Complaint

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

UNITED STATES SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,

v.

DARREL T. USELTON and
JACK E. USELTON,
Defendants.

Plaintiff Securities and Exchange Commission (the “Commission” or “SEC”) for its complaint alleges as follows:

NATURE OF THE CASE
1. This case concerns the use of computer “botnets” to pump and dump multiple penny stocks as part of a serial “scalping” and market manipulation scheme by the Defendants, Darrel T. Uselton and his uncle, Jack E. Uselton (collectively, the “Useltons”), two Texas-based securities law recidivists.

2. Botnets, or proxy bot networks, are networks typically comprised of broadband Internet personal computers that, although their owners are unaware of it, have been infected with malicious viruses or malware to forward transmissions (including spam or viruses) to other computers on the Internet. Scalping refers to the practice of recommending that others purchase a security while secretly selling the same security in the market. From May 2005 through December 2006, the Useltons made more than $4.6 million by obtaining cheap stock from at least thirteen (13) companies quoted on the “pink sheets” and then selling those shares into an apparently active, and often-times rising, artificial market they created through manipulative trading, spam email campaigns, direct mailers, and internet-based promotional activities. “Pink sheets” refers to over-the-counter trading of stocks that are traded in some context other than on a formal exchange such as the New York Stock Exchange (“NYSE”) or the American Stock Exchange. Many stocks quoted in the pink sheets do not meet the minimum requirements to trade on an exchange such as the NYSE nor do they file periodic reports with the SEC.

3. Each of the Useltons’ market manipulations followed a similar pattern. Typically, the Useltons and the companies they controlled received unrestricted shares from the penny stock companies for little or no money in return for purported financing and/or promotional activities. Soon after that, the Useltons transferred those unrestricted shares into brokerage accounts they controlled. The Useltons then encouraged the penny stock companies to issue positive press releases.

4. Concurrent with the press releases, the Useltons orchestrated spam email campaigns using an array of computer “botnets.” Hundreds of millions of spam emails flooded the inboxes of American investors touting the Useltons’ near-worthless penny stocks with baseless price projections and other grandiose claims. Each campaign, which featured a single company, lasted from between several days to several weeks. The spam emails did not mention the Useltons, their holdings, or their intent to sell their stock during the spamming campaigns.

5. During their spamming campaigns, the Useltons generally tried to avoid large price spikes for the penny stocks to escape SEC scrutiny.

6. By engaging in this conduct, Darrel T. Uselton and Jack E. Uselton violated 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
7. Darrel T. Uselton, age 40, is a stock promoter and securities law recidivist living in Katy, Texas. Darrel Uselton was disciplined by the NASD in April 2005 for failing to seek prior approval from NASD before executing an asset and equity ownership sale of a member firm (NASD Case #C05040086) and in March 2004 for violating minimum net capital requirements, failing to provide NASD financial information, and acting in the capacity of a general securities principal without registration (NASD Case #C05040009). Those regulatory actions resulted in multiple fines, censures, and suspensions.

8. From at least April 2005 through the present, Darrel Uselton has advertised his services over the Internet. On his website (www.protrading.com), Darrel Uselton has claimed to have “sponsored over 500 companies to go public” and “made a market in literally thousands of companies.” Darrel Uselton has characterized himself as being “expert” in “Secondary Market Support,” “Trading/Market Maker Management,” and “New Issue Awareness & Support.” Darrel Uselton also claimed having formerly held the Series 7, 24, 28, and 63 securities licenses, and as having been a “securities principal, trader and investment banker for over 15 years.”

9. Jack E. Uselton, age 69, is a stock promoter and securities law recidivist living in Houston, Texas. In a 2002 settled Commission action, Jack Uselton was permanently enjoined from violating the anti-fraud provisions of the federal securities laws and barred from acting as an officer or director of a public company for participating in a pump-and-dump scheme involving Mountain Energy, Inc. stock. Christensen, Uselton et. al., Rel. No. 17787, 2002 SEC LEXIS 2611 (Oct. 16, 2002). Jack Uselton is Darrell Uselton’s uncle and helped raise him after Darrel’s father died twenty years ago.

OTHER RELEVANT INDIVIDUALS AND ENTITIES
10. The Useltons hired a principal spammer to disseminate massive amounts of spam email touting the securities of penny stock companies while they simultaneously sold stock of those same companies into the marketplace. In return, the spammer received approximately $1.5 million dollars from the Useltons in 2005 and 2006.

11. The Useltons conducted their affairs through a number of entities located in and around Houston, Texas, including, but not limited to: Warrior Capital, LLC, IBIS Energy, LLC, OTC Services, Inc., Firemark Capital, LLC, protrading.com, the Valores Fund, LLC, and Ablaze Technologies, Inc. For the first part of the relevant period, Darrel Uselton and Jack Uselton shared offices located at 16000 Barkers Point Lane, Suite 170, Houston, Texas 77079. For the later part of the relevant period, Darrel Uselton and Jack Uselton shared offices located at 1400 Broadfield, Suite 120, Houston, Texas 77084. According to their website, the Useltons currently operate out of an office located at 1029 Highway 6N, Suite 650-276, Houston, Texas 77079.

OVERVIEW OF THE MANIPULATION
12. The Useltons typically began by obtaining “free trading” (i.e., unrestricted) stock at little or no cost from penny stock companies in return for purported financing and/or promotional activities. One version of the Useltons’ financing and promotional agreement provided in relevant part that they were engaged to promote a penny stock company’s shares by, inter alia, “[p]rocurement of outside research coverage and /or website profiles,” “[a]ssistance in engaging PR, IR and/or advertising firms or mediums,” and “[s]econdary trading management.” This agreement, however, did not disclose the Useltons’ intent to create an artificial market through manipulative trading and illegal spam campaigns.

13. Within days or weeks after obtaining the “free trading” stock, the Useltons transferred the shares that they received into various brokerage accounts they controlled. During the relevant period, Darrel Uselton and/or Jack Uselton controlled over 30 separate brokerage accounts that were cleared through various firms around the country. Specifically, the Useltons maintained, in their own names, or in the name of companies or individuals they controlled, brokerage accounts at TD Ameritrade; Scottrade Financial Services; Penson Financial Services, Inc.; Leeb/Pershing Securities; Leeb/Legent Clearing LLC; Wilson Davis & Company; E*Trade Securities; Fidelity Investments; Barron Moore/Computer Clearing Services Inc.; and Basic Investors/NF Clearing, Inc. f/k/a Fiserv.

14. Next, the Useltons generally created the appearance of an active market by engaging in “in and out trading” by buying and selling their shares from one account to another at baseless and inflated prices. In several instances, the Useltons traded both sides of the company’s stock in the days and weeks leading up to the email campaigns they orchestrated. In at least one instance, the Useltons were responsible for all of the trading in a pink sheet company prior to the spam email campaign. This practice is known as “lighting up” a company.

15. The Useltons then induced investors to buy shares of the penny stock companies by orchestrating spam email campaigns. To create the maximum effect, the Useltons often encouraged the penny stock companies to issue press releases that purported to announce newsworthy events. The Useltons then incorporated these press releases into emails with their own “bells and whistles.” Although the Useltons changed the names of the touted companies from week to week, the emails remained substantially similar in nature. The stocks were featured as a “hot pick” or “This Week[]s Mover!” and included baseless price projections (“proven results and great returns 250 to 600 percent on every pick!”) and grandiose claims (“we have uncovered a diamond”) touting the stocks. At times, the emails sought to excite investors by referencing prior successful spamming campaigns (“ORTE was our last pick and it went from .50 to $2.05. APWL will be much bigger, a stronger company with great news and will be promoted to millions of investors next week, get in immediately!!”).

16. The Useltons generally forwarded the contents of the emails to their spammers, who launched widespread spam email campaigns through proxy bot networks designed to disguise the true source and origin of the spam. Proxy bot networks are comprised of a number of Internet computers that, although their owners are unaware of it, have been set up to forward transmissions (including spam or viruses) to other computers on the Internet. A proxy bot network is used by spammers because it hides the true source of origin of the spam, making it appear as if the email was sent from the Internet address of the proxy computer.

17. The Useltons paid their principal spammer a fee based upon a percentage of the gross dollar trading volume of a stock for each day of the spamming campaign. This spammer often “subcontracted” the actual emailing out to spammers in Russia and Israel, and would enlist additional support, at times, from spammers in California, and Arizona in return for a smaller percentage of the trading volume.

18. Email traffic between the Useltons and the principal spammer contained references to “going bigtime,” “blasting the hell out of,” “pounding,” and doing “major damage” to particular stocks “non-stop” and to watching the market in certain stocks “really explode,” “rock hard,” and “rock bigger” on particular days. This traffic also contained references to enhanced server setups and “more databases” so “we can get even more mail out.” The Useltons launched as many as three or four spam emails campaigns simultaneously during the relevant period. Each spam campaign lasted anywhere between three days and several weeks, after which the Useltons spammed the next company on their list.

19. While penny stock companies were being spammed, the Useltons were simultaneously selling large quantities of stock into the marketplace. There was no mention of the Useltons’ ownership interest in the spam promotions. The Useltons concealed their identities from potential investors by the way they drafted and disseminated their emails into the marketplace. In the overwhelming majority of cases, the Useltons’ spam emails did not contain any disclaimer disclosing the Useltons’ holdings or intent to sell. In a small minority of instances, the spam emails included statements relating to the limitations of forward-looking statements; generic risk factors; and the fact that the publisher of the email held stock in the company and that those shares “may be sold at any time.”

20. As noted above, the spam email campaigns attracted investors to the market, which typically caused a short term spike in share volume and, in many instances, price. The Useltons and the entities they controlled dumped their shares during the spam email campaigns that they initiated. Once the email campaigns ended, the small business owners of the penny stock companies were left with the hardship of erasing the negative stigma of being the subject of spam campaigns and several were inundated with angry calls, letters and emails. The Useltons and their principal spammer simply moved on to spam other companies. Meanwhile, investors were left with virtually worthless securities.

21. Darrel Uselton was the mastermind of the scheme and participated in it by, among other things: locating penny stock companies desperate for cash; negotiating and obtaining free trading stock from those companies at little or no cost; transferring the free trading stock into brokerage accounts he controlled; creating the false appearance of an active and liquid market for penny stocks by engaging in “in and out trading” by buying and selling penny stock shares from one account to another in the days and weeks leading up to the spamming campaigns; preparing or supervising the creation and dissemination of draft press releases and other promotional materials; preparing or supervising the content for spam email campaigns; recommending the purchase of penny stock through spam emails and other devices and immediately selling the stock without adequate disclosure regarding the intent to sell; and wiring the proceeds of these activities to himself, Jack Uselton, and the principal spammer, among others.

22. When questioned about his conduct, Darrel stated “everyone is doing it” and that “if what [the spammer] was doing is a crime then I guess I’m guilty.”

23. Jack Uselton was a full partner with his nephew and participated in the scheme by, among other things: reviewing data and information to ascertain which penny stock companies to promote; participating in meetings and conference call negotiations with penny stock companies; transferring, or permitting the transfer, of free trading stock into brokerage accounts he owned and controlled; creating the false appearance of an active and liquid market for penny stocks by his involvement in “in and out trading” by buying and selling, or permitting the buying and selling of, penny stock shares from one account he owned and controlled to another account either he or his nephew controlled in the days and weeks leading up to the spamming campaigns; his active and continuing involvement in, and knowledge of, the spam email campaigns while immediately selling, or permitting the selling of, stock in accounts he owned and controlled without adequate disclosure regarding the intent to sell, reviewing email communications between the principal spammer and Darrel Uselton; and wiring the proceeds of these activities to himself, Darrel Uselton, and the principal spammer, among others.

24. When questioned about the principal spammer, Jack Uselton initially pretended not to know him, asking “who the hell” is he? Eventually, Jack Uselton admitted having wired money to the principal spammer. When asked how much, Jack Uselton stated $20-30 thousand. He later admitted it could have been over $1 million.

THE THIRTEEN (13) PENNY STOCKS
Oretech, Inc. (Previously Traded on Pink Sheets: ORTE)
25. Oretech, Inc. (“Oretech”) was a Columbus, Georgia-based company that purported to be in the business of processing ore and mine tailings to extract precious metals and processing tar sands to extract oil. The Commission revoked the registration of Oretech's registered securities on December 21, 2005. In the Matter of Oretech, Inc. (HO-10315) (Rel. 34-52988; File No. 3-12130).

26. In April 2005, Oretech engaged the Useltons to promote and sell stock and transferred 1.25 million free trading shares to them in an apparently illegal transaction commonly referred to as a “gypsy swap.” A gypsy swap arises through an arrangement or understanding with the issuer whereby a friendly shareholder provides his unrestricted shares to a third party and, in return, the issuer provides an equivalent or increased amount of restricted shares to the shareholder. In May 2005, the Useltons transferred all 1.25 million shares into two brokerage accounts they controlled.

27. The Useltons orchestrated a series of spam email campaigns touting Oretech stock. Specifically, the Useltons disseminated mass quantities of spam emails touting Oretech stock in at least two phases: (1) on or about May 22, 2005 through approximately June 14, 2005; and (2) on or about August 11, 2005 through September 1, 2005. The emails consisted of baseless price projections (e.g., Oretech has a 3-4 day price target of $1.10 and a 6 month price target of $2.30+) and unsupported recommendations (e.g., Oretech is “Hot Oil Pick Of the Week” that “will sky rocket easily.”).

28. Moreover, the emails did not contain a disclaimer that the Useltons held Oretech stock, intended to sell Oretech stock, or received compensation for the preparation or distribution of these emails. The spam emails touting Oretech between August 11 and September 1, 2005 had no disclaimers. It appears that at least some of the spam emails sent between May 22 and June 14, 2005 included statements relating to the limitations of forward-looking statements; generic risk factors; and the fact that the publisher of the email held stock in the company and that those shares “may be sold at any time.”

29. Spam emails touting Oretech stock trace back to servers leased to, paid for, and controlled by the principal spammer. The principal spammer charged the Useltons approximately $89,534 for spamming Oretech. The Useltons also were responsible for mass mailers that touted Oretech stock during the relevant period. The Useltons distributed direct mailers that touted Oretech as an “Outstanding Buy” with a “Target Price: $5.00 to $8.00” based on “New Developments Expected to Move Oretech Stock From Under $1.00 to Over $5.00.”

30. During the Oretech spamming campaigns, the Useltons sold 1.25 million shares of stock, realizing proceeds of approximately $804,744. During the first spamming campaign, Oretech’s stock price rose to a high of $0.735 on May 24, 2005, while average daily trading volume was nearly 88,000 shares. During the second spamming campaign, Oretech’s stock price rose to an intra-day high of $2.35 on September 2, 2005 while average daily trading volume during this campaign was approximately 193,865 shares, with a single day high of 998,200 shares on August 31, 2005 during the spamming campaign.

31. The Useltons provided Oretech with records of the volume and prices of the shares they sold on a daily basis, as well as email and direct mailing expenses and other relevant data. Specifically, Darrel Uselton informed Oretech via email on September 1, 2005 that:

Frankly, I never dreamed the price would go this high, or that fast, and it almost put me in a horrible pickle with the email group hired that did the job. Their fee is 10% of gross dollar volume, each day. It is very expensive, but obviously effective. On 8/31, I sold out of the remaining 77,400 shares within the first hour of trading, at prices around $.90, which was the previous top during our last push. This time however, the stock rocketed to $1.80 within a couple hours of us finishing all selling efforts. . . .
* * *
Hopefully with new shares coming in, we can liquidate some at MUCH higher prices, without any expense at all next week. Please be prompt in getting those delivered so we can take advantage of the much higher price range!!

32. The sharp increase in Oretech’s stock price alarmed Darrel Uselton because he had agreed to keep the price down around $1 to avoid attracting attention from the SEC. When the price shot up to $2, Darrel Uselton told Oretech he needed more stock so that he could control the price.

33. The Useltons’ trading in Oretech amounted to approximately 1/3 of all trading in Oretech stock between April 1, 2005 and August 31, 2005. Much of this volume related to the selling efforts described above. The balance consisted of “in and out” trading designed to support the market during the spamming campaign. Darrel Uselton admitted in the September 1, 2005 email to Oretech that he engaged in “in and out ‘trading’” to “hold the price” of the stock while he simultaneously used “two primary selling accounts” to dump the “free trading” stock:

I’ve bought and resold a fair amount of ORTE through my online account, some of which were the purchases reflected above from 7/06-7/19, plus more. I’m going to omit that in and out ‘trading’ activity from here on out, as it just confuses things. So below, I will annotate only those trades in the two primary selling accounts. Just for the record, I’m still having difficulty with the conflicting requests to see ‘higher prices’ yet get more $$ liquid. Those two items are always inverse to each other. I hope you consummated the acquisition, as I’ve been trying VERY hard to hold the price by buying and supporting the price recently. That does not put $$ in your pocket however.

Intelligent Sports, Inc. (Pink Sheets: IGTS/IGTP)
34. Intelligent Sports, Inc. (“Intelligent Sports”) is a California-based company that purports to be in the youth “sports and fitness” business.

35. From January through March 2005, the Useltons accumulated over 28 million shares of Intelligent Sports stock, the large majority of which they appear to have purchased for $0.001 or less from an individual that received those shares directly from Intelligent Sports pursuant to a purported Texas 504 offering. In fact, the Useltons’ buying and selling of Intelligent Sports shares accounted for a substantial majority of the trading volume during this period. In August 2005, Intelligent Sports issued 12 million free trading shares to the Useltons as part of a purported Texas 504 offering, which the Useltons transferred into three brokerage accounts they controlled.

36. Between May and October 2005, the Useltons orchestrated a series of spam email campaigns touting Intelligent Sports stock. Specifically, the Useltons disseminated mass quantities of spam emails touting Intelligent Sports on at least four separate occasions: on or about May 2-7, 2005; on or about June 18-21, 2005; on or about July 10-26; 2005; and on or about October 3-7, 2005. The emails consisted of baseless recommendations and price projections. For example, at a time when Intelligent Sports was trading at around $0.01 per share, spam emails touted Intelligent Sports as “This Week[’]s Mover!” and urged readers to:

Watch IGTS.PK trade All Week Long Starting today, Be sure to get in on it and have a great payday with our other members, before the company launches a huge promotion at the end of the week! This Friday coming up the company will be launching a massive marking campaign with more great news to be released and next week should be over 15 to 25 cents so get in now at one cent and have a great return.

37. The spam emails touting Intelligent Sports in July and October 2005 did not appear to have any disclaimers. The spam emails sent prior to July 2005 included statements relating to the limitations of forward-looking statements; generic risk factors; and the fact that the publisher of the email held stock in the company and that those shares “may be sold at any time.”

38. Spam emails touting Intelligent Sports stock trace back to servers leased to, paid for, and controlled by the principal spammer. The principal spammer charged the Useltons at least $83,631 for spamming Intelligent Sports.

39. The Useltons realized proceeds of approximately $648,000 by selling nearly 40 million shares of Intelligent Sports stock between approximately May 2, 2005 and November 23, 2005, during, or soon after, the timeframe of multiple spam email campaigns. The stock price reached an all time high of $0.041 on the Friday immediately before the first spamming campaign. During the period that the Useltons caused recommendations about Intelligent Sports to be circulated via spam emails, Intelligent Sports’ stock price fluctuated roughly between $0.015 and $0.032. The Useltons’ October spamming campaign resulted in a temporary price hike from $0.009 to $0.021 and generated average daily trading volume of over 7.5 million shares, reaching a single day high of 10.2 million shares sold on October 3, 2005.

Advanced Powerline Technologies, Inc. (Pink Sheets: APWL)
40. Advanced Powerline Technologies, Inc. (“Advanced Powerline”) is an Oklahoma-based company that purports to be in the broadband over powerline industry. The Useltons, and individuals and entities connected to the Useltons, appear to have received a large amount of common stock from a predecessor company to Advanced Powerline in 2004.

41. Between July and October 2005, the Useltons orchestrated a series of spam email campaigns touting Advanced Powerline stock. Specifically, the Useltons disseminated mass quantities of spam emails touting Advanced Powerline on at least four separate occasions: on or about July 1-8, 2005; on or about July 24 through August 19, 2005; on or about August 25 through September 26, 2005; and on or about October 3 through October 16, 2005.

42. The emails consisted of baseless claims (e.g. Advanced Powerline is “a Gold Mine”) and price projections (e.g., “It is At It’s 52 Week Low At the Moment And This is Our Hot Pick This Week, It Can Easily Go Up to $1.25 Very Fast”). The spam emails also referred to purported guaranteed profits (e.g., “Don’t Miss Out On This One Get It Asap For HUGE Pr0fits Like Our Other Picks which return 300 to 750% every week, don’t miss this one.”).

43. The large majority of spam emails touting Advanced Powerline had no disclaimers. It appears that only spam emails sent during the first campaign included statements relating to the limitations of forward-looking statements; generic risk factors; and the fact that the publisher of the email held stock in the company and that those shares “may be sold at any time.”

44. Spam emails touting Advanced Powerline stock trace back to servers leased to, paid for, and controlled by the principal spammer. The principal spammer charged the Useltons at least $126,075 for spamming Advanced Powerline. The Useltons realized proceeds of approximately $533,542 by selling over 818,000 shares of Advanced Powerline stock between approximately July 1, 2005 and October 18, 2005, during, or soon after, the timeframe of multiple spam email campaigns.

45. In late 2006, the Useltons were involved in another spam email campaign touting Advanced Powerline stock. On or about November 26, 2006, Advanced Powerline stock was heavily touted in a spam email campaign that continued through approximately December 8, 2006. The spam emails distributed during this period, which contained no disclaimers, indicated that “[w]e have brought you winner after winner this year and things are only getting better!” The spam emails contained baseless short term targets and long term targets of $0.27 and $1.10, respectively. The spam email also contained unfounded claims such as:

An incredible announcement is expected out of the company very soon. This will be backed up by a PR blitz and I’m sure you can guess what will happen to the price of this stock! Tech companies blast off on news like this. Get in before this one takes off and ride it all the way to the bank!

46. The Useltons realized proceeds of approximately $266,655 by selling over 3.16 millions shares of Advanced Powerline stock between November 26, 2006 and December 8, 2006, during, and immediately following, the timeframe of the final spam email campaign.

Notch Novelty Corporation (Pink Sheets: NHNV)
47. Notch Novelty Corporation (“Notch Novelty”) is a California-based corporation that purports to sell low-priced novelty items.

48. Notch Novelty engaged the Useltons on or about June 29, 2005 to raise $500,000 over a one-year period. Notch Novelty issued 400,000 shares of common stock to the Useltons as part of a purported Texas 504 offering on or about July 1, 2005. These shares were issued without restrictive legends. On or about July 7, 2005, the Useltons transferred the 400,000 Notch Novelty shares into three brokerage accounts they controlled.

49. On July 11, 2005, the first public trades in Notch Novelty occurred on the pink sheets. Between July 11 and August 5, 2005, Notch Novelty’s share price hovered between $0.20 and $0.24 on an average daily volume of less than 3,800 shares. Accounts controlled by the Useltons accounted for the large majority of the trading activity during this period.

50. Between approximately August 8, 2005 and August 26, 2005, the Useltons orchestrated a spam email campaign touting Notch Novelty stock. The spam emails, which contained no disclaimers, consisted of baseless recommendations (e.g., Notch Novelty is a stock “on the move . . . expecting great returns in 2005”) and price projections (e.g., Notch Novelty has a “3-5 day expectation” of $0.75 and a “3-5 month expectation” of $1.50) from “Insider WallStreet Picks.” The spam email also highlighted “Insider WallStreet Picks’” purported ability to spot winners: “[e]very pick we make profits 300 to 1200 percent, so get in now and earn great gains immediately.”

51. Spam emails touting Notch Novelty stock trace back to servers leased to, paid for, and controlled by the principal spammer. The principal spammer charged the Useltons $30,279 for spamming Notch Novelty.

52. During the Notch Novelty spamming campaign, Uselton sold at least 400,000 shares of stock, realizing proceeds of approximately $125,395. Notch Novelty’s stock price rose to a high of $0.35 on August 9, 2005 while average daily trading volume during the first two weeks of the spamming campaign rose to nearly 97,000 shares, with a single day high of 396,809 on August 9, 2005 during the spamming campaign.

53. According to Notch Novelty’s President, the company’s reputation was severely damaged as a result of the spam email campaign and the dumping of Notch Novelty’s stock by the Useltons. When Notch Novelty’s President attempted to sever the relationship with the Useltons, Darrel Uselton sent him the following threatening email on March 24, 2006:

You picked the wrong bull dog to fight with little boy. You have no idea the wrath that is about to come upon you… Stupid, stupid mistake on your part.

Your worst nightmare,
Darrel Uselton
:) . . . Jack [Uselton], hone up on your skills on the novelty business…looks like we are about to own one …

Avondale Resources Corporation (Pink Sheets: ANDL)
54. Avondale Resources Corporation (“Avondale Resources”) is an Oklahoma-based corporation that purports to be in the oil and gas exploration business.

55. On September 2, 2005, a large number of Avondale Resources shareholders transferred a total of 342,000 shares to the Useltons. These shares were transferred to the Useltons without restrictive legends. On or about September 9, 2005, the Useltons transferred at least 275,000 Avondale Resources shares into six brokerage accounts they controlled.

56. On September 13, 2005, the first public trades in this company occurred. The Useltons purchased 1,000 shares at $1.00 per share through one account and sold those shares to another account they controlled at $0.95 cents later that same day. On September 15, 2005, the Useltons’ traded Avondale Resources stock in almost exactly the same manner. These were the only public trades in Avondale Resources stock until October 10, 2005.

57. Between approximately October 10 and October 13, 2005, the Useltons orchestrated a spam email campaign touting Avondale Resources. The emails touted Avondale Resources as “our hot pick this week it is a brand new public company that is making money and is on the move” and issued a “1 week target” of “2.00 to 2.50.” At least some of the spam emails included statements relating to the limitations of forward-looking statements; generic risk factors; and the fact that the publisher of the email held stock in the company and that those shares “may be sold at any time.”

58. Spam emails touting Avondale Resources’ stock trace back to servers leased to, paid for, and controlled by the principal spammer. The principal spammer charged the Useltons $131,292 for spamming Avondale Resources during this period.

59. During the Avondale Resources spamming campaign, the Useltons sold at least 257,600 shares realizing proceeds of approximately $382,090. Avondale Resources’ stock price rose from $1.00 to a single day high of $1.65 on August 12, 2005. Average daily trading volume, which had been virtually nonexistent prior to the spamming campaign, rose to over 175,000 shares per day during the spamming campaign.

Spooz, Inc. (Pink Sheets: SPZI)
60. Spooz, Inc. (‘Spooz”) is a Chicago-based corporation that purports to provide add-in software programs for the financial trading industry.

61. On or about August 29, 2005, Spooz issued 21.8 million shares of common stock to the Useltons as part of a purported Rule 504 offering. These shares were issued without restrictive legends. During September 2005, the Useltons transferred 9.8 million Spooz shares into two accounts they controlled.

62. Between approximately October 13 and October 27, 2005, the Useltons orchestrated a spam email campaign touting Spooz. The spam emails described Spooz as the “hot pick this week” with a current price of $0.03 and a 1 week target of $0.15 to $0.20. The spam emails also referred to earlier successes, noting that the “last pick was up 80 percent in 2 days this one is expected much higher.”

63. The overwhelming majority of spam emails touting Spooz stock contained no disclaimers. Spam emails circulated from October 14 through October 27, 2005 did not contain any disclaimer. While spam emails disseminated on October 13, 2005 did purport to include a “disclaimer” statement, they did not disclose the Useltons’ role in the promotion nor their intent to sell. The principal spammer charged the Useltons at least $143,871 for the Spooz spamming campaign.

64. During the Spooz spamming campaign, the Useltons sold over 6.3 million shares of Spooz stock, realizing proceeds of over $267,289. The price of Spooz common stock, which generally ranged between $0.011 and $0.023 from June through August 2005, rose to a high of $0.052 on October 17, 2005. Daily trading volume, which never exceeded 500,000 shares between June and August 2005, soared to 11,473,538 shares on October 14, 2005.

65. After the spamming campaign, Spooz stock dropped to below $0.02 and reached a low for the calendar year of $0.0065 on December 14, 2005.

ESPRE Solutions, Inc. (Pink Sheets: EPRT)
66. ESPRE Solutions, Inc. (“ESPRE”) is a Texas-based corporation that claims to be in the business of designing video communication software programs for use over the Internet.

67. On or about October 3, 2005, the Useltons received 200,000 ESPRE shares from an individual. On or about October 17, 2005, the Useltons transferred those shares into a brokerage account they controlled.

68. Between approximately October 24 and October 27, 2005, the Useltons orchestrated a spam email campaign touting ESPRE. The spam emails, which were issued without disclaimers, described ESPRE as a “Hot Fortune 1000 Company On the Move,” indicating a “Massive Marketing Campaign Alert Starting Tuesday At the Close of the Market, Get in Early!” The principal spammer charged the Useltons approximately $73,709 for the ESPRE spamming campaign.

69. During the ESPRE spamming, the Useltons sold nearly 122,000 shares of stock, realizing proceeds of approximately $70,000. The Useltons sold the remaining 78,000 shares over the following three trading days, realizing an additional $27,000. Average daily trading volume, which was less than 11,500 during the first three weeks in October 2005, rose to over 300,000 per day during the spamming campaign. ESPRE's stock price dropped from $0.90 on October 24, 2005 to $0.41 at the end of the campaign on October 27, 2005.

70. ESPRE's stock traded at $0.16 at the end of December 31, 2005.

Grifco International, Inc. (Pink Sheets: GFCI)
71. Grifco International, Inc. (“Grifco”) is a Nevada-based corporation that purports to be an international provider of oil and gas services equipment.

72. On or about September 20, 2005, Grifco issued 220,000 shares of common stock to the Useltons as part of a Rule 504 offering. These unregistered shares were issued without restrictive legends. On or about October 5, 2005, the Useltons transferred the shares into two brokerage accounts that they controlled.

73. Between approximately October 28 and November 3, 2005, the Useltons orchestrated a spam email campaign touting Grifco. The spam emails, which contained no disclaimers, indicated that “Rocking Stock Times Selects: GFCI” as a “real winner” and that “[i]nsiders tell us breaking news is expected that can make this company go very high immediately.” The principal spammer charged the Useltons at least $54,896 for spamming Grifco.

74. During the Grifco spamming campaign, the Useltons sold all 220,000 shares of Grifco stock, realizing proceeds of approximately $71,866. Grifco stock, which appears to have been the subject of other market manipulations, traded between $0.30 and $0.36 during the spamming campaign on average daily volume of approximately 525,000 shares.

75. After the spamming campaign ended, Grifco stock drifted downward, trading at $0.07 by year-end 2006.

Leatt Corporation (Pink Sheets: LEAT)
76. Leatt Corporation (“Leatt”) is a Nevada-based corporation that claims to purchase protective sports gear from a South African company, Leatt Brace Holdings (Pty) Ltd. Purportedly, Leatt is the “exclusive global distributor” of a helmet that contains a built-in neck brace.

77. On or about August 29, 2005, the Useltons received two million free trading Leatt shares from an individual that appears to have received those shares directly from the company a few weeks earlier. On September 2, 2005, the Useltons transferred at least 500,000 of those shares into two brokerage accounts they controlled.

78. Between approximately November 2 and November 8, 2005, the Useltons orchestrated a spam email campaign touting Leatt. The spam emails, which contained no disclaimers, consisted of baseless projections (e.g., “Current Price: .24; 3 day Target: .70; 2 week Target: $1.25”) from “W.S. Financial”. The spam emails also highlighted W.S. Financial’s prior success: “[o]ur last pick was up over 275%. Don’t miss out on This One!” The principal spammer charged the Useltons at least $32,099 for spamming Leatt.

79. During the Leatt spamming campaign, the Useltons sold approximately 240,150 shares of stock, realizing proceeds of approximately $65,621. Average daily trading volume, which was less than 6,250 shares during October 2005, rose to over 257,000 shares during the spamming campaign, including a high of 541,068 on November 3, 2005.

Adrenaline Nation Entertainment, Inc. (Pink Sheets: ADNL/ADNN)
80. Adrenaline Nation Entertainment, Inc. (“Adrenaline Nation”) is a Tennessee-based corporation that claims to be a television network specializing in action, adventure and motor-sports programs.

81. On or about April 6, 2005, Adrenaline Nation signed an agreement to engage the Useltons as “Capital Markets Advisors.” In part, Adrenaline Nation agreed to give the Useltons 2.5% of the company’s outstanding shares, in unrestricted form. On or about September 2005, the Useltons appear to have received nearly 200,000 free trading Adrenaline Nation shares in accordance with the agreement. In addition, the Useltons purported to have acquired an additional 1,000,000 shares of restricted stock in Adrenaline Nation on or before October 3, 2002. In November 2005, Darrel Uselton signed an affidavit to remove the restriction and transferred the 1,000,000 shares into a brokerage account the Useltons controlled.

82. Between approximately November 21 and December 1, 2005, the Useltons orchestrated a spam email campaign touting Adrenaline Nation. The spam emails, which contained no disclaimers, consisted of baseless price projections (e.g., “3 to 6 Day Expectations: .30 to .50; 6 Month Projections: 1.50+”) from “Investor Edge.” The spam emails also highlighted Investor Edge’s purported prior success: “[d]on’t miss out. Our last picks returned a 323 percent gain!” The principal spammer charged the Useltons at least $22,646 for spamming Adrenaline Nation.

83. During the Adrenaline Nation spamming campaign, the Useltons sold 384,000 shares of Adrenaline Nation stock, realizing proceeds of approximately $63,219. Average daily trading volume, which was less than 1,000 shares during the first three weeks of November 2005 (trading on only 4 days during this period), rose to over 145,000 during the spamming campaign, with a single-day high of 419,580 shares on November 22, 2005. Adrenaline's stock price, which hovered between $0.12 and $0.15 cents prior to the spamming campaign, rose to $0.20 on November 22, 2005.

Equipment and Systems Engineering, Inc. (Pink Sheets: EQSE)
84. Equipment and Systems Engineering, Inc. (“Equipment Systems”) is a Florida-based corporation that is a purported manufacturer of hypochlorite generation systems for water sanitation.

85. In October 2005, the Useltons were given 700,000 free trading Equipment Systems shares. On or about November 4, 2005, the Useltons transferred 700,000 shares of Equipment Systems stock into a brokerage account they controlled.

86. Between approximately November 25, 2005 and December 2, 2005, the Useltons orchestrated a spam email campaign touting Equipment Systems. Between February 23 and March 2, 2006, the Useltons launched a second email campaign. The spam emails, which contained no disclaimers, contained baseless price predictions (e.g., “This .18 Play Can Give you 3 to 4 times your investment! 500 can be 2,000 and 2,000 can be 8,000 very easily! Don’t Miss This Baby!”) and claims of “inside information” (e.g., “we were lucky enough to get inside information on the company to bring it to you so you can get in early at .25 before it goes over 1.00 we are looking at a possible 300 percent gain here, don’t miss out on it. Get in early Monday”). The principal spammer 25
charged the Useltons at least $45,062 for spamming Equipment Systems during the first two campaigns.

87. From the inception of the first spam email campaign through the conclusion of the second email campaign, the Useltons sold 695,000 shares of Equipment Systems’ stock, realizing proceeds of approximately $157,529. During the first spamming campaign, Equipment Systems' stock rose to a high of $0.31 on November 29, 2005, while average daily volume rose to over 200,000 shares, with a single-day high of 429,145 shares on November 30, 2005. Average daily volume in Equipment Systems had been under 27,000 during the first three weeks in November, while the price slowly crept up from $0.17 to $0.25 during the period immediately before the spamming campaign.

88. In late 2006, the Useltons appear to have initiated a third spam email campaign that touted Equipment Systems’ stock. This campaign began in October 2006, when a fund controlled by the Useltons, the Valores Fund, purportedly purchased 3.75 million unrestricted shares of Equipment Systems’ stock for $0.04 per share and transferred the shares into a brokerage account that they controlled.

89. On or about November 29, 2006, Equipment Systems’ stock was heavily touted in a widespread email campaign that continued through approximately December 8, 2006. The spam emails distributed during this period, which contained no disclaimers, indicated that “OTC Financial Network” selected Equipment Systems as “THE pick for the fourth quarter” and that “This is HOT!” The spam email also contained baseless price projections and unfounded company predictions:

An earth shattering release is expected out of the company any day. With all of EQSE’s governmental contacts we are expecting a major contract announcement. This issue is VERY tightly held and the release is going to push it up rapidly. Don’t delay. It’s not going to stop till we see 20 cents!”

90. The Useltons realized proceeds of approximately $588,836 by selling 3.8 million shares of Equipment Systems stock during this spam email campaign. Average daily trading volume, which was less than 15,800 during the first three full weeks of November 2006, rose to over 1.9 million throughout the third spamming campaign, with a single-day high of 3,600,823 shares on December 7, 2006. Equipment Systems stock, which hovered between $0.06 and $0.09 during the first three weeks of November, rose to a high of $0.17 during the spamming campaign.

91. After the spam campaign ended, the stock price subsequently dropped under $0.10.

Gulf Petroleum Exchange, Inc. (Pink Sheets: GFPE)
92. Gulf Petroleum Exchange, Inc. (“Gulf Petroleum”), a Louisiana-based corporation, was purportedly in the petroleum recovery industry in late 2005 and early 2006. Subsequent to the relevant period, the company changed its name to Software Effective Solutions Corp., and changed its symbol to SFWJ. The company now describes itself as a “Philippine-based software company” that specializes in telecom operations, workforce management, call centers, and resource management.

93. On or about November 3, the Useltons were transferred 1,088,700 free trading Gulf Petroleum shares. On or about November 15, 2005, the Useltons transferred the stock into a brokerage account they controlled.

94. Between January 24 and at least January 26, 2006, but perhaps longer, the Useltons orchestrated a spam email campaign touting Gulf Petroleum. The emails, which did not contain a disclaimer that the Useltons (or any other party) held Gulf Petroleum stock, intended to sell Gulf Petroleum stock, or received compensation for the preparation or distribution of these emails, consisted of baseless claims (“This Weeks Big Gainer ‘GFPE’ Our Last Pick Was up over 275% in 3 Days Don’t Miss Out.”). The principal spammer charged the Useltons at least $31,522 for spamming Gulf Petroleum stock.

95. The Useltons realized proceeds of approximately $263,529 by selling 941,700 shares of Gulf Petroleum stock during and soon after this spam email campaign.

Wentworth Energy, Inc. (Pink Sheets: WNWG)
96. Wentworth Energy, Inc. (“Wentworth Energy”) is a Texas-based corporation that is purportedly in the energy business.

97. Between approximately August 24, 2005 and August 30, 2005, the Useltons orchestrated a spam email campaign touting Wentworth Energy. Between approximately November 4, 2005 and November 21, 2005, the Useltons launched a second email campaign. The spam emails consisted of baseless projections (e.g., “Current Price: .80; 3-5 Day target: 2.50; 6 months target: $4.25”) from “W.S. Profit Picks”. The principal spammer charged the Useltons at least $160,110 for spamming Wentworth Energy stock.

98. The majority of spam emails touting Wentworth Energy stock contained no disclaimers. Spam emails circulated on or about November 4 through November 21, 2005, did not contain any disclaimer. While spam emails disseminated during the first spam email campaign did purport to include a “disclaimer” statement, they did not disclose the Useltons’ role in the promotion.

99. The Useltons realized proceeds of approximately $274,861 by selling around 237,045 shares of Wentworth Energy stock during and soon after these spam email campaigns.

CLAIM FOR RELIEF
(Violations of Section 10(b) and Rule 10b-5 of the Exchange Act)
100. Plaintiff SEC hereby incorporates ¶¶ 1 through 99 with the same force and effect as if set out here.

101. In the manner described in ¶¶ 1 through 99, Darrel Uselton and Jack Uselton, in connection with the purchase or sale of securities, by the use of means or instrumentalities of interstate commerce or of the mails, directly or indirectly (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material facts or omissions of material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) engaged in transactions, practices or courses of business which operated or would operate as a fraud or deceit upon persons.

102. By reason of the foregoing, Darrel Uselton and Jack Uselton violated, and unless enjoined will continue to violate, Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder.

PRAYER FOR RELIEF
WHEREFORE, the SEC respectfully requests that this Court enter a judgment:

(a) permanently enjoining defendants, Darrel Uselton and Jack Uselton, and their agents, servants, employees, attorneys, and those in active concert or participation with them, who receive actual notice by personal service or otherwise, from violating Section 10(b) of the Exchange Act [15 U.S.C § 78j(b)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] promulgated thereunder;

(b) ordering defendants, Darrel Uselton and Jack Uselton, to provide an accounting and disgorge all ill-gotten gains from the conduct alleged herein, with prejudgment interest;

(c) ordering defendants, Darrel Uselton and Jack Uselton, to pay a civil money penalty pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)];

(d) permanently prohibiting defendants, Darrel Uselton and Jack Uselton, from participating in an offering of penny stock pursuant to Section 21(d)(6) of the Exchange Act [15 U.S.C. § 78u(d)(6)]; and

(e) granting such other relief as this Court may deem just and appropriate.

Dated: July 9, 2007

________/s/______________

Of Counsel: Frederick L. Block (pro hac vice pending)

Cheryl J. Scarboro Assistant Chief Litigation Counsel
Reid A. Muoio Attorney-in-Charge, Plaintiff
James J. Valentino Securities and Exchange

Securities and Exchange Commission
Commission 100 F Street, N.E.
100 F Street, N.E. Washington, D.C. 20549
Washington, DC 20549
(tel) 202/551-4919 (Block)
(fax) 202/792-9245 (Block)

Attorney Appearances

These are the Attorney Appearances for the parties in SEC v. Uselton

ORDER for Conference and Disclosures

Here we have a two-fer. First the Court is ordering the parties to a telephone conference to handle pretrial and scheduling matters on October 9. Judge Hoyt has also ordered the parties to disclose certain information to him regarding what the case is about, who is involved, and how the parties have tried to settle the case.

============================
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

United States Securities and Exchange
Commission
Plaintiff

v.

Darrel Uselton, et al.
Defendant

ORDER FOR CONFERENCE AND DISCLOSURE OF INTERESTED PARTIES
1. Counsel shall appear for an initial pretrial and scheduling conference before

JUDGE KENNETH HOYT
on October 9, 2007 at 03:15 PM
by telephone

2. Counsel shall file with the clerk within fifteen days from receipt of this order a certificate listing all persons, associations of persons, firms, partnerships, corporations, affiliates, parent corporations, or other entities that are financially interested in the outcome of this litigation. If a group can be specified by a general description, individual listing is not necessary. Underline the name of each corporation whose securities are publicly traded . If new parties are added or if additional persons or entities that are financially interested in the outcome of the litigation are identified at any time during the pendency of this litigation, then each counsel shall promptly file an amended certificate with the clerk.

3. Fed. R. Civ. P. 4(m) requires defendant(s) to be served within 120 days after the filing of the complaint. The failure of plaintiff(s) to file proof of service within 120 days after the filing of the complaint may result in dismissal of this action by the court on its own initiative.

4. After the parties confer as required by Fed. R. Civ. P. 26(f), counsel shall prepare and file not less than 10 days before the conference a joint discovery/case management plan containing the information required on the attached form.

5. The court will enter a scheduling order and may rule on any pending motions at the conference.

6. Counsel who file or remove an action must serve a copy of this order with the summons and complaint or with the notice of removal.

7. Attendance by an attorney who has authority to bind the party is required at the conference.

8. Counsel shall discuss with their clients and each other whether alternative dispute resolution is appropriate and at the conference advise the court of the results of their discussions.

9. A person litigating pro se is bound by the requirements imposed upon counsel in this Order.

10. Failure to comply with this order may result in sanctions, including dismissal of the action and assessment of fees and costs.

11. Counsel who file or remove any action is responsible for placing the conference call and insuring that all parties are on the line. The call may be placed to (713)250−5613.

Court Procedures: Information on the court's practices and procedures and how to reach court personnel may be obtained at the Clerk's website at http://www.txs.uscourts.gov or from the intake desk of the Clerk's office.

===========================================
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

United States Securities and Exchange
Commission
Plaintiff

v.

Darrel Uselton, et al.
Defendant

JOINT DISCOVERY/CASE MANAGEMENT PLAN
UNDER RULE 26(f)
FEDERAL RULES OF CIVIL PROCEDURE

Please restate the instruction before furnishing the information.

1. State where and when the meeting of the parties required by Rule 26(f) was held, and identify the counsel who attended for each party.

2. List the cases related to this one that are pending in any state or federal court with the case number and court.

3. Briefly describe what this case is about.

4. Specify the allegation of federal jurisdiction.

5. Name the parties who disagree and the reasons.

6. List anticipated additional parties that should be included, when they can be added, and by whom they are wanted.

7. List anticipated interventions.

8. Describe class−action issues.

9. State whether each party represents that it has made the initial disclosures required by Rule 26(a). If not, describe the arrangements that have been made to complete the disclosures.

10. Describe the proposed agreed discovery plan, including:
A. Responses to all the matters raised in Rule 26(f).

B. When and to whom the plaintiff anticipates it may send interrogatories.

C. When and to whom the defendant anticipates it may send interrogatories.

D. Of Whom and by when the plaintiff anticipates taking oral depositions.

E. Of Whom and by when the defendant anticipates taking oral depositions.

F. When the plaintiff (or the party with the burden of proof on an issue) will be able to designate experts and provide the reports required by Rule 26(a)(2)(B), and when the opposing party will be able to designate responsive experts and provide their reports.

G. List expert depositions the plaintiff (or the party with the burden of proof on an issue) anticipates taking and their anticipated completion date. See Rule 26(a)(2)(B) (expert report).

H. List expert depositions the opposing party anticipates taking and their anticipated completion date. See Rule26(a)(2)(B) (export report).

11. If the parties are not agreed on a part of the discovery plan, describe the separate view and proposals of each party.

12. Specify the discovery beyond initial disclosures that has been undertaken to date.

13. State the date the planned discovery can reasonably be completed.

14. Describe the possibilities for a prompt settlement or resolution of the case that were discussed in your Rule 26(f) meeting.

15. Describe what each party has done or agreed to do to bring about a prompt resolution.

16. From the attorneys' discussion with the client, state the alternative dispute resolution techniques that reasonably suitable.

17. Magistrate judges may now hear jury and non−jury trials. Indicate the parties' joint position on a trial before a magistrate judge.

18. State whether a jury demand has been made and if it was made on time.

19. Specify the number of hours it will take to present the evidence in this case.

20. List pending motions that could be ruled on at the initial pretrial and scheduling conference.

21. List other motions pending.

22. Indicate other matters peculiar to this case, including discovery, that deserve the special attention of the court at the conference.

23. Certify that all parties have filed Disclosure of Interested Parties as directed in the Order for Conference and Disclosure of Interested Parties, listing the date of filing for original and any amendments.

24. List the names, bar numbers, addresses, and telephone numbers of all counsel.
____________________________________ ________________________
Counsel for Plaintiff(s) Date
____________________________________ ________________________
Counsel for Defendant(s) Date

ANSWER Due

The Useltons have waived service of process.

This doesn't mean that they are settling, only that they're not going to make the US Attorney's Office hire a process server to give them the papers.

Their Answers are due by the close of business on September 18, 2007.

Darrel Uselton Answer

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Plaintiff,

v.

DARREL T. USELTON and JACK E.
USELTON,
Defendants.

DARREL T. USELTON’S ORIGINAL ANSWER TO THE COMPLAINT OF THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Darrel T. Uselton files this Original Answer and Affirmative Defenses to the Complaint of the United States Securities and Exchange Commission.

Answer

Darrel T. Uselton (“Uselton”) responds specifically to the Complaint of United States Securities and Exchange Commission by correspondingly numbered paragraphs as follows:

1. Uselton denies the allegations of Paragraph 1.

2. Uselton denies that he made $4.6 million by selling stock during the period of May 2005 through December 2006. Uselton lacks sufficient information to admit or deny the remainder of Paragraph 2.

3. Uselton denies that he received any shares of penny stocks from companies. Uselton admits that companies that he owns or controls did receive shares of penny stocks from certain companies. Uselton admits that these shares were deposited in certain brokerage accounts. Uselton denies the remaining allegations of Paragraph 3.

4. Uselton denies the allegations of Paragraph 4.

5. Uselton denies the allegations of Paragraph 5.

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6. Uselton denies that he participated in any illegal conduct. Uselton neither admits
or denies the remaining allegations in Paragraph 6 as they state a legal conclusion to which no
response is required.

7. Uselton admits that he is 40 years old and lives in Katy, Texas. Uselton denies that he is a “securities law recidivist” or a “stock promoter”. Uselton admits that he has, at certain times in the past, been fined by the NASD. Uselton, however, denies the validity of the facts underlying those fines, and states that said fines were wholly unrelated to the sales of any securities.

8. Uselton admits the allegations of Paragraph 8.

9. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 9.

10. Uselton denies the allegations of Paragraph 10.

11. Uselton admits the allegations of Paragraph 11.

12. Uselton admits that companies he controlled did obtain shares of stock from certain companies for financing and consulting activities. Uselton admits that one version of a financing and consulting agreement of a company he controlled contained the quoted statements contained in Paragraph 12. Uselton denies the characterization of this agreement as a “promotional” agreement and denies the remaining allegations of Paragraph 12.

13. Uselton admits that companies he controlled owned several brokerage accounts with multiple firms. Uselton lacks sufficient information to confirm or deny the remaining allegations in Paragraph 13.
14. Uselton denies the allegations of Paragraph 14.

15. Uselton denies the allegations of Paragraph 15.

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16. Uselton denies the allegations of Paragraph 16.

17. Uselton denies the allegations of Paragraph 17.

18. Uselton denies the allegations of Paragraph 18.

19. Uselton admits that companies he controlled sold shares of penny stock in the open market. Uselton denies the remaining allegations of Paragraph 19.

20. Uselton denies the allegations in Paragraph 20.

21. Uselton denies the allegations in Paragraph 21.

22. Uselton lacks sufficient information to admit or deny the allegations in Paragraph
22 as the allegations lack sufficient context to allow Uselton to prepare a response. Uselton,
however categorically denies participation in any illegal activity as alleged in the Complaint.

23. Uselton admits that Jack Uselton is his partner. Uselton denies the remaining
allegations in Paragraph 23.

24. Uselton lacks sufficient information to admit or deny the allegations in Paragraph
24.

25. Uselton admits the first sentence of Paragraph 25. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 25.

26. Uselton admits that Oretech, Inc. engaged a company Uselton controlled to sell its stock. Uselton admits that companies he controls received 1.25 million shares of Oretech stock, which was moved into certain brokerage accounts. Uselton denies the remaining allegations of Paragraph 26.

27. Uselton denies the allegations in Paragraph 27.

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28. Uselton denies sending or authorizing the transmission of any spam emails relating to Oretech. Uselton lacks sufficient information to admit or deny the remaining allegations in Paragraph 28.

29. Uselton lacks sufficient information to admit or deny the allegations in the first sentence of Paragraph 29. Uselton denies the allegations contained in the second sentence. Uselton admits the remaining allegations of Paragraph 29 but states that all mass mailers had proper disclosures as required by law.

30. Uselton admits that companies under his control sold shares of Oretech stock on the open market for a profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 30.

31. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 31.

32. Uselton denies the allegations of Paragraph 32.

33. Uselton admits sending the email quoted in Paragraph 33. Uselton however denies the context and characterization of the email contained in the Paragraph and denies the remaining allegations in Paragraph 33.

34. Uselton admits the allegations of Paragraph 34.

35. Uselton admits that companies he controls accumulated shares of Intelligent
Sports in 2005. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 35.

36. Uselton denies the allegations in Paragraph 36.

37. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 37.

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38. Uselton denies that he or companies under his control paid any person for the transmission of spam emails. Uselton lacks sufficient information to admit or deny the remaining allegations or Paragraph 38.

39. Uselton admits that companies under his control sold shares of Intelligent Sports in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton denies that he or companies under his control transmitted or caused to be transmitted any spam emails regarding Intelligent Sports. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 39.

40. Uselton admits the allegations of Paragraph 40.

41. Uselton denies the allegations of Paragraph 41.

42. Uselton denies that he or companies under his control transmitted or caused to be transmitted any spam emails regarding Advanced Powerline stock. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 42.

43. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 43.

44. Uselton lacks sufficient information to admit or deny the first sentence of Paragraph 44. Uselton denies that he or companies under his control paid any party for transmitting spam emails. Uselton admits that companies under his control sold share of Advanced Powerline in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton denies the remaining allegations of Paragraph 44.

45. Uselton denies the allegations contained in Paragraph 45.

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46. Uselton admits that companies under his control sold share of Advanced Powerline in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit.

47. Uselton admits the allegations contained in Paragraph 47.

48. Uselton admits the allegations contained in Paragraph 48.

49. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 49.

50. Uselton denies the allegations contained in Paragraph 50.

51. Uselton lacks sufficient information to admit or deny the first sentence of
Paragraph 51. Uselton denies the remaining allegations of Paragraph 51.

52. Uselton admits that companies under his control sold share of Notch Novelty Corp. in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 52.

53. Uselton lacks sufficient information to admit or deny the allegations contained in the first sentence of Paragraph 53. Uselton admits sending the email quoted in Paragraph 53 but denies that said email relates to complaints from Notch Novelty’s President or any attempts by Notch Novelty to sever its business relationship with Uselton’s company.

54. Uselton admits the allegations of Paragraph 54.

55. Uselton admits that companies under his control obtained shares of Avondale Resources Corporation (“Avondale”). Uselton lacks sufficient information to confirm or deny the remaining allegations of Paragraph 55.

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56. Uselton lacks sufficient information to admit or deny the allegations contained in Paragraph 56.

57. Uselton denies the allegations of Paragraph 57.

58. Uselton denies the allegations of Paragraph 58.

59. Uselton admits that companies that he controlled sold shares of Avondale in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Avondale lacks sufficient information to admit or deny the remaining allegations of Paragraph 59.

60. Uselton admits the allegations of Paragraph 60.

61. Uselton admits that companies he controlled obtained shares of Spooz, Inc. (“Spooz”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 61.

62. Uselton denies the allegations of Paragraph 62.

63. Uselton denies the allegations of paragraph 63.

64. Uselton admits that companies that he controlled sold shares of Spooz in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 64.

65. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 65.

66. Uselton admits the allegations of Paragraph 66.

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67. Uselton admits that companies under his control obtained shares of ESPRE Solutions, Inc. (“ESPRE”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 67.

68. Uselton denies the allegations of Paragraph 68.

69. Uselton admits that companies that he controlled sold shares of ESPRE in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining
allegations of Paragraph 69.

70. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 70.

71. Uselton admits the allegations of Paragraph 71.

72. Uselton admits that companies under his control obtained shares of Grifco International, Inc. (“GFCI”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 72.

73. Uselton denies the allegations of Paragraph 73.

74. Uselton admits that companies that he controlled sold shares of GFCI in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 74.

75. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 75.

76. Uselton admits the allegations of Paragraph 76.

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77. Uselton admits that companies under his control obtained shares of Leatt Corporation (“LEAT”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 77.

78. Uselton denies the allegations of Paragraph 78.

79. Uselton admits that companies that he controlled sold shares of LEAT in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 79.

80. Uselton admits the allegations of Paragraph 80.

81. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 81.

82. Uselton denies the allegations of Paragraph 82.

83. Uselton admits that companies that he controlled sold shares of Adrenaline Nation Entertainment, Inc. in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 83.

84. Uselton admits the allegations of Paragraph 84.

85. Uselton admits that companies under his control obtained shares of Equipment and Systems Engineering, Inc. (“Equipment Systems”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 85.

86. Uselton denies the allegations of Paragraph 86.

87. Uselton admits that companies that he controlled sold shares of Equipment Systems in the open market at a profit but lacks sufficient information to specify the time of said

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88. Uselton admits that the Valores Fund fund purchased shares of Equipment
Systems but lacks sufficient information to admit or deny the specifics of said purchase as
alleged in the Complaint. Uselton denies the remaining allegations of Paragraph 88.

89. Uselton lacks sufficient knowledge to admit or deny whether a spam email existed as described in Paragraph 89. Uselton denies any involvement in the making or delivery of any spam email.

90. Uselton admits that companies that he controlled sold shares of Equipment Systems in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 90.

91. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 91.

92. Uselton admits the allegations of Paragraph 92.

93. Uselton admits that companies under his control obtained shares of Gulf Petroleum Exchange, Inc. (“GFPE”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 93.

94. Uselton denies the allegations of Paragraph 94.

95. Uselton admits that companies that he controlled sold shares of GFPE in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 95.

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96. Uselton admits the allegations of Paragraph 96.

97. Uselton denies the allegations of Paragraph 97.

98. Uselton lacks sufficient information to admit or deny the allegations regarding in Paragraph 98 regarding the content of purported spam emails. Uselton denies any involvement with the preparation or delivery of said purported spam emails.

99. Uselton admits that companies that he controlled sold shares of Wentworth Energy, Inc. in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 99.

100. Uselton incorporates his responses to the allegations contained in Paragraphs 1-99 of the SEC’s Original Complaint with the same force and effect as if set forth herein.

101. Paragraph 101 contains nothing but legal conclusions to which no response is required. To the extent a response is required, however, Uselton denies the allegations contained therein.

102. Paragraph 102 contains nothing but legal conclusions to which no response is required. To the extent a response is required, however, Uselton denies the allegations contained therein.

Relief Requested

Based on the foregoing, Darrel Uselton respectfully requests that: (i) the Complaint be dismissed in its entirety with prejudice; (ii) Uselton be awarded costs of suit incurred herein including reasonable attorneys’ fees and expenses; and (iii) Uselton be awarded such other and further relief as he is justly entitled.

DATED: September 18, 2007.

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Respectfully submitted,
COGDELL LAW FIRM
By: _/s/ M. Kevin Powers______________
Dan Cogdell
State Bar No. 04501500
M. Kevin Powers
State Bar No. 24041715
James M. Ardoin, III
State Bar No. 24045420
700 Louisiana, Suite 4600
Houston, Texas 77002
ATTORNEYS FOR DARREL USELTON

CERTIFICATE OF SERVICE
A true and correct copy of the foregoing was served on the party listed below either via
electronic means as listed on the Court’s ECF noticing system or via first class United States
mail, postage prepaid on September 18, 2007.
Fred L. Block
Assistant Chief Litigation Counsel
U.S. Securities & Exchange Commission
100 F Street, N.E., Mail Stop #4030
Washington, DC 20549
_/s/ M. Kevin Powers______________
M. Kevin Powers

Jack Uselton Answer

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Plaintiff,

v.

DARREL T. USELTON and JACK E.
USELTON,
Defendants.

JACK E. USELTON’S ORIGINAL ANSWER TO THE COMPLAINT OF THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Jack E. Uselton files this Original Answer and Affirmative Defenses to the Complaint of the United States Securities and Exchange Commission.

Answer

Jack E. Uselton (“Uselton”) responds specifically to the Complaint of United States Securities and Exchange Commission by correspondingly numbered paragraphs as follows:

1. Uselton denies the allegations of Paragraph 1.

2. Uselton denies that he made $4.6 million by selling stock during the period of May 2005 through December 2006. Uselton lacks sufficient information to admit or deny the remainder of Paragraph 2.

3. Uselton denies that he received any shares of penny stocks from companies. Uselton admits that companies that he owns or controls did receive shares of penny stocks from certain companies. Uselton admits that these shares were deposited in certain brokerage accounts. Uselton denies the remaining allegations of Paragraph 3.

4. Uselton denies the allegations of Paragraph 4.

5. Uselton denies the allegations of Paragraph 5.

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6. Uselton denies that he participated in any illegal conduct. Uselton neither admits nor denies the remaining allegations in Paragraph 6 as they state legal conclusions to which no response is required.

7. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 7.

8. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 8.

9. Uselton admits that he is 69 years old. Uselton denies that he is a “securities law recidivist” or a “stock promoter”. Uselton admits the remaining allegations of Paragraph 9 but states that he was not involved in any fraudulent activity pertaining to Mountain Energy, Inc.

10. Uselton denies the allegations of Paragraph 10.

11. Uselton admits the allegations of Paragraph 11.

12. Uselton admits that companies he controlled did obtain shares of stock from certain companies for financing and consulting activities. Uselton admits that one version of a financing and consulting agreement of a company he controlled contained the quoted statements contained in Paragraph 12. Uselton denies the characterization of this agreement as a “promotional” agreement and denies the remaining allegations of Paragraph 12.

13. Uselton admits that companies he controlled owned several brokerage accounts with multiple firms. Uselton lacks sufficient information to confirm or deny the remaining allegations in Paragraph 13.

14. Uselton denies the allegations of Paragraph 14.

15. Uselton denies the allegations of Paragraph 15.

16. Uselton denies the allegations of Paragraph 16.

17. Uselton denies the allegations of Paragraph 17.

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18. Uselton denies the allegations of Paragraph 18.

19. Uselton admits that companies he controlled sold shares of penny stock in the open market. Uselton denies the remaining allegations of Paragraph 19.

20. Uselton denies the allegations in Paragraph 20.

21. Uselton denies the allegations in Paragraph 21.

22. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 22.

23. Uselton admits that he and Darrel Uselton are partners in certain business ventures. Uselton denies the remaining allegations in Paragraph 23.

24. Uselton denies the allegations in Paragraph 24.

25. Uselton admits the first sentence of Paragraph 25. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 25.

26. Uselton admits that Oretech, Inc. engaged a company Uselton controlled to sell its stock. Uselton admits that companies he controls received 1.25 million shares of Oretech stock, which were moved into certain brokerage accounts. Uselton denies the remaining allegations of Paragraph 26.

27. Uselton denies the allegations in Paragraph 27.

28. Uselton denies sending or authorizing the transmission of any spam emails relating to Oretech. Uselton lacks sufficient information to admit or deny the remaining allegations in Paragraph 28.

29. Uselton lacks sufficient information to admit or deny the allegations in the first sentence of Paragraph 29. Uselton denies the allegations contained in the second sentence. Uselton admits the remaining allegations of Paragraph 29 but states that all mass mailers had proper disclosures as required by law.

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30. Uselton admits that companies under his control sold shares of Oretech stock on the open market for a profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 30.

31. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 31.

32. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 32.

33. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 33.

34. Uselton admits the allegations of Paragraph 34.

35. Uselton admits that companies he controls accumulated shares of Intelligent Sports in 2005. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 35.

36. Uselton denies the allegations in Paragraph 36.

37. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 37.

38. Uselton denies that he or companies under his control paid any person for the transmission of spam emails. Uselton lacks sufficient information to admit or deny the remaining allegations or Paragraph 38.

39. Uselton admits that companies under his control sold shares of Intelligent Sports in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton denies that he or companies under his control transmitted or caused to be transmitted any spam emails regarding Intelligent Sports. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 39.

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40. Uselton admits the allegations of Paragraph 40.

41. Uselton denies the allegations of Paragraph 41.

42. Uselton denies that he or companies under his control transmitted or caused to be transmitted any spam emails regarding Advanced Powerline stock. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 42.

43. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 43.

44. Uselton lacks sufficient information to admit or deny the first sentence of Paragraph 44. Uselton denies that he or companies under his control paid any party for transmitting spam emails. Uselton admits that companies under his control sold share of Advanced Powerline in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton denies the remaining allegations of Paragraph 44.

45. Uselton denies the allegations contained in Paragraph 45.

46. Uselton admits that companies under his control sold share of Advanced Powerline in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit.

47. Uselton admits the allegations contained in Paragraph 47.

48. Uselton admits the allegations contained in Paragraph 48.

49. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 49.

50. Uselton denies the allegations contained in Paragraph 50.

51. Uselton lacks sufficient information to admit or deny the first sentence of Paragraph 51. Uselton denies the remaining allegations of Paragraph 51.

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52. Uselton admits that companies under his control sold shares of Notch Novelty Corp. in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 52.

53. Uselton lacks sufficient information to admit or deny the allegations contained in Paragraph 53.

54. Uselton admits the allegations of Paragraph 54.

55. Uselton admits that companies under his control obtained shares of Avondale Resources Corporation (“Avondale”). Uselton lacks sufficient information to confirm or deny the remaining allegations of Paragraph 54.

56. Uselton lacks sufficient information to admit or deny the allegations contained in Paragraph 56.

57. Uselton denies the allegations of Paragraph 57.

58. Uselton denies the allegations of Paragraph 58.

59. Uselton admits that companies that he controlled sold shares of Avondale in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Avondale lacks sufficient information to admit or deny the remaining allegations of Paragraph 59.

60. Uselton admits the allegations of Paragraph 60.

61. Uselton admits that companies he controlled obtained shares of Spooz, Inc. (“Spooz”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 61.

62. Uselton denies the allegations of Paragraph 62.

63. Uselton denies the allegations of paragraph 63.

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64. Uselton admits that companies that he controlled sold shares of Spooz in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 64.

65. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 65.

66. Uselton admits the allegations of Paragraph 66.

67. Uselton admits that companies under his control obtained shares of ESPRE Solutions, Inc. (“ESPRE”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 67.

68. Uselton denies the allegations of Paragraph 68.

69. Uselton admits that companies that he controlled sold shares of ESPRE in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 69.

70. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 70.

71. Uselton admits the allegations of Paragraph 71.

72. Uselton admits that companies under his control obtained shares of Grifco International, Inc. (“GFCI”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 72.

73. Uselton denies the allegations of Paragraph 73.

74. Uselton admits that companies that he controlled sold shares of GFCI in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of
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said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 74.

75. Uselton lacks sufficient information to admit or deny the allegations of Paragraph 75.

76. Uselton admits the allegations of Paragraph 76.

77. Uselton admits that companies under his control obtained shares of Leatt Corporation (“LEAT”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 77.

78. Uselton denies the allegations of Paragraph 78.

79. Uselton admits that companies that he controlled sold shares of LEAT in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 79.

80. Uselton admits the allegations of Paragraph 80.

81. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 81.

82. Uselton denies the allegations of Paragraph 82.

83. Uselton admits that companies that he controlled sold shares of Adrenaline in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 83.

84. Uselton admits the allegations of Paragraph 84.

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85. Uselton admits that companies under his control obtained shares of Equipment and Systems Engineering, Inc. (“Equipment Systems”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 85.

86. Uselton denies the allegations of Paragraph 86.

87. Uselton admits that companies that he controlled sold shares of Equipment Systems in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 87.

88. Uselton admits that the Valores Fund purchased shares of Equipment Systems but lacks sufficient information to admit or deny the specifics of said purchase as alleged in the Complaint. Uselton denies the remaining allegations of Paragraph 88.

89. Uselton lacks sufficient knowledge to admit or deny whether spam email existed as described in Paragraph 89. Uselton denies any involvement in the making or delivery of any spam email.

90. Uselton admits that companies that he controlled sold shares of Equipment Systems in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 90.

91. Uselton lacks sufficient information to admit or deny the allegations in Paragraph 91.

92. Uselton admits the allegations of Paragraph 92.

93. Uselton admits that companies under his control obtained shares of Gulf Petroleum Exchange, Inc. (“GFPE”). Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 93.

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94. Uselton denies the allegations of Paragraph 94.

95. Uselton admits that companies that he controlled sold shares of GFPE in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 95.

96. Uselton admits the allegations of Paragraph 96.

97. Uselton denies the allegations of Paragraph 97.

98. Uselton lacks sufficient information to admit or deny the allegations regarding in Paragraph 98 regarding the content of purported spam emails. Uselton denies any involvement with the preparation or delivery of said purported spam emails.

99. Uselton admits that companies that he controlled sold shares of Wentworth Energy, Inc. in the open market at a profit but lacks sufficient information to specify the time of said sales or amount of said profit. Uselton lacks sufficient information to admit or deny the remaining allegations of Paragraph 99.

100. Uselton incorporates his responses to the allegations contained in Paragraphs 1-99 of the SEC’s Original Complaint with the same force and effect as if set forth herein.
101. Paragraph 101 contains nothing but legal conclusions to which no response is required. To the extent a response is required, however, Uselton denies the allegations contained therein.

102. Paragraph 102 contains nothing but legal conclusions to which no response is required. To the extent a response is required, however, Uselton denies the allegations contained therein.

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Relief Requested

Based on the foregoing, Jack Uselton respectfully requests that: (i) the Complaint be dismissed in its entirety with prejudice; (ii) Uselton be awarded costs of suit incurred herein including reasonable attorneys’ fees and expenses; and (iii) Uselton be awarded such other and further relief as he is justly entitled.

DATED: September 18, 2007.

Respectfully submitted,

COGDELL LAW FIRM

By: _/s/ M. Kevin Powers______________
Dan Cogdell
State Bar No. 04501500
M. Kevin Powers
State Bar No. 24041715
James M. Ardoin, III
State Bar No. 24045420
700 Louisiana, Suite 4600
Houston, Texas 77002
ATTORNEYS FOR JACK USELTON

MOTION to Intervene

IN THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff

v.

DARREL T. USELTON
AND JACK E. USELTON
Defendants

STATE OF TEXAS’ OPPOSED MOTION TO INTERVENE TO STAY PROCEEDINGS

TO HONORABLE JUDGE KENNETH HOYT:

Pursuant to Federal Rule of Civil Procedure 24, the State of Texas requests an order permitting intervention in the above-captioned case for the purpose of seeking a limited stay of proceedings for one year from the date of the filing of this motion, or the completion of related and ongoing criminal indictments and prosecution in the 339th District Court, Harris County, Texas, Hon. Caprice Cosper, presiding, against these same defendants for substantially the same conduct with which they are charged in the instant case.

BACKGROUND

On July 9, 2007, the Securities and Exchange Commission (“SEC”) filed civil charges in this Court against Darrel T. Uselton and Jack E. Uselton (collectively “Useltons” or “Defendants”) for alleged securities fraud violations.

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Less than one week earlier, on July 3, 2007, a grand jury in Houston, Harris County, Texas, had indicted both Defendants, alleging that they had combined and conspired with others to violate New York state securities laws and Texas state securities laws. Specifically, each defendant is charged with one count of Engaging in Organized Criminal Activity-Money Laundering for violating Section 29 of the Texas State Securities Act, and one count each of Engaging in Organized Criminal Activity-Money Laundering for violating Section 352-c(6) of the General Business Law of the State of New York. See Exhibit A. These criminal cases have a future docket setting of September 25, 2007.

The alleged conduct and activity in the state criminal cases are virtually identical to conduct and activity alleged in the SEC’s complaint. As described in the Texas Attorney General's Affidavit for Search Warrant in the criminal cases ("Texas AG Search Warrant"), which was ordered on December 5, 2006, the Useltons are alleged to have orchestrated a market manipulation scheme in which the trading volume and price of penny stock securities, including Oretech, Inc. ("ORTE"), were artificially increased

so that they could be resold at a higher price. The perpetrators of this scheme first
obtained free or cheap stock. They then increased the share price and volume by
using the Internet to distribute spam email to hundreds of thousands of
prospective investors urging them to purchase the stock. . . . After manipulating
the price of stock upward, they then sold their stock to unwitting investors on the
NASDAQ over the counter market located in New York, New York. This type of
scheme is referred to as a “pump and dump.” . . . Additionally, intermediary
businesses were used to send the spam through “hijacked” computers, further
concealing the identity of the perpetrators.

See Exhibit B (Texas AG Search Warrant at ¶¶ 8-9); Exhibit C (July 9, 2007 Texas Attorney General News Release (“Texas Attorney General, SEC File Market Manipulation and Stock Fraud Charges Against Two Texas Residents”).

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The conduct alleged by the SEC in the case before this court is nearly identical to the criminal conduct alleged in the state criminal proceedings. The SEC complaint alleges that the Useltons obtained shares for little or no cost from penny stock companies, including ORTE, and sold those shares by orchestrating spam email campaigns using an array of computer “botnets” (i.e., hijacked computers) that concealed the Useltons’ identity, their holdings, and their intent to sell their stock into the artificial market they created through their spamming campaigns. See generally SEC Complaint at ¶¶ 1-6. Likewise, the time frame of the alleged activity in both criminal and civil cases are virtually identical.

Accordingly, the SEC’s civil case, as well as the documents and witnesses necessary to prove its case, are nearly identical to those in the Texas criminal cases.

ARGUMENT

Federal Rule of Civil Procedure Rule 24(a) provides a right of intervention for an applicant who can demonstrate: (1) an interest in the subject matter of the civil suit; (2) an impediment to his protection of that interest arising from the pending action; and (3) inadequate protection of that interest by the existing parties to the action. See 7C CHARLES A.WRIGHT, ARTHUR R. MILLER, & MARY KAY KANE, FEDERAL PRACTICE AND PROCEDURE:CIVIL 2D § 1908 (1986 & Supp. 2003).

Alternatively, intervention may be permitted by the courts under Rule 24(b)(2) “when an applicant’s claim or defense and the main action have a question of law or fact in common.” FED. R. CIV. P. 24(b)(2). Significantly, several federal circuit courts of appeal have instructed that Rule 24 is to be broadly applied in favor of intervention in case of doubt. See, e.g., Stupak-Thrall v. Glickman, 226 F .3d 467, 472 (6th Cir. 2000); United States v. Union Elec. Co., 64 F .3d
-4-
1152, 1158 (9th Cir 1995). See generally MOORE’S FEDERAL PRACTICE § 24.03[1] & [2] (3d ed. 2003).

In the instant case, intervention by the State of Texas is appropriate under both cited provisions for the limited purpose of protecting the impending trial of the criminal indictments against the defendants in this action.

The State of Texas has a direct and substantial interest in the subject matter of the instant civil suit, which substantially parallels the facts of the criminal cases that the State of Texas is currently prosecuting. Specifically, the State of Texas has a “discernible interest in intervening in order to prevent discovery in the civil case from being used to circumvent the more limited scope of discovery in the criminal matter.” SEC v. Chestman, 861 F.2d 49, 50 (2d Cir. 1988). In Chestman, the Second Circuit held that the District Court had not abused its discretion in permitting intervention by the government under either Rule 24(a) or (b) under similar circumstances.

The disposition of the civil suit may impair the State of Texas’ ability to protect its interest. As a result of the filing of the civil action, those charged in the pending indictment gain an opportunity to benefit from discovery in the context of the civil case that they would be prohibited from obtaining under the Texas Code of Criminal Procedure. The discovery obtained in the civil forum and the State of Texas’ right to prevent the premature disclosure of evidence would be irretrievably lost if the civil suit proceeds.

Additionally, the State of Texas’ interest in enforcing its criminal laws cannot be protected adequately by the existing parties in the civil case. The private parties cannot represent the government's interest with respect to the investigation and enforcement of Texas state criminal statutes. The State of Texas alone is in the position of being directly harmed by
-5-
civil discovery and depositions, and, if intervention to permit the State of Texas to seek a limited stay is not granted, that interest will be completely unprotected and the testimony of potential witnesses will be revealed when civil discovery takes place. For the foregoing reasons, the State of Texas requests that it be granted intervention as a matter of right in the above-captioned case for the purpose of obtaining a limited stay.

Alternatively, and in the absence of a right to intervention, the State of Texas requests that the court exercise its sound discretion to permit it to intervene under Rule 24(b) of the Federal Rules of Civil Procedure. See In re Sealed Case, 856 F.2d 268, 271 (D.C. Cir. 1988) (Department of Justice granted permissive intervention in private civil case to seek protection of privileged law enforcement materials). Rule 24(b) grants the court discretion to permit intervention when there is: (1) a timely motion, (2) a common question of law or fact and (3) a basis for jurisdiction independent of diversity of citizenship. See MOORE'S FEDERAL PRACTICE, §24.11 (3d ed. 2003); Bureerong v. Uvawas, 167 F.R.D. 83, 86 (C.D. Cal. 1996). In exercising its discretion whether to permit intervention, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the rights of the original parties. FED R. CIV. P. 24(b).

This motion is being timely filed immediately after the defendants' answers are due, and the court's jurisdiction is not based upon diversity of citizenship. Finally, there are common issues of fact and law in the above-captioned case and in the ongoing criminal indictment (attached hereto as Exhibit A). A limited stay of this case will not prejudice the rights of any of the original parties. In fact, the parties to this case will benefit. Plaintiffs will benefit from the requested stay because the resolution of the criminal case will likely reduce the scope of discovery and simplify the issues in the civil case. Also, the defendants will be relieved of the
-6-
necessity of concurrently defending a civil lawsuit and a criminal action and, thus, will not be required to divert resources that may be necessary for the defense of the criminal cases. See White v. Mapco Gas Products Inc.,116 F.R.D. 498, 501-03 (E.D. Ark. 1987).

Counsel for plaintiff, the Securities and Exchange Commission, have advised the State of Texas that they do not oppose the limited stay of the civil proceedings. Counsel for both defendants, Dan Cogdell, has advised the State of Texas that he is opposed to the limited stay of the civil proceedings.

The State of Texas has a strong interest in maintaining the integrity of the criminal process, which will be subverted unless the court allows intervention in the present action. Under the controlling standards, the State of Texas has a right to limited intervention under Rule 24(a) or, in the alternative, permissive intervention under Rule 24(b) is warranted.

THEREFORE, in light of the government's strong interest in the subject matter of the above-captioned case as well as the absence of prejudice to the parties thereto, the State of Texas requests that it be granted intervention in this case for the purpose of moving for a limited stay of the proceedings.

Respectfully submitted,
/s/
SCOTT A. DURFEE
State Bar No. 06277550
Assistant District Attorney
1201 Franklin, Sixth Floor
Houston, Texas 77002

MOTION to Stay

IN THE UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff

v.

DARREL T. USELTON
AND JACK E. USELTON
Defendants

STATE OF TEXAS’ MOTION FOR A LIMITED STAY OF PROCEEDINGS

TO HONORABLE JUDGE KENNETH HOYT:

Pursuant to Federal Rule of Civil Procedure 26(c), the State of Texas moves for a protective order staying the above-captioned proceedings for one year from the date of the filing of this motion, or the completion of the criminal trial in the 339th District Court, Harris County, Texas, Hon. Caprice Cosper, presiding, against these same defendants for substantially the same conduct with which they are charged in the instant case.1 The grounds for this motion, as further discussed herein, are that allowing civil discovery in this case would hamper the ongoing Texas criminal cases against Darrel T. Uselton and Jack E. Uselton and would permit them to circumvent the rules of criminal procedure pertaining to discovery.

[1 The State of Texas has concurrently filed a motion to intervene under Rule 24 of the Federal Rules of Civil Procedure.]

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BACKGROUND

On July 9, 2007, the Securities and Exchange Commission (“SEC”) filed civil charges in this Court against Darrel T. Uselton and Jack E. Uselton (collectively “Useltons” or “Defendants”) for alleged securities fraud violations.

Less than one week earlier, on July 3, 2007, a grand jury in Houston, Harris County, Texas, had indicted both Defendants, alleging that they had combined and conspired with others to violate New York state securities laws and Texas state securities laws. Specifically, each defendant is charged with one count of Engaging in Organized Criminal Activity-Money Laundering for violating Section 29 of the Texas State Securities Act, and one count each of Engaging in Organized Criminal Activity-Money Laundering for violating Section 352-c(6) of the General Business Law of the State of New York. See Exhibit A. These criminal cases have a future docket setting of September 25, 2007.

The alleged conduct and activity in the state criminal cases are virtually identical to conduct and activity alleged in the SEC’s complaint. As described in the Texas Attorney General's Affidavit for Search Warrant in the criminal cases ("Texas AG Search Warrant"), which was ordered on December 5, 2006, the Useltons are alleged to have orchestrated a market manipulation scheme in which the trading volume and price of penny stock securities, including Oretech, Inc. ("ORTE"), were artificially increased

so that they could be resold at a higher price. The perpetrators of this scheme first obtained free or cheap stock. They then increased the share price and volume by using the Internet to distribute spam email to hundreds of thousands of prospective investors urging them to purchase the stock. . . . After manipulating the price of stock upward, they then sold their stock to unwitting investors on the NASDAQ over the counter market located in New York, New York. This type of scheme is referred to as a “pump and dump.” . . . Additionally, intermediary businesses
-3-
were used to send the spam through “hijacked” computers, further concealing the identity of the perpetrators.

See Exhibit B (Texas AG Search Warrant at ¶¶ 8-9); Exhibit C (July 9, 2007 Texas Attorney General News Release (“Texas Attorney General, SEC File Market Manipulation and Stock Fraud Charges Against Two Texas Residents”).

The conduct alleged by the SEC in the case before this court is nearly identical to the criminal conduct alleged in the state criminal proceedings. The SEC complaint alleges that the Useltons obtained shares for little or no cost from penny stock companies, including ORTE, and sold those shares by orchestrating spam email campaigns using an array of computer “botnets” (i.e., hijacked computers) that concealed the Useltons’ identity, their holdings, and their intent to sell their stock into the artificial market they created through their spamming campaigns. See generally SEC Complaint at ¶¶ 1-6. Likewise, the time frame of the alleged activity in both criminal and civil cases are virtually identical.

Accordingly, the SEC’s civil case, as well as the documents and witnesses necessary to prove its case, are nearly identical to those in the Texas criminal cases.

ARGUMENT

In ruling on requests for stays of the civil side of parallel civil/criminal proceedings, it is the law of this Circuit that judicial discretion and procedural flexibility should be utilized to harmonize the conflicting rules and to prevent the rules and policies applicable to one suit from doing violence to those pertaining to the other. See, e.g., Securities and Exchange Commission v. Mutuals.com, Inc., 2004 WL 1629929, at *2-3 (N.D. Tex. July 20, 2004) (quoting United States v. Gieger Transfer Serv., Inc., 174 F.R.D. 382, 385 (S.D. Miss. 1997) and Campbell v. Eastland, 307 F.2d 478, 487
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(5th Cir. 1962)). As the Mutuals.com court observed, “Certainly, a district court may stay a civil proceeding during the pendency of a parallel criminal proceeding. Such a stay contemplates ‘special circumstances’ and the need to avoid ‘substantial and irreparable prejudice.’” Mutuals.Com, 2004 WL 1629929 at *3 (citations omitted). Among the factors for a court to consider in deciding whether or not to grant a limited stay are:

the extent to which the issues in the criminal case overlap with those
presented in the civil case; 2) the status of the case, including whether the
defendants have been indicted; 3) the private interests of the plaintiffs in
proceeding expeditiously, weighed against the prejudice to plaintiffs
caused by the delay; 4) the private interests of and burden on the
defendants; 5) the interests of the courts; and 6) the public interest.

Id. (citing Heller Healthcare Fin., Inc. v. Boyes, 2002 WL 1558337, at *2 (N.D. Tex. July 15, 2002) and Trustees of the Plumbers & Pipefitters Nat'l Pension Fund v. Transworld Mechanical Inc., 886 F.Supp. 1134, 1139 (S.D. N.Y. 1995) (internal citations omitted)).

Generally, the interests of justice weigh in favor of a stay of parallel civil proceedings due to the variety of ways in which the civil case may impede a criminal proceeding. See Application of Eisenberg, 654 F.2d 1107, 1113 (5th Cir. 1981) (it is "this circuit's policy that criminal prosecutions take priority over civil actions"). See also Campbell v. Eastland, 307 F.2d 478, 487 (5th Cir. 1962) (“Administrative policy gives priority to the public interest in law enforcement. This seems so necessary and wise that a trial judge should give substantial weight to it in balancing the policy against the right of a civil litigant to a reasonably prompt determination of his civil claims or liabilities.”); State Farm Lloyds v. Wood, 2006 WL 3691115, at *3 (S.D. Tex. Dec. 12, 2006) (“The public’s interest in the integrity of the criminal case is entitled to precedence over the civil litigant.”) (citations omitted).

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As a threshold matter, the overlap of issues weighs considerably in favor of a stay. As noted above, the subject matter of the civil and criminal cases is essentially the same. All of the defendants in the criminal cases are also charged in the civil case with violating federal securities laws by their participation in the manipulation of multiple penny company stocks. The issues in the criminal cases substantially overlap with those presented in the civil case. As noted above, criminal indictments have been returned against the defendants in the civil case.

Moreover, “a stay of a civil case is most appropriate where a party to the civil case has already been indicted for the same conduct.” Mutuals.Com, 2004 WL 1629929 at *3 (citations omitted). In the criminal cases, the defendants have already been indicted and the cases are proceeding on the trial docket. Thus, this factor weighs strongly in favor of a limited stay. State Farm Lloyds, 2006 WL 3691115 at *2 (“If criminal indictments are returned against a civil defendant, a court should strongly consider staying the civil proceedings until the related criminal proceedings are resolved.”) (citations omitted).

In addition, the private interests of the plaintiff also weighs in favor of a stay. The SEC, which has an interest in the prompt resolution of its claims, has agreed to a limited stay of the civil proceedings. “In the context of a civil enforcement suit, the plaintiff’s interest and the public interest are intertwined.” Mutuals.Com, 2004 WL 1629929 at *3 (citing SEC v. Mersky, 1994 WL 22305, at *3 (E.D. Pa. Jan. 25, 1994)).

Further, a limited stay of this case will not prejudice the rights of any of the parties, because the civil action was only recently filed. In fact, the parties will benefit from a limited stay because the resolution of the criminal cases will likely reduce the scope of discovery and simplify, if not resolve, the issues in the civil case and avoid the necessity of consuming resources in the concurrent defense of both a civil lawsuit and criminal indictments. See White v. Mapco Gas Products Inc., 116 F.R.D. 498, 501-03 (E.D. Ark. 1987); Bureerong v. Uvawas,167 F.R.D. 83, 87 (C.D. Cal. 1996) (noting that
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"some common factual questions may be conclusively determined in the criminal action," which would "serve the interests of judicial economy by narrowing the focus of the action to the benefit of the litigants."). As one court in this district recently recognized: “The outcome of the criminal proceedings may guide the parties in settlement discussions and potentially eliminate the need to litigate some or all of the issues in this case.” State Farm Lloyds, 2006 WL 369115, at *3. A stay of discovery will also relieve defendants of the burden of defending against civil and criminal cases simultaneously. Once the limited stay is lifted in the civil case, Defendants will have the right to obtain all of the discovery that they would otherwise be entitled to under the Federal Rules of Civil Procedure.

A stay in this case will also minimize the defendants’ opportunity and ability to use civil discovery to avoid the restrictions that would otherwise pertain in criminal discovery to a criminal defendant. See Application of Eisenberg, 654 F.2d at 1113 (liberal civil discovery is not a "back door" to information beyond reach of criminal discovery rules). A limited stay of the instant case is appropriate to preclude the litigants from using liberal civil discovery proceedings to obtain information not available under more restricted criminal discovery provisions. See Campbell, 307 F.2d at 487 (“A litigant should not be allowed to make use of the liberal discovery procedures applicable to a civil suit as a dodge to avoid the restrictions on criminal discovery and thereby obtain documents he would not otherwise be entitled to for use in his criminal suit”). Moreover, law enforcement agents, who have developed confidential sources, should not be hindered in their efforts by the threat of civil deposition subpoenas, and should not have to prematurely disclose confidential information that has been developed in the course of their criminal investigation. Interference with the orderly presentation of witnesses and other evidence would significantly impede the criminal cases. Finally, a limited stay of the case will not harm the public interest. In fact, because of the overlap between the criminal and civil cases, the pending criminal
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prosecution advances the public interest at stake here. The Fifth Circuit has long recognized the public interest in criminal law enforcement. Mutuals.Com, 2004 WL 1629929, at *3 (citing Campbell, 307 F.2d at 487). Additionally, “the public has an interest in ensuring the criminal discovery process is not subverted.” Id. (citing Morris v. Am. Fed’n of State, County and Mun. Employees, 2001 WL 123886, at *2 (S.D. N.Y. Feb. 9, 2001)).

Counsel for plaintiff, the Securities and Exchange Commission, have advised the State of Texas that they do not oppose the limited stay of the civil proceedings. Counsel for both defendants, Mr. Dan Cogdell, has advised the State of Texas that he is opposed to the limited stay of the civil proceedings.

The State of Texas has a strong interest in maintaining the integrity of the criminal process, which will be subverted unless the court allows a limited stay of proceedings pursuant to Rule 26(c) of the Federal Rules of Civil Procedure.

THEREFORE, the State of Texas requests that this case be stayed for a limited time until September 17, 2008, or the completion of the criminal case.

Respectfully submitted,
/s/
SCOTT A. DURFEE
State Bar No. 06277550
Assistant District Attorney
1201 Franklin, Sixth Floor
Houston, Texas 77002