CALIFORNIA

THE COMMISSIONER ISSUED A DESIST AND REFRAIN ORDER AGAINST BRIAN KEITH ALFARO, ALFARO OIL & GAS, AND TIMOTHY CLARENCE HUNDLEY FOR THE SALE OF SECURITIES IN THE SCREAMING EAGLE VENTURE THAT WERE IN THE OPINION OF THE COMMISSIONER UNQUALIFIED, NON-EXEMPT SECURITIES THAT WERE OFFERED AND SOLD BY MEANS OF MISREPRESENTATIONS AND/OR OMISSIONS OF MATERIAL FACT IN VIOLATION OF SECTIONS 25110 AND 25401 OF THE CALIFORNIA CORPORATE SECURITIES LAW OF 1968 (CORP. CODE, §§ 25000 ET SEQ.).

Consent

Cease and Desist

Monetary Penalty other than Fines

TEXAS

IN CONNECTION WITH THE SALE OF AN OIL & GAS INVESTMENT, RESPONDENT FAILED TO DISCLOSE MATERIAL FACTS RELATED TO ACTIONS BY ALFARO OIL & GAS AND ALFARO IN CONNECTION WITH ANOTHER OIL & GAS PROGRAM. RESPONDENTS ENGAGED IN FRAUD IN CONNECTION WITH THE OFFER FOR SALE OF SECURITIES.

Consent

Cease and Desist

FINRA

SECTION 5 OF THE SECURITIES ACT OF 1933, SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 10B-5 THEREUNDER, ARTICLE V, SECTION 2 OF FINRA'S BY-LAWS, FINRA RULES 2010, 2020, 2150, NASD RULES 2110, 2120, 2330, 3010, 3070: ALFARO AND HIS WHOLLY-OWNED MEMBER FIRM OFFERED AND SOLD SECURITIES TO INVESTORS THROUGH A BOILER ROOM WHERE NUMEROUS REGISTERED REPRESENTATIVES PLACE THOUSANDS OF COLD CALLS TO SOLICIT INVESTMENTS IN ALFARO'S CAPTIVE OIL AND GAS DRILLING JOINT VENTURES. THE SECURITIES AT ISSUE WERE MARKETED AS JOINT VENTURE INTERESTS FOR PARTICIPATION IN THE ACQUISITION OF WORKING INTERESTS AND NET REVENUE INTERESTS IN OIL AND GAS WELLS. INTERESTS IN THE JOINT VENTURES ARE SECURITIES AND WERE NOT REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933. THESE OFFERINGS WERE NOT EXEMPT FROM REGISTRATION PURSUANT TO SECTION 502(C) OF REGULATION D OF THE SECURITIES ACT OF 1933 BECAUSE THE FIRM, ACTING THROUGH ALFARO OR OTHER REPRESENTATIVES EMPLOYED BY THE FIRM, ENGAGED IN GENERAL SOLICITATIONS BY OFFERING THE JOINT VENTURES BEFORE AN EXISTING RELATIONSHIP BETWEEN THE FIRM AND POTENTIAL INVESTOR WAS ESTABLISHED-AS EARLY AS THE INITIAL COLD CALL. THE OPERATORS OF THE VENTURES ARE ENTITIES OWNED OR CONTROLLED BY ALFARO. ALFARO AND HIS FIRM RAISED OVER $10 MILLION FROM OVER 100 INVESTORS FOR OFFERINGS THAT MATERIALLY MISREPRESENTED OR OMITTED FACTS. ALFARO AND HIS FIRM HAVE CONTINUOUSLY OFFERED AND SOLD FRAUDULENT OFFERINGS TO INVESTORS THROUGHOUT THE UNITED STATES. ALFARO AND HIS FIRM FAILED TO DISCLOSE TO ALL INVESTORS THAT NONE OF THE JOINT VENTURES OFFERED THROUGH THE FIRM AND ALFARO HAD EVER BEEN PROFITABLE FOR ANYONE OTHER THAN THE FIRM, ALFARO, AND ENTITIES OWNED AND CONTROLLED BY ALFARO. ALFARO UTILIZED NON-REGISTERED ENTITIES WHICH CHARGED FEES TO INVESTORS THAT MADE EACH OF THE OFFERINGS LESS LIKELY TO BE PROFITABLE. THE NON-REGISTERED ENTITIES CHARGED EXORBITANT FEES TO ALL INVESTORS THAT ARE NOT TYPICALLY INCURRED BY OTHER INTEREST HOLDERS IN SIMILAR OIL AND GAS DRILLING PROJECTS. THE FIRM AND ALFARO'S SOLICITATIONS CREATED THE FALSE IMPRESSION THAT ONE OF THE NON-REGISTERED ENTITIES WAS AN OIL AND GAS OPERATOR. THE NON-REGISTERED ENTITY ENTERED INTO "TURNKEY AGREEMENTS" WITH ALL INVESTORS IN THE OFFERINGS AT ISSUE SOLD BY THE FIRM AND ALFARO. THIS TYPICALLY LIMITS THE LIABILITY EXPOSURE FOR A CONTRACTOR'S ACTIONS. DESPITE THE LIMITED ROLE OF ONE OF THE NON-REGISTERED ENTITIES, THE FIRM AND ALFARO SOLD THE JOINT VENTURE INTERESTS TO ALL INVESTORS AT PRICES THAT WERE AS MUCH AS 100% TO 200% MORE THAN THE COST ESTIMATES RECEIVED FROM THE OPERATORS TO DRILL THE WELLS. AS A RESULT, INVESTORS RECEIVED MINORITY INTERESTS IN OIL AND GAS PROSPECTS AT PRICES THAT INCLUDED SUBSTANTIAL ADDITIONAL COSTS. NEITHER THE FIRM NOR ALFARO DISCLOSED THE DRILLING COSTS TO INVESTORS. THE FIRM AND ALFARO HAVE MATERIALLY MISREPRESENTED OR OMITTED FACTS RELATED TO THE OFFERINGS THEY SOLD TO INVESTORS. THE INVESTMENT SUMMARIES INCLUDED NUMEROUS MISREPRESENTATIONS AND OMISSIONS. THE FIRM AND ALFARO NEVER INFORMED INVESTORS OF ALFARO'S ALTERATION OF THE REPORTS OR OF THE DELETED INFORMATION. THE FIRM AND ALFARO ALSO PROVIDED INVESTORS WITH MAPS THAT OMITTED NUMEROUS DRY, PLUGGED, AND ABANDONED WELLS NEAR THEIR PROJECTED DRILLING SITE. IN THE INVESTMENT SUMMARIES, THE FIRM AND ALFARO GROSSLY INFLATED NATURAL GAS PRICES, PROJECTED NATURAL GAS RESERVES, ESTIMATED GROSS RETURNS, AND ESTIMATED MONTHLY CASH FLOWS. IN ADDITION, THE FIRM AND ALFARO DISTRIBUTED AN OFFERING DOCUMENT CLAIMING THAT A PREVIOUS OFFERING HAD DISTRIBUTED OVER $14 MILLION WHEN THE ACTUAL DISTRIBUTION WAS LESS THAN $1.5 MILLION. ALFARO MISUSED CUSTOMER FUNDS. ALFARO ADMITTED TO FINRA STAFF THAT THE ONLY WAY THAT HE COULD MEET HIS FINANCIAL OBLIGATIONS TO DRILL THE INVESTORS' WELLS AND PAY FOR ANY OBLIGATIONS PURSUANT TO HIS NUMEROUS TURNKEY AGREEMENTS WITH INVESTORS WAS TO RAISE ADDITIONAL FUNDS FROM INVESTORS OR TAP HIS PERSONAL RESOURCES.[CONTINUED IN COMMENTS]

Decision

Bar (Permanent)

All Capacities

5/23/2012

Rescission

[CONTINUED FROM ALLEGATIONS]: THE FIRM AND ALFARO SYSTEMATICALLY DESTROYED DOCUMENTS, MAINTAINED INACCURATE BOOKS AND RECORDS, FAILED TO PROPERLY REPORT NUMEROUS WRITTEN INVESTOR COMPLAINTS RELATED TO THE ALLEGATIONS IN THIS COMPLAINT, AND FAILED TO PROPERLY AMEND AND TIMELY UPDATE FORMS U-4 FOR SETTLEMENT RELATED TO CUSTOMER GRIEVANCES IN EXCESS OF $15,000. THE FIRM FAILED TO RETAIN COPIES OF ALL FIRM CORRESPONDENCE, AND FAILED TO MAINTAIN INFORMATION NECESSARY TO ACCESS RECORDS AND INDEXES STORED ON THE FIRM'S ELECTRONIC STORAGE MEDIA WITH FINRA. ALFARO DIVERTED E-MAIL TO HIS PERSONAL E-MAIL ACCOUNT AND DELETED ALL E-MAILS RELATED TO THE FIRM AND OFFERINGS SOLD BY HIMSELF AND THE FIRM. ALFARO SERVED AS THE FIRM'S PRESIDENT AND CHIEF COMPLIANCE OFFICER AND CAUSED HIS FIRM'S WILLFUL VIOLATIONS OF SECTION 17 OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 17A-4 THEREUNDER, AND NASD RULE 3110. THE FIRM'S SUPERVISORY SYSTEM AND WRITTEN PROCEDURES WERE NOT REASONABLY DESIGNED TO ENSURE COMPLIANCE WITH E-MAIL RETENTION REQUIREMENTS. AMONG OTHER THINGS, THE FIRM'S PROCEDURES DID NOT PROVIDE FOR ANY REASONABLE FOLLOW UP AND REVIEW TO ENSURE THAT COPIES OF ALL E-MAIL COMMUNICATIONS WERE, IN FACT, BEING CAPTURED AND MAINTAINED. AS A RESULT OF THE FOREGOING CONDUCT, ALFARO WILLFULLY VIOLATED SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 10B-5 THEREUNDER, FINRA RULES 2010, 2020, AND NASD RULES 2110, 2120. SECOND AMENDED COMPLAINT DATED JUNE 22, 2011: ADDITIONAL INFORMATION DISCOVERED AFTER THE FIRST AMENDED COMPLAINT WAS FILED- INCLUDING MISCONDUCT RELATED TO ADDITIONAL OFFERINGS ARE NOW BEING CHARGED AND ADDITIONAL FACTS ABOUT THE OFFERINGS PREVIOUSLY CHARGED ARE BEING ALLEGED. THESE ALLEGATIONS ARE RELATING TO FAILURE TO DISCLOSE MATERIAL FACTS, MISREPRESENTATIONS TO INVESTORS IN ORDER TO PROCURE AND MISUSE CUSTOMER FUNDS. ADDITIONAL CAUSES OF ACTION RELATING TO SUITABILITY AND SUPERVISION ARE BEING PURSUED THAT THE FIRM AND ALFARO RECOMMENDED AND EFFECTED SECURITIES TRANSACTIONS WITHOUT DOCUMENTING OR HAVING A REASONABLE BASIS FOR BELIEVING THAT THEY WERE SUITABLE FOR CUSTOMERS. ADDITIONAL INFORMATION UNCOVERED THAT THE FIRM AND ALFARO ENGAGED IN ADDITIONAL FRAUD IN THE OFFERING AND SALE OF SECURITIES, AND ALFARO MISUSED ADDITIONAL CUSTOMER FUNDS RELATED TO OFFERINGS. DEFAULT DECISION RENDERED APRIL 25, 2012 WHEREIN ALFARO WAS BARRED FOR MAKING MATERIAL MISREPRESENTATIONS IN CONNECTION WITH THE SALE OF SECURITIES, IN WILLFUL VIOLATION OF SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934, SEC RULE 10B-5, NASD RULES 2120 AND 2110, AND FINRA RULES 2020 AND 2010. ALFARO IS ALSO BARRED FOR MISUSE OF CUSTOMER FUNDS, IN VIOLATION OF NASD RULES 2330 AND 2110, AND FINRA RULES 2150 AND 2010. ALFARO WAS BARRED, FOR MAKING UNREGISTERED SALES OF SECURITIES, IN VIOLATION OF SECTION 5 OF THE SECURITIES ACT OF 1933, NASD RULE 2110, AND FINRA RULE 2010. ALFARO WAS ALSO ORDERED TO OFFER RESCISSION TO THOSE WHO PURCHASED INTERESTS IN THE FRAUDULENT JOINT VENTURES. TO THE EXTENT ANY CUSTOMER DOES NOT REQUEST RESCISSION; ALFARO SHALL REFUND THE 15 PERCENT SALES COMMISSION CHARGED TO EACH CUSTOMER OF THE FRAUDULENT JOINT VENTURES. IN LIGHT OF THE BARS, NO ADDITIONAL SANCTIONS ARE IMPOSED FOR ALFARO'S FAILURE TO DOCUMENT AND DETERMINE SUITABILITY, IN VIOLATION OF NASD RULE 2310 AND FINRA RULE 2010; FAILURE TO REPORT, ACCURATELY REPORT, AND MAINTAIN RULE 3070 FILINGS AND FAILURE TO UPDATE AND TIMELY UPDATE FORMS U4, IN VIOLATION OF FINRA'S BY-LAWS, NASD RULE 3070, AND FINRA RULE 2010; FAILURE TO SUPERVISE, ESTABLISH AND MAINTAIN SUPERVISORY CONTROLS, IN VIOLATION OF NASD RULES 3012 AND 3010, AND FINRA RULE 2010; AND ALFARO'S CAUSING HIS FIRM TO FAIL TO MAINTAIN BOOKS AND RECORDS, IN VIOLATION OF NASD RULE 2110 AND FINRA RULE 2010. DECISION BECAME FINAL MAY 23, 2012.

[CONTINUED FROM ALLEGATIONS]: THE FIRM AND ALFARO ALSO PROVIDED INVESTORS WITH MAPS THAT OMITTED NUMEROUS DRY, PLUGGED, AND ABANDONED WELLS NEAR THEIR PROJECTED DRILLING SITE. IN THE INVESTMENT SUMMARIES, THE FIRM AND ALFARO GROSSLY INFLATED NATURAL GAS PRICES, PROJECTED NATURAL GAS RESERVES, ESTIMATED GROSS RETURNS, AND ESTIMATED MONTHLY CASH FLOWS. IN ADDITION, THE FIRM AND ALFARO DISTRIBUTED AN OFFERING DOCUMENT CLAIMING THAT A PREVIOUS OFFERING HAD DISTRIBUTED OVER $14 MILLION WHEN THE ACTUAL DISTRIBUTION WAS LESS THAN $1.5 MILLION. ALFARO MISUSED CUSTOMER FUNDS TO 1) MEET OBLIGATIONS FOR PREVIOUS OFFERINGS, 2) COVER ALFARO'S PERSONAL EXPENSES, AND 3) MAKE CASH PAYMENTS TO ALFARO PERSONALLY. AS ALFARO ADMITTED TO FINRA STAFF, THE ONLY WAY ONE OF THE NON-REGISTERED ENTITIES COULD MEET ITS FINANCIAL OBLIGATIONS TO DRILL THE INVESTORS' WELLS AND MEET OBLIGATIONS TO PREVIOUS INVESTORS, AFTER SPENDING INVESTOR FUNDS IN THIS FASHION, WAS TO RAISE ADDITIONAL FUNDS FROM INVESTORS OR TAP ALFARO'S PERSONAL RESOURCES. THE FIRM AND ALFARO SYSTEMATICALLY DESTROYED DOCUMENTS, MAINTAINED INACCURATE BOOKS AND RECORDS, FAILED TO PROPERLY REPORT NUMEROUS WRITTEN INVESTOR COMPLAINTS RELATED TO THE ALLEGATIONS IN THIS COMPLAINT, AND FAILED TO PROPERLY AMEND FORMS U-4 FOR SETTLEMENT RELATED TO CUSTOMER GRIEVANCES IN EXCESS OF $15,000. THE FIRM FAILED TO RETAIN COPIES OF ALL FIRM CORRESPONDENCE, AND FAILED TO MAINTAIN INFORMATION NECESSARY TO ACCESS RECORDS AND INDEXES STORED ON THE FIRM'S ELECTRONIC STORAGE MEDIA WITH FINRA. ALFARO DIVERTED E-MAIL TO HIS PERSONAL E-MAIL ACCOUNT AND DELETED ALL E-MAILS RELATED TO THE FIRM AND OFFERINGS SOLD BY HIMSELF AND THE FIRM. DURING THIS TIME PERIOD, ALFARO SERVED AS THE FIRM'S PRESIDENT AND CHIEF COMPLIANCE OFFICER AND CAUSED HIS FIRM'S WILLFUL VIOLATIONS OF SECTION 17 OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 17A-4 THEREUNDER, AND NASD RULE 3110. THE FIRM'S SUPERVISORY SYSTEM AND WRITTEN PROCEDURES WERE NOT REASONABLY DESIGNED TO ENSURE COMPLIANCE WITH E-MAIL RETENTION REQUIREMENTS. AMONG OTHER THINGS, THE FIRM'S PROCEDURES DID NOT PROVIDE FOR ANY REASONABLE FOLLOW UP AND REVIEW TO ENSURE THAT COPIES OF ALL E-MAIL COMMUNICATIONS WERE, IN FACT, BEING CAPTURED AND MAINTAINED. AS A RESULT OF THE FOREGOING CONDUCT, ALFARO WILLFULLY VIOLATED SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 10B-5 THEREUNDER, FINRA RULES 2010, 2020, AND NASD RULES 2110, 2120. ADDITIONALLY, ALFARO MISUSED CUSTOMER FUNDS BY SPENDING FUNDS DESIGNATED FOR DRILLING AND TESTING FOR UNRELATED BUSINESS AND PERSONAL PURPOSES. AS A RESULT OF THE FOREGOING CONDUCT, ALFARO VIOLATED NASD RULES 2330, 2110, AND FINRA RULE 2010. ** MR. ALFARO DENIES THE ABOVE ALLEGATIONS AND WILL VIGOROUSLY DEFEND AGAINST THEM.

FINRA

RESPONDENT ALFARO FAILED TO COMPLY WITH A CEASE AND DESIST ORDER

LETTER

Suspension

ALL CAPACITIES

N/A

3/8/2011

PURSUANT TO FINRA RULE 9556 AND IN ACCORDANCE WITH FINRA'S INTENT TO SUSPEND LETTER DATED FEBRUARY 10, 2011, ALFARO IS SUSPENDED ON MARCH 8, 2011 FROM ASSOCIATING WITH ANY FINRA MEMBER FIRM IN ANY CAPACITY. RESPONDENT ALFARO WITHDREW HIS REQUEST FOR HEARING, THEREBY WAIVING HIS RIGHT TO A HEARING. ACCORDINGLY, THE HEARING WAS CANCELED AND THE EXPEDITED PROCEEDING DISMISSED. IT IS FURTHER ORDERED THAT THE NOTICE OF SUSPENSION DATED FEBRUARY 10, 2011, IS DEEMED FINRA'S FINAL ACTION PURSUANT TO RULES 9556 AND 9559.

TEXAS

IN CONNECTION WITH THE SALE OF AN OIL & GAS INVESTMENT, ALFARO OIL & GAS, PINNACLE PARTNERS & BRIAN ALFARO ARE FAILING TO DISCLOSE MATERIAL FACTS RELATED TO ACTIONS BY ALFARO OIL & GAS AND ALFARO IN CONNECTION WITH ANOTHER OIL & GAS PROGRAM. SPECIFICALLY, INVESTORS ARE NOT BEING TOLD; DURING A PERIOD WHEN RESPONDENT AOG AND RESPONDAENT ALFARO KNEW THAT DRILLING IN CONNECTION WITH THE INVESTMENT PROGRAM WAS NOT IMMINENT, RESPONDENT AOG REQUIRED INVESTORS IN THE PROGRAM TO PROVIDE ADDITIONAL FUNDS FOR DRILLING AND TESTING EXPENSES; AFTER COLLECTING FUNDS PURPORTED TO BE FOR DRILLING AND TESTING IN CONNECTION WITH AN INVESTMENT PROGRAM, RESPONDENT AOG AND RESPONDENT ALFARO DIVERTED THE FUNDS TO USES UNRELATED TO THE INVESTMENT PROGRAM; FUNDS RAISED IN CONNECTION WITH THE SALE OF INVESTMENTS IN AN INVESTMENT PROGRAM COULD BE USED TO FUND DRILLING AND TESTING EXPENSES FOR A PRIOR PROGRAM IF THAT PROGRAM DID NOT HAVE FUNDS SUFFICIENT FOR DRILLING AND TESTING EXPENSES. ALFARO OIL & GAS, PINNACLE AND ALFARO ARE ENGAGING IN FRAUD IN CONNECTION WITH OTHER FOR SALE OF SECURITIES. ALFARO OIL & GAS, PINNACLE AND ALFARO'S CONDUCT, ACT AND PRACTICES THREATEN IMMEDIATE AND IRREPARABLE PUBLIC HARM. THEY ARE TO IMMEDIATLEY CEASE AND DESIST FROM ENGAGING IN ANY FRAUD IN CONNECTION WITH THE OFFER FOR SALE OF ANY SECURITY IN TEXAS.

Consent

Cease and Desist

THE PARTIES DENY ANY WRONG DOING AND WILL VIGOROUSLY DEFEND THEMSELVES.