
Fort Worth Regional Office
801 Cherry Street, Suite 1900
Fort Worth, Texas 76102

(817)978-6453
(817) 978-4927 (facsimile)
[email protected]
Attorney for Plaintiff

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js 44 Keverse (Kev. 3/yy;

CIVIL COVER SHEET
The JS-44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by
law, except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of
the Clerk of Court for the purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON THE REVERSE OF THE FORM.)

I.(a) PLAINTIFFS

U.S. SECURITIES AND EXCHANGE

COMMISSION

(b) COUNTY OF RESIDENCE OF FIRST LISTED PLAINTIFF

Defendants-

Southlake Resources Group, LUC,
Cody M. Winters, and
Nicholas R. Hamilton

County of Residence of First Listed Defendant:
(EXCEPT IN U.S. PLAINTIFF CASES) (IN U.S. PLAINTIFF CASES ONLY) Tarrant

NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF THE

TRACT OF LAND INVOLVED.

(C) ATTORNEY (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER)

Timothy S. McCole
U.S. Securities & Exchange Commission
801 Cherry Street, Suite 1900, Unit 18
Fort Worth, TX 76102-6882 (817)978-6453

ATTORNEYS (IF KNOWN)

Jason Lewis, Esq.
Greenberg Traurig, LLP
2200 Ross Avenue, Suite 5200
Dallas, Texas 75201

214-556-3606

II. BASIS OF JURISDICTION (place an x in one box only) III. CITIZENSHIP OF PRINCIPAL PARTIES <p^" a£ INon°ne box* f§r
(For Diversity Cases Only) defendant)

PTF PTF PTF PTF
H 1 U.S. Government • 3 Federal Question

Plaintiff (U.S. Government Not a Party)

• 2 U.S. Government • 4 Diversity
Defendant (Indicate Citizenship of Parties

in Item III)

Citizen of This State D1 Q1 Incorporated or Principal Place L7J4 Q4
of Business In This State

Citizen of Another State D2 D2
Incorporated and Principal Place • 5 • 5

Citizen or Subject of a L~~J 3 D3 of Business in Another State
Foreign Country

Foreign Nation • 6 • 6

IV. NATURE OF SUIT {PLACE AN "X" IN ONEBOX ONLY)

CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES

• 110 Insurance
• 120 Marine
• 130 Miller Act
• 140 Negotiable Instrument
• 150 Recovery of Overpayment

& Enforcement of Judgment

PERSONAL INJURY PERSONAL INJURY

• 310 Airplane O 362 Personal Injury-
D 315 Airplane Product Med.Malpractice

Liability LI 365Personal Injury -
• 320 Assault, Libel a Product Liability

Slander

• 330 Federal D 368 Asbestos Personal
Employers' Liability Injury Product Liability
D 340 Marine PERSONAL PROPERTY

• 345 Marine Product • 370 Other Fraud
Liability • 371 Truth in Lending

• 350 Motor Vehicle • 380 Other Personal
Property Damage

• 355 Motor Vehicle • 385 Property Damage
Product Liability Product Liability

• 360 Other Personal
Injury

• 610 Agriculture
D 620 Other Food & Drug
• 625 Drug Related Seizure of

Property 21 USC 881
D 630 Liquor Laws

• 640 R.R. & Truck

• 650 Airline Regs.
D 660 Occupational Safety/Health
• 690 Other

• 422 Appeal 28 USC 156

• 423 Withdrawal
28 USC 157

• 400 State Reapprotionment
• 410 Antitrust
• 430 Banks and Banking
• 450 Commerce/ICC

Rates/etc.

• 460 Deportation

• 151 Medicare Act PROPERTY RIGHTS • 470 Racketeer Influenced
and Corrupt Organizations

• 152 Recovery of Defaulted
Student Loans (Excl. Veterans)

• 820 Copy rights
• 830 Patient

• 840 Trademark

D 810 Selective Service
H 850 Securities

Commodities/ Exchange

• 153 Recovery OF Overpayment
of Veteran's Benefits

LABOR SOCIAL SECURITY • 875 Customer Challenge
12 USC 3410

• 160 Stockholders'Suits

• 190 Other Contract
• 195 Contract Product Liability

• 710 Fair Labor Standards Act

• 720 Labor/Mgmt. Relations

Q 730 Labor/Mgmt. Reporting &
Disclosure Act

• 740 Railway Labor Act

• 790 Other Labor Litigation

D 791 Empl. Ret. Inc.
Security Act

D 861 HIA(1395FF)
• 862 Black Lung (923)
D 863 DIWC/DIWW (405(g))

• 864 SSID Title XVI

• 865 RSI (405(g))

• 891 Agricultural Acts
• 892 Economic Stabilization

Act

REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS • 893 Environmental Matters
• 894 Energy Allocation Act

• 210 Land Condemnation • 441 Voting

D 442 Employment
• 443 Housing/
Accommodations

• 444 Welfare
• 440 Other Civil
Rights

D 510 Motions to Vacate
Sentence

Habeas Corpus:
• 530 General
D 535 Death Penalty
• 540 Mandamus & Other
• 550 Civil Rights

FEDERAL TAX SUITS • 895 Freedom of
Information Act

• 220 Foreclosure
• 230 Rent Lease & Ejectment
• 240 Torts to Land

D 245 Tort Product Liability
• 290 AllOther Real Property

D 870 Taxes (U.S. Plaintiff or
Defendant)

• 871 IRS - Third Party
26 USC 7609

D 900 Appeal of Fee
Determination Under

Equal Access to Justice
• 950 Constitutionalityof

State Statutes

• 890 Other Statutory Actions

V. ORIGIN

I 1 Original
Proceeding

• 2 Removed from
State Court

(PLACE AN "X" IN ONE BOX ONI. V)

• 3 Remanded from
Appellate Court

• 4 Reinstated or
Reopened

D 5 Transferred from
another district

(Specify)

• 6 Multidistrict
Litigation

• 7 Appeal to District
Judge from Magistrate
Judge

VI. CAUSE OF ACTION (CITE THE U.S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE BRIEF STATEMENT OF CAUSE. DO NOT CITE JURISDICTIONAL STATUTES UNLESS
diversity.) Securities Fraud

Violations of Section: Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77e(a), 77e(c), and 77q(a)] and
Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. § 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R. §
240.10b-5],
VII. REQUESTED IN

COMPLAINT:

CHECK IF THIS IS A CLASS ACTION

• UNDER F.R.C.P. 23

VIII. RELATED CASE(S) (See Instructions):
IF ANY

DATE

October 24, 2016
FOR OFFICE USE ONLY

Receipt # AMOUNT

JUDGE DOCKET NUMBER

SIGNATURE OF ATTORNEY OF RECORD

APPLYING IFP

DEMAND $ CHECK YES only if demanded in complaint:

JURY DEMAND • yes B no

f^i^jijsa^
7JUDG MAG. JUDGE

                                                                                         
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