Regulators Allege Scam by Shoreline

The Securities and Exchange Commission has halted a suspected $3.8-million securities fraud run by Costa Mesa-based Shoreline Development Co. and four individuals, including two who were previously sanctioned by the SEC, the federal agency said Wednesday.

The SEC obtained a temporary restraining order from U.S. District Judge Ronald Lew in Los Angeles on Tuesday, halting the scheme.

In its civil case, the SEC alleges that the defendants diverted more than $1 million of investor money intended for oil and gas well investment for their own purposes, including paying gambling debts at the Bellagio Hotel & Casino in Las Vegas and for a Maui honeymoon for one defendant.

Lew appointed Douglas Wilson as receiver for Shoreline, said SEC spokeswoman Lisa Gok. Wilson will determine how much money is left in Shoreline’s frozen bank accounts and investigate whether the company actually made gas and oil well investments.

The SEC said it learned of the alleged fraud through an investor complaint.

The defendants include: Todd J. Taylor, 36; Derek K. Gradwell, 29; Paul A. Barrios III, 40; and Dennis P. O’Connell, 47, all of Orange County.

David Grey, an attorney for the defendants, said he couldn’t comment on the case because he had just received a copy of the SEC’s documents and allegations and had yet to read through them.

According to the SEC, “Taylor and Gradwell made misrepresentations about the performance of Shoreline’s wells; a purported business relationship with El Paso Field Services; and their use of investor funds.”

The diverted money also paid for lavish vacations to Florida, a wedding for Taylor, customized motorcycles and other luxury items, the SEC said.

Both Taylor and Barrios are repeat securities law violators, according to the agency. In 1999, Taylor was ordered by a federal district court not to sell securities without registering with the SEC as a broker-dealer because he was selling securities without a license. In 2000, Barrios was the subject of a cease-and-desist order issued by the SEC suspending him for 12 months for selling unregistered securities.

A hearing on whether a preliminary injunction should be issued against the defendants is scheduled for Sept. 6.

The SEC said it will seek a final judgment against the defendants prohibiting them from future securities law violations and ordering them to disgorge “all ill-gotten gains” and to pay civil penalties.