Boca Raton, Florida Preferred Stock and Limited Partnership Fraud and Misrepresentation Attorney:
SEC Charges Principals of a Texas Oil and Gas Company with Conducting a Fraudulent Offering of Preferred Stock and Limited Partnership Interests, and Charges Seller with Acting as an Unregistered Broker
Securities and Exchange Commission v. Paul R. Downey, et al., Civil Action No. 1:14-CV-00185-C (N.D. Tex. Abilene Division)
Recently, the Securities and Exchange Commission charged two principals of Quest Energy Management Group, Inc. (Quest), Paul Downey of Naples, Florida and Jeffry Downey of Abilene, Texas, with conducting a fraudulent offering of preferred stock and limited partnership interests. The SEC also charged John Leonard, a salesman residing in Naples and Chicago, with acting as an unregistered broker in offering and selling the investment.
The SEC alleges that between January 2010 and May 2011, the father-son duo of Paul and Jeffry Downey used Quest, an Albany, Texas-based oil and gas company, to fraudulently offer Quest preferred stock and limited partnership units in an entity called Permian Advanced Oil Recovery Investment Fund I, LP (PAOR). Investors were told that PAOR would acquire working interests in oil and gas leases from Quest and receive revenue from those leases. With assistance from unregistered salesman John Leonard, the Downeys raised $4.8 million from approximately 17 investors. The PAOR offering was fraudulent on account of blatantly deceptive misstatements about Quest and PAOR. More particularly, the Downeys made false statements in the private placement memorandum about the financial viability of Quest; the purchase debt and liens associated with certain leases in which PAOR was acquiring an interest; the current and projected petroleum production from the leases; the use of investor funds raised in the offering; independent audits of PAOR; and foreseeable litigation against Quest and the Downeys.
On May 24, 2013, the U. S. District Court for the Middle District of Florida, Tampa Division, appointed Burton Wiand, a Tampa attorney, as receiver over Quest, based on Quest’s receipt of funds from a Ponzi scheme conducted by Arthur Nadel and others. In re Arthur Nadel, et al., Lit. Rel. No. 20858 (January 21, 2009). The receivership is ongoing.
The SEC’s complaint against the Downeys and Leonard alleges that the Downeys violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and that Leonard violated Section 15(a) of the Exchange Act. The SEC’s complaint seeks from the Downeys and Leonard disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and permanent injunctive relief, and additionally against the Downeys, officer and director bars.
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