V GARDE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK TRUK INTERNATIONAL FUND LP, Plaintiff, CLASS ACTION V. Civ. No: DAVID W. WEHLMANN; GERALD W. HADDOCK; RANDALL BOYD; DONALD W. NIEMIEC; ROBERT L. GAUDIN; WILLIAM O. POWELL, III; CANACCORD ADAMS, INC.; and CANACCORD CAPITAL CORPORATION, Defendants. CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS JURY TRIAL DEMANDED Plaintiff Truk International Fund LP (&quot;Plaintiff') makes the following allegations, except as to allegations specifically pertaining to plaintiff and plaintiff's counsel, based upon the investigation undertaken by plaintiff's counsel, which investigation included analysis of publicly available news articles and reports, public filings, securities analysts' reports and advisories about Cano Petroleum, Inc. (&quot;Cano&quot; or the &quot;Company&quot;), press releases and other public statements issued by the Company, and media reports about the Company, and believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE ACTION AND OVERVIEW 1. This is a securities class action lawsuit brought on behalf of a class consisting ofall persons who purchased the common stock of Cano Petroleum, Inc. (&quot;Cano&quot; or the &quot;Company&quot;) issued pursuant to a registration statement and prospectus filed with the SEC in connection with Cano's June 26, 2008 secondary public offering (the &quot;Secondary Offering&quot;) of Cano common stock (the &quot;Class&quot;), to recover damages caused by defendants' violations of the federal securities laws. Excluded from the Class are the defendants, members of their immediate families, Cano and any officer or director of Cano. . ii JURISDICTION 2. This Court has jurisdiction over the subject matter of this action pursuant to Section 22 (a) of the Securities Act of 1933 (the &quot;Securities Act&quot;), 15 U.S.C. 77v(a), and 28 U.S.C. 1331 and 1337. 3. Venue is proper in this District pursuant to Section 22(a) ofthe Securities Act, 15 U.S C. 77v(a), and 28 U.S.C. 1391, because during the class period one or more of the defendants were found and/or transacted business in this district and/or the substantial acts in furtherance of the wrongs alleged herein arose at least in part in this district. 4. In connection with the acts and omissions alleged in this complaint, all of the defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, <a href="/keyword/interstate-telephone-communications/" >interstate telephone communications</a> , and the facilities of the national securities markets. PARTIES 5. Plaintiff Truk International Fund LP is a limited partnership with offices in New York, NY. It purchased shares of Cano common stock during the class period as described in the certification attached as Exhibit A hereto. 6. Defendant David W. Wehlmann (&quot;Wehlmann&quot;) served as a Director on Cano' s Board of Directors at all times since December 12, 2007. Defendant Wehlman signed the registration statement for the Secondary Offering. 7. Defendant Gerald W. Haddock (&quot;Haddock&quot;) served as a Director on Cano's Board of Directors at all times during the Class Period. Defendant Haddock signed the registration statement for the Secondary Offering. 8. Defendant Randall Boyd (&quot;Boyd&quot;) served as a Director on Cano's Board of Directors at all times during the Class Period. Defendant Boyd signed the registration statement for the Secondary Offering. 9. Defendant Donald W. Niemiec (&quot;Niemiec&quot;) served as a Director on Cano's 2 r Board of Directors at all times during the Class Period. Defendant Niemiec signed the registration statement for the Secondary Offering. 10. Defendant Robert L. Gaudin (&quot;Gaudin&quot;) served as a Director on Cano's Board of Directors at all times during the Class Period. Defendant Gaudin signed the registration statement for the Secondary Offering. 11. Defendant William O. Powell, III (&quot;Powell&quot;) served as a Director on Cano's Board of Directors at all times during the Class Period. Defendant Powell signed the registration statement for the Secondary Offering. 12. Defendants Johnson, Wehlmann, Haddock, Boyd, Niemiec, Gaudin and Powell are referred to herein as the &quot;Director Defendants&quot;. 13. Defendant Canaccord Adams, Inc., is a Canadian corporation that maintains an office at 535 Madison Avenue, New York, New York, 10022 and has operations as well in Toronto, London, Boston, Vancouver, Calgary, Montreal, San Francisco, Houston and Barbados. It is the international capital markets division of Canaccord Capital Inc. Canaccord Adams served as an underwriter of the Cano Secondary Offering. 14. Defendant Canaccord Capital Corporation, a Canadian corporation, is a wholly-owned subsidiary of Canaccord Capital Inc. Canaccord Capital Corporation served as an underwriter of the Cano Secondary Offering. 15. Defendants Canaccord Adams, Inc. and Canaccord Capital Corporation are referred to collectively as &quot;Canaccord&quot; and as the &quot;Underwriter Defendants&quot;. CLASS ACTION ALLEGATIONS 16. Plaintiff brings this action as a class action under Rules 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure on behalf of a class (the &quot;Class&quot;) consisting of plaintiff and all other persons or entities who purchased or acquired shares of Cano common stock issued pursuant to a registration statement and prospectus (the &quot;Prospectus&quot;) filed with the SEC in connection with Cano's June 26, 2008 secondary public offering of Cano common stock (the &quot;Secondary Offering&quot;), 3 to recover damages caused by defendants' violations of the federal securities laws. Excluded from the Class are the defendants, members of their immediate families , Cano and any officer or director of Cano. 17. The Class is so numerous that joinder of all members is impracticable. Approximately 7 million shares of Cano common stock were issued and sold to members of the Class in the Secondary Offering. There are believed to be thousands of persons who purchased or acquired Cano common stock in the Secondary Offering. 18. Plaintiff's claims are typical of the claims of the other members of the Class. Plaintiff and all members Class sustained damages arising out of defendants' conduct in violation of federal law as complained of herein. 19. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class action and securities litigation. 20. A class action is superior to other available methods for the fair and efficient adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for the members of the Class individually to redress the wrongs done to them. There will be no difficulty in the management of this action as a class action. 21. Common questions of law and fact exist as to all members of the Class, and predominate over any questions affecting solely individual members of the Class. Among the questions of law and fact common to the class: (a) whether the federal securities laws or the common law were violated by defendants' acts as alleged herein; (b) whether the Prospectus disseminated by Defendants to the Class omitted and/or misrepresented material facts about the business operations and prospects of the Company; (c) whether the members of the Class have sustained damages and, if so, what is the proper measure of such damages. 4 CLAIMS UNDER THE SECURITIES ACT OF 1933 22. In connection with the Secondary Offering, defendants filed a registration statement and prospectus with the SEC for the Cano shares issued in the Secondary Offering (the &quot;Prospectus&quot;): (a) On or about December 13, 2007, defendants filed with the SEC a preliminary On or about registration statement on Form S-3, containing a preliminary proxy prospectus. December 28, 2007, the registration statement was declared to be effective by the SEC. (b) On or about June 25, 2008, defendants filed with the SEC a preliminary prospectus supplement to the preliminary prospectus that had been declared effective as ofDecember 28, 2007. (c) On or about June 26, 2008, defendants filed with the SEC a final prospectus supplement and prospectus for the Secondary Offering. 23. As the Prospectus explained , the SEC allows companies to make requisite disclosures through &quot;incorporation by reference&quot; of other, previously-filed documents containing such requisite information. The information contained in documents &quot;incorporated by reference&quot; becomes, through incorporation by reference, part of the registration statement itself, as the Prospectus stated: The SEC allows us to &quot;incorporate by reference&quot; the information we have filed with it, which means that we can disclose important information to you by referring you to those documents. The information we incorporate by reference is an important part of this prospectus supplement... (Prospectus, at p. S-2) 24. following documents: (a) (b) Cano's Form 10-K filed on September 11, 2007 (the &quot;2007 10-K&quot;); Cano' s Forms 10-Q filed with the SEC on November 7, 2007 (the &quot;Q1 2008 Specifically, the Prospectus incorporated by reference, inter alia, the 10-Q&quot;), February 8, 2008 (the &quot;Q2 2008 10-Q&quot;), and May 8, 2008 (the &quot;Q3 2008 10-Q&quot;); and 5 (c) 25. Cano's Forms 8-K filed with the SEC on February 21, 2008.' The Prospectus contained untrue statements ofmaterial facts, was inaccurate and misleading, omitted to state other facts necessary to make the statements made not misleading, and concealed and failed adequately to <a href="/keyword/disclose-material-facts/" >disclose material facts</a> as described below. 26. The Prospectus contained statements concerning proved reserve amounts and standards that were materially false and overstated Cano's proved reserves. FIRST CLAIM For Violation of Section 11 of the Securities Act of 1933 Director Defendants and the Underwriter Defendants 27. set forth herein. 28. This cause of action is brought by plaintiff, on behalf of the Class, who Plaintiff repeats and realleges each and every allegation above as though fully purchased shares issued in the Secondary Offering, against Director Defendants and the Underwriter Defendants , pursuant to section 11 of the Securities Act of 1933, 15 U.S.C. 77k.. 29. Defendants' liability under this cause of action is predicated on the participation of each Defendant in conducting the Secondary Offering pursuant to the Prospectus, which contained untrue statements of material fact as described above. 30. Defendants Wehlmann, Haddock, Boyd, Niemiec, Gaudin and Powell were directors of Cano at the time the Prospectus became effective, and signed the registration statement of which the Prospectus was a part. As such, these Defendants issued, caused to be issued, and participated in the issuance of the Prospectus, which contained untrue statements of material fact as described above. 31. As directors of the Company, Defendants Wehlmann, Haddock, Boyd, Niemiec, Gaudin and Powell owed to purchasers of the stock issued in the Secondary Offering the duty to make a reasonable and diligent investigation of the statements contained in the Prospectus Cano filed two Forms 8-K on that day and explicitly incorporated both of them. The Prospectus also ' incorporated numerous other Form 8-K filings (and specifically refused to incorporate certain prior Form 8-K filings). 6 at the time it became effective to ensure that said statements were true and that there were no omissions of material fact which rendered the statements therein materially untrue and misleading. Defendants Wehlmann, Haddock, Boyd, Niemiec, Gaudin and Powell did not make a reasonable investigation or possess reasonable grounds to believe that the statements contained in the Prospectus were true and without omissions of material facts and were not misleading. 32. Accordingly, Defendants Wehlmann, Haddock, Boyd, Niemiec, Gaudin and Powell are therefore liable to plaintiff and other members of the Class who purchased Cano shares issued in the Secondary Offering pursuant to the Prospectus. 33. As underwriters ofthe Secondary Offering, the Underwriter Defendants owed to purchasers of the stock issued in the Secondary Offering the duty to make a reasonable and diligent investigation of the statements contained in the Prospectus at the time it became effective to ensure that said statements were true and that there were no omissions of material fact which rendered the statements therein materially untrue and misleading. The Underwriter Defendants did not make a reasonable investigation or possess reasonable grounds to believe that the statements contained in the Prospectus were true and without omissions of material facts and were not misleading. Accordingly, the Underwriter Defendants are therefore liable to plaintiff and other members of the Class who purchased Cano shares issued in the Secondary Offering pursuant to the Prospectus. 34. Plaintiff and other members of the Class acquired shares of Cano pursuant to, or traceable to, the Prospectus. Plaintiff and other members of the Class did not know of untrue statements or of omissions of material facts therein, or of defendants' negligent conduct in failing to ensure that the statements in the Prospectus were true and without omissions of material fact, and plaintiff and other members of the Class would not have reasonably discovered such facts or conduct. 35. Plaintiff and the Class have suffered damages. The Cano shares issued pursuant to the Prospectus in the Secondary Offering were priced at $8.00 per share. The value of 7 those Cano shares issued in the Secondary Offering has since declined substantially, due to Defendants' violations of Section 11 of the Securities Act. The last closing price of Cano's shares prior to the first filing of a complaint asserting claims under the Securities Act (i.e., the instant complaint) was $2.20 per share, on, October 1, 2008. 36. Less than one year elapsed from the times of the violations and facts upon which this complaint is based to the time of filing this action. Less than three years elapsed from (a) the time that Cano stock was bona fide issued to plaintiff and the Class pursuant to the Prospectus, to (b) the time of the filing this action. SECOND CLAIM For Violation of Section 12(a)(2 ) of the Securities Act of 1933 Against the Underwriter Defendants 37. Plaintiff repeats and realleges each ofthe allegations set forth above as if fully set forth herein. This Count is asserted against the Underwriter Defendants for violations of Section 12(a)(2) of the Securities Act, 15 U.S.C. 771(a)(2), on behalf of all members of the Class who purchased or otherwise acquired Cano shares issued in the Secondary Offering. 38. The Underwriter Defendants were sellers, offerors, and/or solicitors of sales of securities offered pursuant to the Prospectus. The Prospectus contained untrue statements of material fact and omitted other facts necessary to make the statements not misleading, and failed to <a href="/keyword/disclose-material-facts/" >disclose material facts</a> , as set forth above. The Underwriter Defendants' actions and solicitations included participating in the preparation of the materially untrue and misleading Prospectus. 39. The Underwriter Defendants are sellers within the meaning of the Securities Act because they: (a) transferred title to plaintiff and other members of the Class who purchased Cano shares; (b) transferred title of Cano shares to other underwriters and/or broker-dealers that sold those securities as agents for the Underwriter Defendants; and (c) solicited the purchase of Cano shares by plaintiff and other members of the Class, motivated at least in part by the desire to serve the Underwriter Defendants' own financial interest and the interests of the Company, including but not limited to commissions on their own sales of Company securities and separate commissions on 8 the sale of those securities by non-underwriter broker-dealers. 40. The Underwriter Defendants used means and instrumentalities of interstate commerce and the U.S. mails. 41. The Underwriter Defendants owed to plaintiff and all other purchasers or other acquirers of securities in the Secondary Offering the duty to make a reasonable and diligent investigation of the statements contained in the offering materials, including the Prospectus, to ensure that such statements were true and that there was no omission of material fact necessary to prevent the statements contained therein from being misleading. The Underwriter Defendants did not make a reasonable investigation or possess reasonable grounds to believe that the statements contained in the Prospectus were true and without omissions of any material facts and were not misleading. Accordingly, the Underwriter Defendants are liable to plaintiff and the other members of the Class who purchased Company securities in the Secondary Offering. 42. Plaintiff and other members of the Class purchased or otherwise acquired securities in the Secondary Offering pursuant to the materially untrue and misleading Prospectus and did not know, or in the exercise of reasonable diligence could not have known, of the untruths and omissions contained in the Prospectus. 43. Plaintiff and other members of the Class offer to tender to the Underwriter Defendants those Company securities that the members of the Class continue to own in return for the consideration paid for those securities, together with interest thereon. 44. By virtue of the conduct alleged herein, the Underwriter <a href="/keyword/defendants-violated/" >defendants violated</a> Section 12(a)(2) of the Securities Act. Accordingly, plaintiff and other members of the Class who purchased in the Secondary Offering pursuant to the Prospectus have the right to rescind and recover the consideration paid for their securities, and hereby elect to rescind and tender their securities to the Underwriter Defendants. Plaintiff and the members of the Class who have sold their securities purchased in the Secondary Offering are enti...