The Securities and Exchange Commission said yesterday it has settled a securities fraud complaint against Dwight C. Moorhead, cofounder of Petro-Lewis Corp. who was accused of selling stock in Petro-Lewis at a time when the company's growing financial troubles were not known to the public.
Moorhead agreed to a permanent injunction against violations of securities laws, without admitting wrongdoing. The consent agreement settles the SEC's insider trading complaint against Moorhead, which was also made public yesterday by the agency.
Moorhead told the Dow Jones news service that he believes he did nothing wrong and settled the suit only to avoid costly litigation.
According to the SEC complaint, Moorhead sold 41,122 shares of Petro-Lewis common stock between Dec. 21, 1983, and Jan. 16, 1984, when the price was about $12 a share. In the subsequent months, when Petro-Lewis' investors became aware of the company's financial crisis, the price plummeted to $4 a share. Moorhead resigned as Petro-Lewis' vice chairman last January, saying he wanted to pursue other business interests. He told Dow Jones he sold the stock at prices below what he had originally paid for it in order to pay a bank loan.
In its prime, the Denver-based Petro-Lewis was the nation's largest marketer of oilfield-income partnerships, an investment in which returns were based upon revenue from oil and gas properties acquired and managed by Petro-Lewis. The company's aggressive marketing campaign wooed more than 200,000 investors, who had purchased $2.4 billion in income funds by the end of 1983.
But it was an investment that depended upon rising oil prices and an inflationary economy to continue to generate returns for the growing number of investors. The company's expansion led it into increasingly costly acquisitions of oil and gas properties, leaving it more and more vulnerable to a drop in oil prices.
When recession struck in the early 1980s and oil prices plummeted, Petro-Lewis faced a sudden drain in revenue that nearly bankrupted the company. Beginning in 1983, it began to sell some of its oil and gas holdings to repay bank debts, slashed its payroll and then cut its income distribution to investors.
The SEC, in its complaint against Moorhead, alleged that he sold the stock while in possession of non-public information about the financial condition of Petro-Lewis and its partnerships, including its cash flow and credit agreements. An earlier SEC suit accused Petro-Lewis of misleading investors from April 1982 to February 1984 about the company's financial plight.
In 1984 Petro-Lewis was sued in a class action by partnership investors, who alleged that they were not advised of the extent of the risk in the Petro-Lewis limited partnerships. The suit was settled with payments of 55 cents on the dollar by the company.