Former CEO of Rocky Mountain Energy Sentenced to Prison for Making False SEC Filing
|U.S. Attorney’s Office November 30, 2009|
HOUSTON—John N. Ehrman, the former CEO of Rocky Mountain Energy Corporation has been sentenced to six months in federal prison on his conviction for making a false filing with the Securities and Exchange Commission (SEC) in which he misrepresented the amount of outstanding shares in the company, United States Attorney Tim Johnson announced today.
At a sentencing hearing this morning, United States District Judge Lee Rosenthal sentenced Ehrman, 54, of The Woodlands, Texas, to six months in prison to be followed by a two-year-term of supervised release. Ehrman has already been ordered to pay more than $700,000 in a civil SEC case involving similar conduct. Ehrman remains free on bond pending the issuance of an order to surrender to a Bureau of Prisons facility to be designated in the near future.
Ehrman pleaded guilty to making a false filing with the SEC on Oct. 14, 2008. According to the factual basis for the guilty plea, during spring 2002, Ehrman was engaged in negotiations to have Rocky Mountain purchase several oil and gas leases from BC&D Oil and Gas Corporation by using newly issued Rocky Mountain shares as part of the collateral for a loan from Marathon USA Inc. The deal was scheduled to close on June 28, 2002, but on or about June 27, 2002, Ehrman caused Rocky Mountain to file a petition in Utah state court seeking a fairness ruling on the exchange of approximately 10 million newly issued Rocky Mountain shares for the BC&D leases. Attached to the petition included statements from three purported shareholders of BC&D attesting to the fairness of the transaction. However, two of the listed shareholders were associates of Ehrman’s who did not own BC&D stock. Based on these submissions, the Utah state court issued an order finding that Rocky Mountain’s plan to issue and exchange shares was fair. The effect of such a fairness ruling is that the exchange of newly issued shares is not considered a public securities offering. On or about July 8, 2002, Ehrman caused Rocky Mountain to issue 10,025,000 new shares.
The deal to exchange the shares for BC&D assets was never consummated. On or about Jan. 2, 2003, Ehrman caused Rocky Mountain to file a form 8-K with the SEC disclosing that the deal with BC&D was never completed. The 8-K filing, however, disclosed that only 5,000,000 shares had been issued in connection with the attempted transaction, when in fact 10,025,000 shares had been issued. Ehrman realized a gain of approximately $51,000 in selling some of the shares issued as part of this supposed exchange-offer with BC&D, when such shares should have been cancelled when the exchange did not occur.
This investigation was conducted by the Houston office of the FBI and the SEC Regional Office in Ft. Worth, Texas. The case was prosecuted by Assistant U.S. Attorneys Stephen Corso and Gregg Costa.